The U.S. Senate passed its version of tax reform, the Tax Cuts and Jobs Act, H.R. 1, early Saturday morning by a vote of 51–49, with all Democrats, both independents, and one Republican voting no. The vote followed two long days of debate and amendments. The bill, as approved, differs significantly from the version that was introduced by the Senate Finance Committee.
The Senate bill also differs from the version of H.R. 1 that the House of Representatives approved on Nov. 16. This means that the two houses will have to hold a conference to reconcile the differences between the bills and then both houses will have to vote on the revised bill, or the House will have to approve the legislation as passed by the Senate.
On Thursday, the Joint Committee on Taxation released a report estimating that the bill as then proposed would add $1 trillion to the national debt over 10 years, after factoring in expected economic growth.
The Senate’s legislation retains the same number of tax brackets for individuals as under current law, seven, although most are lowered through the year 2025, to 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%. The child tax credit would be increased to $2,000 per child, and the income limits would be increased.
The original Senate bill would have allowed individuals to deduct 17.4% of “domestic qualified business income” passed through from a partnership, S corporation, or sole proprietorship. That amount has been increased to 23% in the final bill.
In another change, the revised bill would allow a $10,000 deduction for state and local property taxes. This is similar to a provision in the House bill. The original Senate bill did not allow any deduction for state and local taxes.
The bill also keeps the estate tax but doubles the current exemption amount. The House bill would eliminate the estate tax starting in 2023, after doubling the exemption amount currently.
The Senate bill also keeps the deduction for medical expenses while the House eliminated it. The legislation sets an adjusted-gross-income (AGI) threshold of 10%, but an amendment lowered it to 7.5% of AGI for 2017 and 2018.
The bill lowers the top corporate tax rate from 35% to 20%, the same as the House bill but with a later effective date of 2019.
The Senate bill would also repeal the individual mandate, Sec. 5000A, which imposes a penalty payment on individual taxpayers who do not have health insurance. The House bill did not repeal the individual mandate.
The bill voted on by the Senate contained a large number of other amendments, including adopting a revised corporate and individual alternative minimum tax (AMT), rather than repealing it, which the House bill would do. The amendments also include permitting the passthrough deduction for distributions from publicly traded partnerships.
—Sally P. Schreiber (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.