House vs. Senate: The Tax Changes Up for Debate

Posted by Sanket Shah | General | Monday 18 December 2017 4:24 pm

House and Senate Republicans have arrived at a broad agreement to resolve the differences between their tax overhaul bills. How the two versions vary, and details that have emerged about the final bill:

For Individuals


Both bills would lower individual tax rates over all. But to comply with Senate budget rules, the individual tax cuts in the Senate bill would expire after 2025. The final version of the bill will still have to comply with the rules, so it’s likely that the bill will also let major provisions expire.

Current

House

Senate

Number of tax brackets Seven Four Seven Expires after 2025
Top rate 39.6% 39.6% with a 45.6% “bubble rate” for some top income 38.5% Expires after 2025
Starts at: $426,700 / $480,050
(singles/couples)
$500,000 / $1 million $500,000 / $1 million Expires after 2025
Alternative Minimum Tax Alternative income tax calculation for high-income taxpayers Repeals Keeps, but increases exemption so fewer will pay it Expires after 2025

The cuts would shrink over time for everyone but the wealthiest in both bills. The highest earners would still receive a boost in after-tax income by 2027 because they would benefit more from the corporate tax cuts, which would not expire in either bill.

Change in after-tax income
in the House and Senate bills

Income

In 2018/2019

In 2027

Lowest quintile Less than $25,000 +0.4%

+0.3

+0.1%

–0.1

Second quintile $25,000 – 48,600 +0.9

+0.9

+0.1

0

Middle quintile $48,600 – 86,100 +1.4

+1.4

+0.5

+0.1

Fourth quintile $86,100 – 149,400 +1.7

+1.6

+0.7

+0.1

80th-90th percentile $149,400 – 216,800 +1.6

+1.6

+0.4

+0.2

90th-95th percentile $216,800 – 307,900 +1.3

+1.7

+0.2

+0.2

95th-99th percentile $307,900 – 732,800 +2.0

+3.1

+1.4

+0.4

Top 1 percent $732,800 and up +2.4

+1.8

+2.6

+1.1

Top 0.1 percent $3,439,000 and up +2.5

+0.8

+3.0

+1.7

Source: Tax Policy Center. Data for the Senate plan in 2018 is not available.

For Families

Both versions would repeal the personal exemption in favor of a higher standard deduction and expanded tax credits for families. While the child tax credit is slightly larger in the Senate bill, and people with higher incomes would be eligible, it expires after 2025. The new family tax credit in the House version would benefit more types of people, but it expires even sooner.

Current

House

Senate

Personal exemptions $4,150 per taxpayer and dependent Repeals Repeals Expires after 2025
Standard deduction $6,500 / $13,000
(singles/couples)
$12,200 / $24,400 $12,000 / $24,000 Expires after 2025
Child tax credit $1,000 $1,600 $2,000 Expires after 2025
Family tax credit None $300 for taxpayer, spouse, other dependents Expires after 2022 $500 for non-child dependents Expires after 2025
Credits phase out starting at: $75,000 / $110,000
(singles/couples)
$115,000 / $230,000 $500,000 Expires after 2025

Both bills include new restrictions for those claiming the child tax credit. Unde the House bill, children would be required to have a Social Security number to be eligible for the child tax credit, and parents would have to have one to receive the refundable portion of the credit. The Senate bill would require each child to have a Social Security number to claim the refundable portion.

For High-Tax States and Homeowners

The Senate initially included a full repeal of the state and local tax deduction in its bill but later changed it to match the House version, retaining a $10,000 limit for property tax deductions.

Current

House

Senate

State and local tax deduction Income or sales and property taxes are deductible Repeals all but the property tax deduction up to $10,000 Repeals all but the property tax deduction up to $10,000 Expires after 2025
Mortgage interest deduction Can deduct interest payments on up to $1 million of debt Limited to payments on $500,000 of debt, repeals for home equity debt Repeals for home equity debt Expires after 2025
Residences: Principal and one other residence Principal residence No change

The House bill would scale back the mortgage interest deduction, cutting it by up to half. Both bills would repeal the deduction for home equity loans.

