Tax Reform: House, Senate, Final Compared


CONFERENCE AGREEMENT – Key Docs:  JCT Distributional Analysis •  TPC Distributional Analysis • Updated Revenue Estimates •  Conference Report including Joint Statement of Managers •  Text • CBO Cost Estimate • CQ Comparison of Conference Report, House, and Senate Bills  TPC side-by-side 

COMPARISON OF HOUSE AND SENATE BILLS:  JCT comparison of House and Senate bills • CQ comparison of House and Senate bills • Tax Policy Center “Comparing Current Law and ‘Tax Cuts and Jobs Act,’ 2018”  • CRFB Comparison of House and Senate versions

SENATE BILL – Key Docs:  Text • 12/2 Vote • Treasury Estimate /CRFB Response •  Key Changes  • JCT Estimates of Changes • JCT Revenue Estimates • JCT Distributional Analysis • TPC Analysis • CBO Projects $1.4 Trillion Deficit Increase • JCT Dynamic Analysis Projects Deficits Increase More than $1 Trillion

HOUSE BILL – Key Docs:  Text • 11/16 Vote • Committee Report • JCT Macro Analysis • JCT Distributional Analysis • JCT Revenue Estimates • CBO Projects $1.4 Trillion Deficit Increase • TPC Analysis

Comparison of House, Senate, and Conference Agreement:  

