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November 27, 2017

Senate Will Debate Federal Tax Reform Bill This Week—Find Out What’s In The Bill And How You Can Weigh In

The U.S. House and Senate return from their Thanksgiving break this week. Senators will begin consideration of that chamber’s version of the federal tax reform bill.

While lawmakers are moving quickly to pass this legislation, they are still very much in the middle of this process. If you have an opinion about either the House or Senate bill and what is in them, you should contact your member of Congress. Contact information for every member of the Senate is available here. The House has passed its tax reform package, but because there are significant differences between the House and Senate bills, the two chambers will have to convene a conference committee to hash out their differences and write the final piece of legislation. This committee will be made up of select members of the House Ways and Means Committee and the Senate Finance Committee. It’s not clear yet which individuals will be chosen for that panel, so it’s a good idea to contact every member of both committees. Contact information for those lawmakers can be found here for the Ways and Means Committee and here for the Finance Committee.

After the conference committee is complete, the full House and Senate will have to vote on the final piece of legislation, so members of the House of Representatives also are still very much interested in hearing what constituents think. Contact information for all House members is available here.

Before you contact your lawmaker, familiarize yourself with what’s in both pieces of legislation, by studying this outline:

PROVISION

HOUSE BILL

SENATE BILL

Individual Tax Rate

Permanently reduces the number of brackets to four. Rates would be 10%, 25%, 35%, and 39.6%. Eliminates the personal exemption, but nearly doubles the standard deduction. Eliminates the Alternative Minimum Tax (AMT).

Temporarily (until 2025) cuts tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. Eliminates the personal exemption and the AMT, but nearly doubles the standard deduction. These provisions also expire in 2025.

Pass-Through Tax Rate

Permanently reduces top rate to 25% for a portion of pass-through income. Uses a 70/30 rule to separate pass-through business income from wage income to determine what percent of income will receive the lower rate. The first $75,000 of income would be subject to a 9% rate for pass through owners who make up to $100,000.

Lowers most individual rates and includes a new business deduction equal to 17.4%, resulting in a possible top rate for some pass-through businesses of 31.8%. These provisions would expire in 2025.

Corporate Tax Rate

Permanently reduces the rate to 20% starting in 2018

Permanently reduces the rate to 20% starting in 2019

Estate Tax

Eliminates completely and permanently

Gradually doubles the exemption to $11 million for individuals and $22 million for couples, but exemption returns to current level ($5.6 million for individuals/$11.2 million for couples) in 2025.

LIFO

Retains LIFO

Retains LIFO

Repatriation

Moves toward a territorial tax system. Businesses can repatriate cash at a 14% rate

Moves toward a territorial tax system. Businesses can repatriate cash at a 10% rate

Interest Deduction

Caps interest deduction at 30% of earnings before interest, taxes, depreciation, and amortization 

Caps interest deduction at 30% of earnings before interest and taxes

Expensing

Full expensing for five years for new equipment

Full expensing for five years for new equipment with shorter depreciation for buildings

State & Local Tax Deduction

Allows deduction of up to $10,000 for property taxes

Eliminates completely

Health Care Mandate

Keeps the health insurance mandate in place

Repeals requirement that Americans be covered by health insurance

Several other outlets, including Motley Fool and The New York Times, also have side-by-side comparisons of the legislation. To learn more about how each bill would affect pass-through companies, check out this explanation by our partners at the S-Corp Association.

As a reminder, the Metals Service Center Institute (MSCI) outlined its principles for tax reform in comments sent earlier this year to the U.S. Senate Finance Committee. MSCI has not endorsed either the House or Senate bill and is working with various coalitions to address members’ concerns.