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Senate Unveils Tax Plan with Some Key Differences from House Proposal

November 10, 2017 | Mitch Estling

The Senate Finance Committee released its proposed tax reform bill. It contains many of the same proposals as the House bill but does have several differences, most notably not curbing the mortgage interest deduction, more individual tax brackets, pass-through business income differences and not repealing estate tax. The Senate plan would also delay the implementation of lowering the corporate tax rate until 2019.

Individual tax rates. The House bill would create four income tax rates for individuals, the Senate bill would employ a seven-bracket system, with tax rates of 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%. The Senate plan would increase the standard deduction to $24,000 for joint returns and surviving spouses, $18,000 for single parents, and $12,000 for individuals. This is up from $12,700, $9,300, and $6,350 under current law.

Credits and deductions. The Senate plan would expand the child tax credit from $1,000 to $1,650, which is similar to the House plan. The Senate plan would retain many current personal exemptions that are targeted in the House plan, including the adoption credit, deduction for medical expenses, home mortgage interest deduction and the earned income tax credit. The alternative minimum tax would be repealed in both the Senate and House plans. The Senate bill would eliminate the deduction for state and local taxes entirely. The House bill would allow a deduction for state and local real property taxes, up to $10,000.

Estate taxes. Under the Senate plan, the current exemption would be doubled, similar to the House proposal. However, the Senate plan would not repeal the estate tax itself.

Business tax rates. The Senate proposal would lower the corporate tax rate to 20% and would go into effect in 2019. For pass-through businesses under the senate plan, qualified domestic business income could lower the top tax rate on that income to 31.8% whereas the house plan could lower the top pass-through rate to 25% depending on other circumstances. The Senate plan would also allow for full and immediate expensing of new equipment and would be permanent unlike the House bill which generally allowed for full expensing for five years. Under the Senate plan, more businesses would be allowed to use the cash-basis accounting method and many of the credits and deductions targeted for repeal would be retained, including the research and development credit, low-income housing credit and interest deduction for “Main Street” employers.

Taxation of foreign income. The Senate plan would eliminate the current worldwide system and change to a territorial system and would make it simpler for American multinationals to bring foreign earnings back to the United States. The Senate plan would also eliminate incentives for companies to shift jobs, profits and intellectual property overseas and would create incentives for companies to base their operations in the U.S.

The 253-page Senate bill will need to be marked up in the Senate Finance Committee and then the differences with the House bill will need to be resolved before the legislation can be enacted.

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