UPDATE: House passes $1.4 trillion tax reform legislation

UPDATE 3 — 11/16, 2:08 p.m. EST: The House of Representatives passed $1.4 trillion tax reform legislation by a razor thin margin Thursday, 227–205, with no Democratic members voting in favor.

Earlier in the day, GOP members from blue states came out against the bill, citing overhauls in the IRS code which would disproportionately increase tax liabilities for those living in areas with high state and locals taxes.

Thirteen Republican House members, including New Jersey’s Bob Frelinghuysen and Leonard Lance, California’s Dana Rohrabacher and Darrell Issa, and New York’s Peter King, voted against passage.

 

UPDATE 2 — 11/14, 5:31 p.m. EST: On Tuesday, Majority Leader Mitch McConnell (R-Ky.) said an Obamacare mandate repeal provision will be added to the Senate’s tax reform legislation — a move Republican upper chamber whip, John Thune (S.D.), contends will not cause the bill to fail.

According to congressional estimates, cutting subsidies provided under the Affordable Care Act would save up to $400 billion in federal dollars by the end of 2018, but would cause approximately 13 million Americans to lose health insurance.

 

UPDATE — 11/13, 9:57 a.m. EST: Analysis released Saturday by the non-partisan, congressional Joint Committee on Taxation shows the Senate’s tax cut bill will benefit middle and low-income Americans more than the House version over the long-term.

Specifically, the report states if Senate legislation is passed filers with incomes between $20,000–$30,000 would have their taxes slashed by seven percent in 2023, while those making $50,000–$75,000 would see a five percent decline.

By contrast, the House bill would increase taxes for those making less than $40,000 by 2023, while incomes of $50,000–75,000 would only realize a 2.1 percent decline in their tax burden compared to current rates.

 

The Senate Finance Committee released details of its tax reform bill on Thursday, matching similar legislation made public by House Republicans last week.

Although many important differences exist between the two proposals, both cut corporate rates, eliminate the alternative minimum tax, increase the child tax credit and double the standard deduction for individual and joint filers.

However, one of the headlining tax code reforms proposed by House Republicans was not adopted in the Senate version, as the upper chamber’s bill maintains seven tax brackets at reduced rates, with income thresholds adjusted for inflation calculated using a chained CPI — resulting in more incoming federal revenue over time.

Specifically, the Senate proposal would tax married couples with a combined annual income of up to $77,400 at 10 percent for the first $19,050, and 12 percent for every dollar over that amount. The federal rate would increase to 22.5 percent for income up to $120,000, with another significant jump starting at $290,000 — 32.5 percent — with a top rate of 38.5 percent for incomes of $1 million or more.

Single filers with an income over $500,000 would pay the top bracket rate.

Under current federal tax law for 2017, every dollar earned by joint filers over $470,700 is taxed at 39.6 percent, while married couples making $75,900–$153,100 pay a 25 percent rate; $18,650–$75,900, 15 percent.

Other major differences in the Senate bill include preservation of the estate tax, with an exemption for individuals worth up to just under $11 million, double the current threshold, along with the mortgage interest deduction on home loans up to $1 million — both eliminated in the House version, which reduces the latter to $500,000.

The Senate is also proposing to keep the medical expense deduction for individuals and largely maintain rates for so-called pass-through businesses like small, family-run operations with a 17.4 percent deduction, while the House eliminates the former and lowers taxes on many small businesses to 25 percent.

A final point of contention for congressional Republicans from California, New York, Illinois and New Jersey will be the elimination of state and local tax deductions, which the Senate bill wipes out completely.  An updated version of the House’s legislation passed out of committee on Thursday provides a federal deduction of up to $10,000 for property taxes.

In a Sunday appearance on Fox News, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said Congress’ lower chamber will not compromise with the Senate on keeping the deduction, citing its importance in “high-tax states.”

“I remain concerned over how the current tax reform proposals will grow the already staggering national debt by opting for short-term fixes while ignoring long-term problems,” said Sen. Jeff Flake, (R-Ariz.) “We must achieve real tax reform crafted in a fiscally responsible manner.”

While the Senate Finance Committee will begin work to finalize the bill next before officially introducing it, members anxiously await the CBO’s cost analysis which will determine how many votes are needed to pass legislation.

If deficits are projected to increase by over $1.5 trillion due to decreased federal revenue over the next 10 years, 60 votes will be needed in the Senate to pass.

Other provisions not included by the Senate which exist in the House bill include the elimination of business tax credits for research and development costs, a life insurance company surtax and language that allows tax-exempt charitable organizations to engage in political speech.

 

Editor’s note: This article has been updated.

 

[AP] [Bloomberg] [Politico] [The Hill] [ABC News] [Photo courtesy AP/Susan Walsh via Washington Examiner]

 

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