  • Repeal of Affordable Care Act (ACA) Individual Mandate:  The Senate bill effectively repeals the ACA individual mandate in 2019 by eliminating the penalty. CBO reported Nov. 8 that repealing the individual mandate would increase premiums in the nongroup market by 10%, increase the number of uninsured by 13 million by 2027, and reduce deficits by $338 billion over 10 years due to a reduction in subsidy payments.  Conference agreement includes Senate provision repealing the ACA individual mandate penalty.
  • Temporary vs. Permanent:  Tax cuts in the House bill are permanent, but the Senate Finance Committee, in order to comply with the Byrd Rule (which prohibits long-term deficit increases), made the tax cuts for families temporary and set the individual tax cuts for expiration after eight years (2025), although the corporate rate cut would be made permanent. Conference agreement ends individual tax cuts in 2025.
  • Alternative Minimum Tax (AMT) for Individuals Repealed:  House repeals the Alternative Minimum Tax, which was enacted to ensure wealthy taxpayers do not avoid all taxes through utilization of deductions and credits.  Senate retains the AMT but increases the individual AMT exemption by about 40% compared to current law.  Conference agreement includes Senate provision but phaseout thresholds are increased to $500,000/$1 million.
  • Reduction/Repeal of Estate Tax: Both versions of the bill would immediately double the lifetime exemption for the estate tax to about $11.2 million for individuals and $22.4 million for couples.  The House fully repeals the tax after 2024, while the Senate would keep the tax with the higher threshold and revert to the current threshold after 2025.  See Facts About Estate Tax RepealConference includes Senate provision, doubling the exemption through 2025 to $11.2 million for individuals and $22.4 million for couples, reverting to current levels in 2026.
  • Standard Deduction Raised, but Personal Exemption Scrapped: Both bills would double the standard deduction to approximately $12,000 for individuals and $24,000 for joint filers, but much of this tax cut is offset by elimination of the personal exemption. Senate provision expires in 2025.  Conference agreement includes Senate provision, expiring in 2025.  House would repeal standard deduction for elderly and blind; Senate would maintain.  Conference agreement accepts Senate position, maintaining the deduction.  Both bills index for inflation but use an alternative (lower) inflation measure (called chained CPI).  CRS: Chained CPI explanation  Conference accepts lower inflation adjustment.
  • Modest Increase in Child Credit; new Family Credit: House bill raises the current $1,000 child tax credit to $1,600 and adds a new nonrefundable “Family Credit” for other qualifying dependents worth $300 per year for individuals and $600 for couples. The Senate bill calls for a $2,000 child tax credit, makes it available to wealthier taxpayers by increasing the phaseout threshold ($500,000), and provides for a $500 family credit.  Senate provision expires in 2025.  Conference agreement generally follows Senate’s $2000 credit expiring in 2025, except refundable up to $1,400; $500 credit for other dependents; income phase-out thresholds are reduced to $200,000/$400,000.
  • House Limits Mortgage Interest Deduction; Both Bills Repeal Home Equity Deduction and Limit Capital Gains Exclusion:  House bill limits the deduction to $500,000; Senate leaves it at $1 million.  Both bills repeal the deduction for home equity loans.  Both bills increase the length of time taxpayer must own and live in home to qualify for capital gains exclusion (5 of previous 8 years).  Conference agreement splits the difference capping the deduction at $750,000, repeals deduction for interest on home equity debt through 2025.
  • House Scraps Education Benefits:  House bill eliminates deductions for student loan interest and qualified tuition expenses, while the Senate retains the deductions.  House also would tax as income the full value of grad student tuition waivers, and would eliminate the exclusion employer-provided education assistance; Senate keeps current law.  House  and Senate would allow use of 529 college accounts for private and religious elementary/secondary schools.  Conference agreement accepts Senate position, retaining current law on deductions and exclusions and adding use of 529 for private and religious.
  • House Repeals Major Medical Expense Deduction:  House bill eliminates deductions for medical expenses (currently allowed when expenses exceed 10% of income); Senate retains deduction and expands it for 2017-18 by reducing threshold from 10 percent down to 7.5 percent.  Conference accepts Senate position keeping the deduction and expanding it for 2017-18.
  • SALT Deduction Scrapped Except for Property Taxes: Both bills would repeal most of the state and local tax (SALT) deduction for individualsbut retain a deduction for property taxes up to $10,000.  This hits high-tax States like California, New York, and New Jersey.  Deductions would continue for taxes incurred by businesses.  Conference agreement caps deduction at $10,000, but allows it to be used for income, sales, and/or property taxes, through 2025.
  • Other Deductions/Exclusions/Credits, Special Provisions:
    • Elderly/Disabled Credit:  House repeals; Senate retains.  Conference retains credit.
    • Dependent Care FSAs:  House also repeals after 2022, while Senate retains.  Conference retains FSAs.
    • Plug-in Electric Vehicle Credit: House repeals; Senate retains.  Conference retains credit.
    • Personal Casualty and Property Losses: House repeals deduction (except for losses sustained in Hurricanes Harvey/Irma/Maria); Senate retains. Conference retains deduction.
    • Out-of-pocket Teacher Expenses: House repeals; Senate retains and doubles to $500 through 2025.  Conference retains deduction, but no increase.
    • Member of Congress Living Expense Deduction: House retains; Senate repeals.  Conference repeals deduction.
    • House and Senate both repeal deductions for Tax Prep Expenses, Alimony Payments, and Moving Expenses (except for members of the Armed Forces).  Like House and Senate, conference repeals tax preparation deduction, alimony deduction, and moving expenses deduction except for Armed Forces.
  • Corporate Rate Reduced and AMT repealed: House reduces corporate rate to 20% beginning in 2018; Senate delays cut to 2019.  House eliminates the corporate AMT; Senate retains the corporate AMT.  Conference reduces corporate rate to 21% and eliminates corporate AMT.
  • Reduced Pass-Through Rate for Businesses: Most U.S. businesses are set up as “pass-throughs” rather than corporations (for example, partnerships, LLCs, and subchapter S) where profits are “passed-through” to the business owner’s individual tax returns.  The House-passed bill would lower the rate for pass-through income to 25 percent (for the first 30% of business income), and create a special lower rate of 9 percent (phased-in) on the first $75,000 of business income for joint filers making less than $150,000.  Reduced House pass-through rate would not apply to personal services ((e.g. law, accounting, engineering, financial advisory).  Through 2026, the Senate bill  instead creates a 23% deduction applied to current rates with an effective pass-through rate of 29.6% for pass-through owners with income up to $250,000 (single) and $500,00 (joint); Senate allows deduction for personal services income up to a threshold.  Senate rate cut expires in 2025.  Conference agreement generally follows Senate, except deduction is equal to 20% (equivalent to maximum rate of 29.6%) and engineers and architects qualify for pass-through treatment; like the Senate, publicly traded partnership distributions, agricultural and horticultural cooperatives, and qualified Real Estate Investment Trust (REITs) and cooperative dividends are eligible for the deduction; all provisions expire in 2025.
