House and Senate GOP tax writers are following virtually the same script in twin tax bills moving through the halls of Congress.
The genial, general agreement raises hope that Republicans could actually translate their majorities into meaningful legislation after failing on health care. President Donald J. Trump is closely aligned with the effort and has said he will sign the tax plan.
On the House side, the Ways and Means Committee passed the most substantial tax reform changes in 30 years today in a party line 24-16 vote.
The Tax Cuts and Jobs Act moves on to the full House for a vote, expected to happen quickly. Meanwhile, the Senate unveiled its tax reform plan, which differs slightly from the House plan.
First, the House plan: cuts the corporate tax rate from 35 percent to 20 percent, reduces household income-tax rates moderately and phases out the estate tax. It doubles the standard deduction, and changes some popular provisions such as the mortgage interest deduction. Others, such as the 401(k) tax benefit, are unchanged.
Rep. Kevin Brady, R-Texas, chairman of the Ways and Means Committee, introduced a few changes to the House bill prior to the committee vote. Most significantly, his amendment changed the formula for “pass-through” businesses.
A new tax rate of 9 percent will apply to businesses earning less than $75,000 in income, Bloomberg reported. The benefit is phased out as taxable income exceeds $150,000 and fully phased out at $225,000.
Access to the new 25 percent tax rate remains limited, Bloomberg reported. For business owners, just 30 percent of their income would qualify for that rate, with the remaining 70 percent treated as wages.
The controversial “adoption credit” was restored to the tax plan. The credit can be worth up to $13,750 per child and critics pounced when the original tax package did not include it.
Brady’s amendment allows companies to write off loans used to finance high-cost inventories. However, those businesses won’t be able to immediately write off capital improvements.
Also, the amendment kills a provision to move up taxation of money put away into non-qualified deferred compensation plans. The initial House plan would tax deferrals as soon as they weren’t at risk of forfeiture instead of when they eventually paid out.
The Senate Finance Committee previewed its plan, which is similar, but slightly different than the House proposal. For example, while still cutting the corporate tax rate from 35 to 20 percent, the Senate rate would take effect in 2019.
The House plan calls for the new corporate rate next year.
The Senate plan keeps seven individual income tax brackets, while the House plan chops the number of brackets to three. Senators want a 12 percent bracket to replace the current 15 percent, while the top rate would get cut slightly to 38.5 percent.
Both bills eliminate the federal deduction for state and local taxes. The Senate bill does not change the deduction for mortgage interest, capped at $1 million. The House bill cuts that number to $500,000.
On the estate tax, the Senate proposal doubles the exemption, but does not eliminate it. The House plan repeals the estate tax after six years.
Published by Insurance News Net Nov 9 2017
Written by John Hilton