Making 2 Become 1: Ironing Out Senate and House Tax Bill Differences
Posted December 6, 2017 2:17 p.m. EST
The Senate tax bill, which passed early Saturday morning, contained several last-minute changes that only widened the differences with the House-passed bill.
Lawmakers from both chambers are now headed to conference, where they will try to work out their differences and emerge with a final bill that can be passed by the House and Senate and then sent to President Donald Trump’s desk by Christmas.
Getting a bill signed into law by Trump remains a top priority of Republican lawmakers, and momentum to get something to his desk quickly remains.
On Tuesday, Trump said that lawmakers were working on the bill “so that it comes out very beautifully.”
“I call it ‘the mixer,’ he said. “It’s a conference where everyone gets together and they pick all the good things and get rid of the things they don’t like.”
It’s not quite that simple. Significant issues still need to be addressed before that can happen, and one lawmaker’s “good things” might not be another’s. Here are some of the top differences that must be resolved before the legislation can be signed into law.
— An alternative to the alternative minimum tax?
Senate lawmakers, in their bill, seeking additional revenue, brought back the corporate alternative minimum tax and reinstated a limited version of the alternative minimum tax for individuals. The House bill eliminated both versions of the alternative minimum tax.
Together, the Senate changes are expected to raise about $173 billion over the next decade. But the possible reinstatement of the corporate alternative minimum tax is eliciting significant blowback from businesses, including the U.S. Chamber of Commerce, manufacturing companies, technology companies and pharmaceutical companies, which say it would undermine their ability to use valuable tax credits.
The reason: Both bills cut the corporate tax rate to 20 percent from 35 percent. But the corporate alternative minimum tax is also set at 20 percent. It is devised to ensure that companies cannot use loopholes to avoid paying taxes and requires that companies calculate their taxes under both the corporate rate and the alternative minimum rate and pay the greater amount.
By lowering the corporate tax rate to 20 percent but keeping the alternative minimum tax, Congress is essentially setting a 20 percent floor. Companies that try to use tax breaks to lower their effective tax rate, like the research and development tax credit, would still face the 20 percent alternative minimum tax, nullifying the value of incentives that are supposed to promote research.
Lawmakers are scrambling to resolve the issue. While they could simply do away with the corporate alternative minimum tax, the Senate would then have to find additional revenue to ensure the legislation stays within the $1.5 trillion bucket that Congress has created for the tax cuts.
One possible solution floating around is to increase the corporate tax rate to 22 percent, rather than 20 percent, which would raise more revenue. But that plan may not sit well with House Republicans, many of whom have been unwavering in their push to lower the rate to 20 percent.
— Which itemized deductions survive?
The House bill guts a number of itemized deductions while the Senate bill expands them: Mortgage interest deduction (House caps at $500,000; Senate retains); medical expense deduction (House repeals; Senate expands); teacher deduction for school supplies, graduate student tuition waver, and student loan interest deduction (House repeals all; Senate expands or retains all).
— How to treat pass-through businesses?
The Senate bill allows owners of businesses organized as pass-throughs to deduct 23 percent of their business income.
The House bill sets a new 25 percent tax on pass-through businesses and builds guardrails to prevent companies from exploiting the loophole.
— Which individual income tax system prevails?
The Senate bill creates seven income tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent and 38.5 percent. Those brackets expire at the end of 2025.
The House bill creates four income tax brackets: 12 percent, 25 percent, 35 percent and 39.6 percent. Those brackets are permanent.
— Will the death tax remain?
The House bill ultimately kills the estate tax, which Republicans refer to as the death tax, because it is a tax on wealthy estates that are left to heirs.
The Senate bill applies the death tax to fewer people by doubling the exemption to levels to $11 million for individuals and $22 million for couples, but it does not kill the tax.
— Will the “Johnson Amendment” survive?
The House bill repeals the so-called Johnson Amendment, which prohibits tax-exempt groups, including churches and other religious organizations, from engaging in political activity.
The Senate bill leaves the Johnson Amendment untouched.
Trump has pledged to repeal the 1954 ban, and religious groups have said they expect it to be included in the final legislation.