House Republicans Pass Tax Plan, But Second Vote Will Be Needed

By:
Chris Gaetano
Published Date:
Dec 19, 2017
Congress

The House of Representatives voted, 227-203, to approve the Republicans' landmark tax reform bill, but the Senate parliamentarian has removed three provisions from the bill saying that they violate budget rules, according to the New York Times. That means that the House will have to vote on the revised legislation tomorrow. Senate Republicans are expected to vote on the measure, with the three provisions removed, later today. The bill is the product of weeks of negotiations between members of the Republican Party, which currently controls both houses of Congress. While debate has been contentious at times, it is expected that there will be enough Republican votes to pass the measure, which will then go to the president to be signed into law before the end of the year. 

Bloomberg breaks down what's in the final version.

The top individual rate would be reduced from 39.6 percent to 37 percent. It would apply to joint filers making $600,000 or more, and single filers making $500,000 or more. Despite previous attempts by the House to collapse the number of brackets to four, the current bill retains the seven-bracket structure. The lowest bracket, 10 percent, would apply to those making between $0 and $19,050 for couples and $0 to $9,525 for individuals. The individual AMT exemption would be increased to $70,300 for singles (up from $54,300) and $109,400 for joint filers (up from $84,500), with the phase-out threshold starting at $500,000 for singles and $1 million for joint filers. These higher limits would expire in 2026. The bill also effectively doubles the standard deduction to $12,000 for individuals and $24,000 for joint filers, though it would repeal all personal exemptions too.

The bill would also limit state and local tax deductions to $10,000, which can include a combination of property taxes and either sales or income taxes. This deduction had been the topic of some debate, with some legislators wanting to get rid of it entirely while others wanted to keep it. This current version is seen as a compromise

The bill also raises the threshold for the medical expense deduction from 10 percent to 7.5 percent, while lowering it for the mortgage interest deduction, from $1 million to $750,000. The child tax credit would be doubled from $1,000 to $2,000 per child, and the phase-out would increase from $110,000 to $400,000 though these parts would expire in 2025. The refundable portion of the credit, however, would be capped at $1,400. 

The corporate tax rate would be cut down to 21 percent, from the current 35 percent nominal rate, which brings the statutory rate just a shade higher than the estimated effective rate of 19 percent. The new bill also eliminates the corporate AMT, which had been a feature of the Senate proposal prior to the conference process. The bill also contains a tax cut for multinational companies wanting to repatriate money held outside the U.S.: under the bill, returning cash would be subject to a 15.5 percent rate (versus the current 35 percent), while non-cash holdings would be taxed at 8 percent. Companies would be able to make payments in eight annual installments. 

The estate tax, which Republicans had been looking to repeal entirely, instead will have a threshold twice as high as it is now, though this higher threshold would sunset in 2026. 

Businesses will also be able to fully and immediately deduct the cost of certain equipment purchased between 2017 and 2023, versus having to spread it out over several years. After 2023, this deduction will be gradually phased down.

Certain pass-through entities would be able to apply a 20 percent deduction to their business income, though this benefit phases out once the filer hits $315,000 for married couples or half for single filers. This deduction, however, will not apply to "personal service businesses" such as CPA firms. The measure only applies to a "qualified trade or business," a definition that specifically excludes any trade or business performing services in the fields of  "health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees."

The Senate expects to begin debate sometime later today according to the Times. The Joint Committee on Taxation estimates that the bill would add about $1.5 trillion to the deficit over 10 years. 

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