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Last Week

By a vote of 227 – 205, with 13 Republicans and every Democrat voting no, HR 1, the Tax Cuts and Jobs Act passed the House. (See how they voted here). Of the 13 Republicans who voted against the bill, most were opposed to the changes to the state and local tax deduction. In the Senate, the Finance Committee voted 14-12, along party lines, to approve its tax code rewrite late Thursday. Senate Majority Leader Mitch McConnell has said he plans to bring the bill to the Senate floor the week after Thanksgiving. Thus far, LIFO has not been included, nor even discussed as a possible pay-for during amendment debate.

The tax plans that are moving through both bodies are significantly different, in their attempt to achieve similar goals. In a meeting last week, we heard from the Speaker’s staff that a number of provisions were sent to the Senate to fix, and likewise, the Senate put in some provisions designed for the House to address.

To begin, in order to satisfy what’s known as the Byrd Rule, the Senate bill cannot exceed ‘net outlays or decrease budget revenues’ within the window of budget reconciliation. In other words, since Senate Republicans are using the budget reconciliation process, requiring only 51 votes to pass, instead of 60, the bill must score within the confines of the instructions laid out in the budget resolution, which is typically ten years and not add to the deficit after year ten.

In order to do this, the Senate individual rate structure differs than the house. The Senate has seven brackets of 10, 12, 22, 24, 32, 35 and 38.5 percent that expire after eight years, along with other individual tax provisions. The House plan sets up four permanent individual income tax brackets of 12, 25, 35 and 39.6 percent.

Another wide gap between the two is how small businesses or Pass-Through businesses are taxed. This is a challenge that we’ve heard personally from House leaders that they need help in solving. The plan would cut the corporate tax rate to 20 percent from 35 percent. But the rate for partnerships, sole proprietorships and other pass-through firms would be set by a formula -- with rates higher than 30 percent for some. The plan that the Senate Finance panel approved would allow all pass-through structures to deduct 17.4 percent from their business income -- up to $500,000 for married couples. The income would then be taxed at the owners’ ordinary individual income tax rates. See ten more differences that the House and Senate need to overcome HERE. more

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