The House and Senate tax plans have much in common, but there are significant differences as well, any number of which could become flash points when the chambers seek to reconcile their versions of the legislation. “Everybody is looking at that tax plan and wondering exactly what are the devils in the details,” said Bruce McCain, Key Private Bank’s chief investment strategist. While the upper chamber’s bill still needs to win approval in the full Senate, with no guarantee that it will pass, it’s worth reviewing the key elements that could prove to be problematic, as well as those elements that are likely to survive in any tax bill that makes its way to President Trump’s desk.
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The major provisions that are likely to be included in the final version of the tax bill include:
- Corporates taxes: Both bills reduce the top business tax rate from 35 percent to 20 percent, although the Senate version delays the change for a year.
- State and local tax income tax deduction: eliminated in both bills. The exemption for property taxes is still a point of contention, though.
- Personal exemption: roughly doubled to $24,4000 in the House, $24,000 in the Senate.
- Estate tax exemption: roughly doubled to $11.2 million for individuals and $22.4 million for married couples.
- Alternative minimum tax: eliminated in both bills.
Some of the important and potentially problematic differences between the House and Senate bills include:
- Property tax deduction: The Senate bill eliminates the property tax deduction, while the House version maintains it with a cap of $10,000. This is a crucial issue for Republicans from high-tax states such as New York and California.
- Obamacare mandate repeal: Included in the Senate version and generating more than $300 billion in savings over 10 years, the provision opens a political can of worms that could cause problems in both chambers.
- Individual tax brackets: The House bill reduces the number of tax brackets from seven to four, with a top rate of 39.6 percent. The Senate bill keeps the seven brackets while tweaking the levels, with a top rate of 38.5 percent.
- Repeal of the estate tax: Both versions double the exemption, but only the House calls for eliminating it entirely after 2023. Ending the “death tax” is an article of faith for many conservatives, but doing so creates both fiscal and political problems.
- Mortgage interest deduction: The House bill caps this deduction at $500,000, while the Senate leaves it at $1,000,000.
- Medical expense deduction: Cut in the Senate, maintained in the House.
- Taxation of education benefits: The House wants to tax the value of scholarships and tuition aid, which could sharply increase the cost of education for millions of students.
- Pass-through rules: The House bill caps the tax rate for pass-through entities at 25 percent, while the Senate bill takes a different approach, providing a 17.4 percent deduction on pass-through income.
- Permanent vs. temporary cuts: The Senate bill sunsets many of the individual tax cuts in 2025 while leaving the corporate tax cuts in place permanently. The House bill has its own set of tax cut gimmicks, and ironing them out could prove problematic.