The Senate Finance Committee Thursday unveiled its tax reform bill, including some distinct differences from the House counterpart released by its Ways and Means Committee November 2. The Senate bill, known as S. 1 (115), preserves the medical expense deduction, which allows people who itemize their federal income taxes to deduct medical expenses that exceed 10 percent of their total income and the estate tax, both of which the House plan eliminates. It strikes the deduction for property taxes, which the House plan cuts to $10,000 annually and only applies to properties valued at less than half a million dollar. It also completely eliminates the ability of individuals to deduct state and local income and sales taxes.
In addition, the Senate bill will include more tax brackets than the four currently in the House bill. It will eliminate the business excise tax on payments made by American companies to foreign affiliates—an effort to prevent first from shifting profits abroad through royalties and other payments made to subsidiaries or other foreign affiliates. The House plan would impose an excise tax of 20 percent on such practices.
Senate members say that the size of the child tax credit as well as the structure of the corporate tax rate could vary from the House legislation as could some of the tax rates on the individual side. The House bill proposed a $1,600 child tax credit. The Senate bill includes a one-year delay in its reduction of the corporate tax rate to 20 percent, which will be permanent. The House version calls for immediate implementation and a 10-year limit on the 20 percent rate.
The House bill makes further eliminations not included in the Senate version. It eliminates the ability to deduct the interest of student loans, makes tuition paid by an employer taxable and consolidates three existing tax breaks into one: the standard deduction, personal exemption and student loan interest deduction. It eliminates the tax credit for development of so-called “orphan drugs,” part of the 1983 Orphan Drug Act aimed to incentives development of drugs for rare diseases affecting fewer than 200,000 people. The House version doubles the standard deduction to $12,000 for singles and $24,000 for married couples.
Ways and Means Committee Chairman Kevin Brady (TX-8) Thursday morning said he hasn’t yet decided what will be in an amendment to address a $74 billion gap created by preserving some credits and deductions not included in the initial draft of the bill, but added by the amendment process. Brady did say the committee would finish its work for a vote later today, however.
The Senate Finance Committee released the bill after briefing the broader Senate Republican conference earlier in the day. The bill, if it follows rules stipulating that the bill not increase the deficit by more than $1.5 trillion over the next decade or increase the deficit any beyond 10 years, is designed to qualify for the Senatorial procedure known as reconciliation, which would prevent a filibuster and allow a simple majority vote. Senate Majority Whip John Cornyn (TX) told reporters the Senate bill would likely come up for a floor vote the week after Thanksgiving. Should both chambers approve their respective bills, a conference committee would be called to reconcile the differences. The reconciled bill would then be sent to the President for his signature.
