Now that the House tax bill and the Senate tax bill have both passed, it’s up to a conference committee composed of members from each house to devise a compromise incorporating elements of both the House and Senate bills.
The rushed process behind the bill has led to a lot of media coverage and commentary that blurs the difference between the bills — and, to be sure, they’ve both, at heart, big corporate tax cuts.
But the differences between them are real, and important. The Senate bill, but not the House bill, would end Obamacare’s individual mandate, cutting health coverage in America by 13 million people. The House bill, but not the Senate bill, would end the estate tax entirely, and add a huge new tax on PhD students and other people receiving tuition waivers from their schools.
To summarize the bills, their differences, and how they depart from the status quo, the Tax Policy Center has prepared an incredibly long, detailed, and helpful chart:
Among the major differences the chart highlights, apart from the individual mandate, estate tax, and grad school issues, are:
- The House bill makes all its changes to the individual income tax code: including consolidated tax rates, a higher threshold for the top 39.6 percent rate, replacement of personal exemptions with increased standard deductions and child tax credits, and changes to the mortgage interest and state and local tax deductions. The Senate bill, however, lets almost all its individual changes expire, so the tax cuts don’t cost money outside the 10-year “budget window.” Senate rules require that budget legislation passing by a majority vote not increase the deficit after the window is closed. Expect the Senate’s expiration approach to make it into the combined bill; it’s hard to see how Senate rules are satisfied otherwise.
- The House bill repeals both the individual and corporate alternative minimum taxes (AMTs), which are meant to prevent rich people and corporations from evading taxes through excessive use of deductions and loopholes. The Senate decided at the last minute to retain both AMTs, to pay for other provisions senators wanted. Don’t be surprised if both AMTs are fully repealed in the final legislation; Republicans have wanted to kill them for decades.
- The Senate offers higher tax rates on pass-through income, in general, than the House bill: The House bill cuts the top rate down as low as 25 percent, whereas the lowest rate in the Senate bill is 29.6 percent. For people like lawyers or accountants whose pass-through earnings are more like wages, the House bill has a slightly higher top rate than the Senate bill. Expect lots of negotiation over the precise approach to take toward pass-throughs; discontent by senators sympathetic to pass-through companies almost sank the bill.
But the House and Senate bills are remarkably similar in other respects. They now treat the state and local tax deduction identically, ending it for income and sales taxes but merely capping it for property taxes. They take broadly similar approaches to expensing, interest deduction, and international taxation on the corporate side. They both switch to chained CPI, a slower-growing inflation measure that results in gradually increased taxes over time.
And, of course, both enact a permanent 20 percent corporate tax rate. That has always been the cornerstone of Republican tax efforts, and I’d be shocked if that changes in the final bill.