For Wealthy Estates

Both bills would scale back the tax, so only larger estates would be affected. But that change expires under the Senate bill, bringing the threshold back to its current level after 2025. The House bill would fully repeal the estate tax after 2024.

Current

House

Senate

Estate tax Top rate of 40% on estates above $5.6 million Increase threshold to estates above $11.2 million, then repeal after 2024 Increase threshold to estates above $11.2 million Expires after 2025

For the Sick

The House bill would repeal the deduction for medical expenses, a tax break most important to low-income individuals with high out-of-pocket health care costs, though some House Republicans support retaining it in some form.

Current

House

Senate

Medical expenses deduction Can deduct out-of-pocket expenses in excess of 10% of adjusted gross income Repeals Expands by reducing threshold to 7.5% of income Applies to 2017 and 2018
Individual mandate Penalty for not having health insurance No change Repeals

But the Senate plan would repeal the Affordable Care Act’s individual mandate, a requirement that everyone must buy insurance or pay a tax penalty. The move could save lawmakers $338 billion, but it would be a significant blow to the Affordable Care Act, resulting in an estimated 13 million more people without insurance and higher average premiums. Lawmakers have said that it is likely that the repeal will be included in the final bill.

For Education

The Senate bill would leave in place several education tax breaks that are repealed or changed in the House bill. It also would double a deduction for teacher expenses that the House bill would repeal.

Current

House

Senate

Education credits American Opportunity Tax Credit, Lifetime Learning Credit and Hope credit Consolidates and slightly expands the A.O.T.C. No change
Student loan interest deduction Can deduct up to $2,500 Repeals No change
Graduate student tuition waivers Tuition waivers are not treated as taxable income Repeals No change
Deduction for classroom expenses $250 deduction Repeals $500 deduction Expires after 2025

Both bills would expand the use of 529 college savings plans to include private school tuition for elementary and high school students. The House plan would also allow an account to be opened for a child in advance of birth.

For Individual Business Owners

The two versions differ on how to tax “pass-through” business income that is currently taxed at the individual rate of the business’s owners. The House bill sets a lower top rate with an exception for professional service businesses like in law or accounting. The Senate bill creates a new deduction for pass-through income.

Current

House

Senate

Top pass-through rates Top rate of 39.6% Top rate of 25% with the exclusion of professional service income 23% deduction, phasing out for professional service income beginning at $250,000 Expires after 2025

For Businesses

The sprawling corporate changes would be permanent in the bills, which both include a top corporate tax rate of 20 percent.

Current

House

Senate

Top corporate tax rate 35% 20% 20% Delayed until 2019
New investment purchases Complex rules for deducting over many years Five years of full expensing Five years of full expensing, then phased out over five more years
Section 179 expensing Small business expensing limited to $500,000 Increases limit to $5 million Increases limit to $1 million
Business interest deduction Generally fully deductible Caps deduction at 30% of income (including depreciation) Caps deduction at 30% of income (excluding depreciation)
Alternative Minimum Tax Alternative income tax calculation for businesses Repeals No change

In a last-minute change to its bill, the Senate also maintained the corporate Alternative Minimum Tax, a decision that has resulted in blowback from several industries.

The Senate bill also makes fewer changes to corporate tax breaks like energy tax credits and private activity bonds.

Current

House

Senate

Orphan drug tax credit Credit for 50% of qualifed testing expenses Repeals Reduces credit rate to 27.5%
Renewable electricity tax credit Credit for wind power production, phasing out by 2020 Scales back the size of the credit No change
Private activity bonds Tax-exempt bonds used to fund low-income housing and other projects Repeals No change

For Multinational Corporations

Both bills would move from the current worldwide tax system, in which income earned abroad is taxed in the United States, to a territorial system in which only domestic profits would be taxed. They each would use different mechanisms to prevent companies from shifting profits abroad.

Current

House

Senate

Taxation of multinational companies Worldwide system with deferral and credit for taxes paid abroad Modified territorial system with new foreign payment excise tax Modified territorial system with new anti-abuse tax
One-time repatriation tax 7% (14% for cash) 7.5% (14.5% for cash)

 

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