  • Current Year Expensing – Bonus Depreciation and Sec. 179 Expanded:  Both bills would allow 100% “bonus” depreciation (i.e. “expensing”) for qualified property through 2022. House expensing expires in five years; Senate would gradually phase-out 20% per year at the end of five years.  House excludes real property; Senate covers real property. House doubles depreciation for luxury cars; Senate does not, but increases certain depreciation allowances.  House increases sec. 179 expensing limits to $5 million, while the Senate increases to $1 million; both bills expand sec. 179 to different types of expenses.  Senate bill also shortens the cost recovery period for several types of property.  Link here for difference between bonus depreciation and sec. 179 expensing; the most important difference is that both new and used equipment qualify for the Section 179 Deduction, while Bonus Depreciation covers new equipment only.  Conference agreement generally follows Senate, including 100% bonus depreciation (expensing) through 2022, phasing out through 2027, but includes House allowance for used property;  and, like Senate, increases sec. 179 expensing limit to $1 million.
  • Senate adds some new tax benefits for:  beer, wine, and alcohol; aircraft owners; qualified opportunity zones; and Alaska Native Corporations (ANCs).  Conference agreement includes Senate tax benefits for beer, wine, and alcohol; aircraft owners; qualified opportunity zones but with a limit on nominations; and ANCs.
  • Business Deductions capped or repealed to pay for tax cuts:
    • net interest deductions capped (with some differences between House and Senate); conference generally follows Senate.
    • House repeals deduction for contingency fee advances paid to clients; conference retains current law deduction.
    • House repeals credit for employer-provided child care; conference retains current law credit.
    • House repeals work opportunity credit; conference retains WOC.
    • House repeals New Markets Tax Credit; conference retains NMTC.
    • House repeals credit for disabled employee access; conference retains credit.
    • House increases threshold for FICA tip credit; conference retains current law.
    • Research expenses must be amortized under both bills, but with different effective dates; conference requires 5-yr amortization beginning in 2022.
    • Contributions to capital exemption repealed by House;  conference follows House but limits definition of contributions to capital.
    • Orphan drug credit repealed by House and capped by Senate (Orphan Drug Credit Background); conference cuts existing credit from 50% to 25%.
    • NOL deductions capped in both bills; conference limits deduction to 80% beginning in 2018.
    • Employee compensation deduction limit tightened in both bills; conference limits deduction with transition rules.
    • House and Senate bills both repeal deductions/credits for like-kind exchanges (except for real property not held for sale), business entertainment, FDIC premiums for large institutions, local lobbying expenses, sec. 199 domestic production. Conference repeals these provisions.
  • Energy Provisions:  House bill repeals or modifies provisions relating to renewable electricity production, renewable energy investment, residential energy-efficient property, oil recovery, marginal oil and gas, and nuclear production.  Conference agreement follows Senate and retains current law.
  • Insurance Industry Tax Increases:  House increases taxes on industry nearly $40 billion, the largest of which are imposing an 8% surtax on life insurance company income and modifying the discounting rules for property and casualty companies.  Senate increases taxes $27 billion, the largest of which are changing rules for computing life insurance reserves and capitalization rules for policy acquisition expenses.  Conference agreement raises revenue primarily from changing computation of life insurance reserves, changing rules on capitalization of policy acquisition expenses, modification of proration rules for property and casualty insurance companies, and changing computation of reserves. (Joint Explanatory Statement for details).  
  • Bonds/Infrastructure: House bill would repeal private activity bonds (PABs) issued after 12/31/17, clean energy bonds, and tax-exempt bonds for stadiums; House and Senate would both repeal exclusion for advance refunding bonds.  Conference follows Senate and retains exemption for PABs and retains bonds for stadiums, but follows House in repealing advance refunding bonds and tax credit bonds. 
  • Limit on Carried Interest Preference for Fund Managers:  Both bills would restrict use of the “carried interest” provision that allows investment fund managers to pay tax at the lower capital gains rate; fund managers would be required to hold their assets for three years.  Conference follows both bills — increasing holding period.
  • Move to Territorial Tax System with anti-Base Erosion: Like the House, the Senate moves from the current worldwide system (with deferral and a foreign tax credit) to a modified territorial tax system generally aimed at shielding offshore corporate income from U.S. taxation, with a 100% deduction for foreign source dividends received by domestic corporations.  Both bills include anti-base erosion provisions aimed at discouraging companies from shifting profits to low- or no-tax locations, but there are some key differences.  The House bill includes a 10% excise tax on certain payments to foreign corporations, while the Senate has an “anti-abuse” tax on such payments.  Both bills limit deductible net interest expenses of a domestic corporation that is a member of a multinational group. For further details see: CQ comparison of House and Senate bills; and JCT comparison of House and Senate bills.   Conference includes territorial tax regime with 100% deduction for foreign-source dividends received by domestic corporations, with changes to base erosion provisions (Joint Explanatory Statement for details).    
  • Low Rates on Repatriation of Profits Held Off-Shore:  To facilitate the move from a worldwide to a territorial system, both bills include a “deemed repatriation” provision that levies a mandatory one-time tax on accumulated foreign profits.  House would tax companies’ post-1986 accumulated offshore earnings at 14 percent for cash holdings and 7 percent for non-cash holdings. Senate would tax offshore earnings at 14.49 percent for cash and 7.49 percent for non-cash. (Currently U.S. allows multinationals to defer taxes on foreign earnings until they “repatriate” them.)  Conference sets repatriation rates at 15.5% for cash and 8% for non-cash assets.
  • Tax Exempt Organizations:
    • Both bills would add a 20% excise tax on excess executive compensation paid to five highest-paid employees; conference includes 21% tax w/ exceptions.
    • Both bills would impose 1.4% excise tax on net investment income of private colleges and universities, but with different assets-per-student threshold;  conference applies endowment excise tax to colleges/universities with more than 50% of tuition-paying students located in the U.S.
    • Both bills would modify rules for taxation of UBIT income; conference follows Senate UBIT modifications.
    • House bill would modify excise taxes on private foundations; conference retains current law on foundation excise tax.
    • House bill would tighten rules for art museumsconference retains current law on art museum foundation status.
    • House bill would allow non-profits, including churches, to engage in political activity thereby repealing the longstanding “Johnson Amendment” – see CRS Report on Churches and Campaign Activity. conference retains current law prohibition on political activity.
  • Senate bill would open ANWR to oil and gas drilling.  Conference opens ANWR to oil and gas drilling.

See also: