The Senate Finance Committee (SFC) late on November 16 completed work on its tax reform package. The Senate committee approved the Senate GOP’s version of the Tax Cuts and Jobs Bill by a 14-12 party-line vote. Included was a manager’s amendment added by SFC Chair Orrin G. Hatch, R-Utah. The approved bill contains some significant differences when compared to the House-GOP’s version (HR 1), which passed the House on November 16.
Senate Committee Approved Tax Reform Bill
The full Senate is not expected to vote on final passage of its bill until after Thanksgiving. The vote count in the Senate for passage of the final Senate bill is uncertain at this time. Passage is assured if only two Republicans vote no, assuming no support from Senate Democrats. Even so, some GOP leaders are already thinking about how they would reconcile any final Senate bill with the House-passed version of HR 1. President Trump has restated his goal to have a final bill be on his desk by year end.
Unlike the House bill, the Senate bill, as approved, contains only temporary tax cuts for individuals, sunsetting the rate reductions and most other changes after 2025. While the corporate rate cut, from 35 percent to 20 percent, would be permanent under the Senate bill, they would not become effective until 2019.
Another major difference involves the Patient Protection and Affordable Care Act (P.L. 111-148). The Senate bill would repeal the law’s individual mandate. The provision is not in the House bill, and House Speaker Paul Ryan, R-Wis., has indicated that such a provision would be a nonstarter in any negotiations.
Other differences between the SFC-approved tax proposal and HR 1, as approved by the House, include:
- the rate brackets (the House has four, the Senate, seven);
- the state and local tax deduction (repealed by the Senate, retained by the House for up to $10,000 in property taxes);
- the medical expense deduction (retained by the Senate, repealed by the House);
- the mortgage interest deduction (retained by the Senate, reduced by half, to cover $500,000 mortgage debt by the House);
- the child tax credit (increased to $1,600 per child by the House and $2,000 per child by the Senate); and
- the estate tax would be repealed after 2024 under the House bill, but would be maintained by the Senate, with double the exclusion contained in both bills sunsetting after 2026 under the Senate bill.
Both the House and the Senate bills have inserted provisions to limit tax benefits for carried interest. The provision in Senate manager’s amendment, inserted at the end of the markup process, would impose a three-year holding period requirement for qualification as long-term capital gain certain partnership interests received in connection with the performance of services.
Want to know more? Join Wolters Kluwer Principal Analyst Mark Luscombe on Nov. 29 for Tax Legislation Update: Tax Cuts and Jobs Act, a 2-CPE webinar from CCH® CPElink. Mark will present a complete discussion of the proposed legislation and its impact on taxpayers.