Senate Republicans released their vision for a tax-cut plan Thursday that would cut the corporate tax rate to 20 percent, with a one-year delay to 2019, as Congress moves quickly to fulfill one of the GOP’s biggest and most long-awaited goals.
The House proposal released a week earlier also would reduce the corporate rate to 20 percent from the current maximum of 35 percent, though it would take effect in 2018. The Ways and Means Committee approved the measure Thursday after releasing revisions. The measure could be changed again in the Rules Committee before it reaches the House floor.
The Senate plan would have seven individual tax brackets and would eliminate state and local tax deductions. The Senate Finance Committee plans to begin considering the plan early next week, while the House plans to vote on its bill next week.
A Senate summary didn’t include details on a number of business tax provisions. Here’s how the Senate proposal compares with the House version so far on some key areas, updated throughout the day:
Individual
Income Tax Brackets
What’s in the Senate Bill: The Senate would include seven individual brackets with these taxable income thresholds for married taxpayers filing jointly: 10 percent, up to $19,050; 12 percent, $19,050 to $77,400; 22.5 percent, $77,400 to $120,000; 25 percent, $120,000 to $290,000; 32.5 percent, $290,000 to $390,000; 35 percent, $390,000 to $1 million; and 38.5 percent, $1 million and up. The top bracket would be a reduction from the current highest rate of 39.6 percent. The thresholds would be adjusted for inflation based on chained CPI, a formula that would subject more income to higher tax rates than under the regular consumer price index.
How that Differs from the House: The House would shrink the number of brackets to four with these thresholds for married taxpayers filing jointly: 12 percent: $24,000 to $90,000; 25 percent: $90,000 to $260,000; 35 percent: $260,000 to $1 million; 39.6 percent: $1 million and up. The thresholds would be adjusted for inflation based on chained CPI, a formula that would subject more income to higher tax rates than under the regular consumer price index.
State and Local Tax Deductions
Senate Bill: Eliminates state and local tax income and property deductions for individuals.
House Bill: The deduction for state and local income taxes or sales taxes would be repealed, while the deduction for state and local property taxes would be capped at $10,000.
Home-Mortgage Interest Deduction
Senate Bill: Preserves the existing mortgage-interest deduction for home purchases with up to $1 million of debt.
House Bill: The home-mortgage interest deduction would be reduced for new purchases to $500,000 of debt from the current $1 million. The bill would also limit the deduction to one principal home, ending the break for second homes.
Alternative Minimum Tax
Senate Bill: Repeals AMT, which was designed to make sure wealthy households couldn’t use deductions or credits to pay little or no federal income tax. Over time, inflation has meant that larger numbers of people have paid the tax.
House Bill: Same.
Standard Deduction
Senate Bill: Roughly doubles the standard deduction to $12,000 for individuals and $24,000 for couples.
House Bill: Same.
Medical Expense Deduction
Senate Bill: Preserves the existing medical expense deduction.
House Bill: Repeals the medical expense deduction.
Child Tax Credit
Senate Bill: Expands the credit to $1,650 from $1,000 for children under age 18; present law allows the credit for children under 17. Another $500 credit would be allowed for dependents other than children. The credit begins to phase out for married couples earning more than $1 million.
House Bill: Increases the credit to $1,600 per child younger than 17 and includes an additional $300 credit for each parent as part of a consolidated family tax credit.
Estate Tax
Senate Bill: Preserves the estate tax while doubling the current $5.49 million exemption for individuals.
House Bill: The estate tax would end after 2024, under a revision approved by the Ways and Means Committee. Before then, the current $5.49 million exemption for individuals would be doubled.
Business
Corporate Tax Cut
Senate Bill: A corporate tax-rate cut to 20 percent would be delayed by one year to January 2019.
House Bill: The corporate income tax rate would be a flat 20 percent starting in 2018.
Pass-Throughs
Senate Bill: For partnerships, limited liability companies and other so-called pass-through businesses, the legislation would provide a 17.4 percent deduction for non-wage income. The deduction wouldn’t be available to many types of service businesses—except for those whose taxable income falls below $150,000 for joint filers or $75,000 for all others.
House Bill: Qualified pass-through business owners could choose to count 70 percent of their income as wages—subject to their individual tax rate—and 30 percent as business income, taxable at the 25 percent rate. Or, they could set the ratio of their wage income to business income based on their capital investment.
Provides a 9 percent rate for the first $75,000 in net business taxable income of an active owner or shareholder earning less than $150,000 in taxable income through a pass-through business, instead of the ordinary 12 percent rate.
Accumulated Offshore Income
Senate Bill: Multinational companies’ accumulated offshore earnings would be taxed at 10 percent for cash holdings and 5 percent for noncash holdings.
House Bill: Multinational companies’ accumulated offshore earnings would be taxed at 14 percent for cash holdings and 7 percent for noncash holdings. Companies would have eight years to pay, regardless of whether they plan to return that income to the U.S.
Carried Interest
Senate Bill: Will be handled through an amendment in the Finance Committee, said Republican Senator Chuck Grassley of Iowa.
House Bill: The carried-interest tax break would be limited by tripling the length of time assets would have to be held to qualify for the capital gains rate of 23.8 percent. Under current law, an investment fund’s assets must be held for a year or more to qualify.
Interest Deductibility
Senate Bill: Would restrict interest deduction for businesses to 30 percent of adjusted taxable income, while allowing interest not allowed as a deduction to be carried forward indefinitely.
House Bill: Companies would be prevented from deducting interest expenses that exceed 30 percent of their earnings before interest, taxes, depreciation and amortization. The limit wouldn’t apply to real estate firms and small businesses. Companies that use loans to finance high-cost inventory—such as car dealers—will be given the ability to completely write off their interest payments. In exchange, those businesses won’t be able to immediately write off their capital investments.
Private-Activity Bonds (Municipal)
Senate Bill: Retains the tax exemption on municipal bonds for privately run projects such as airports and toll roads.
House Bill: The sale of private-activity municipal bonds would be barred for financing professional sports stadiums and privately run infrastructure projects such as toll roads and airports.
