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December 11, 2017

What’s The Latest On Federal Tax Reform?

Tax reform negotiations will continue on Capitol Hill this week. House and Senate leaders have named the members of the conference committee, which will discuss the difference between the two chambers’ legislation and will write a final bill. That committee will meet on Wednesday, Dec. 13 at 2 p.m. with the goal of completing work so that the House and Senate can vote on a final tax reform bill during the week of Dec. 18.

The senators on the committee are:

  • Sen. Maria Cantwell (D-Wash.)
  • Sen. Tom Carper (D-Del.)
  • Sen. John Cornyn (R-Tex,)
  • Sen. Mike Enzi (R-Wyo.)
  • Senate Finance Committee Chair Orrin Hatch (R-Utah)
  • Sen. Bob Menendez (D-N.J.)
  • Sen. Lisa Murkowski (R-Alaska)
  • Sen. Rob Portman (R-Ohio)
  • Sen. Pat Toomey (R-Penn.)
  • Sen. Bernie Sanders (I-Vt.)
  • Sen. Tim Scott (R-S. Caro.)
  • Sen. Debbie Stabenow (D-Mich.)
  • Sen. Ron Wyden (D-Ore.)

The House members on the committee are:

  • Rep. Rob Bishop (R-Utah);
  • Rep. Diane Black (R-Tenn.);
  • House Ways and Means Committee Chair Rep. Kevin Brady (R-Tex.);
  • Rep. Cathy Castor (D-Fla.)
  • Rep. Lloyd Doggett (D-Tex.)
  • Rep. Raul Grijalva (D-Ariz.)
  • Rep. Sander Levin (D-Mich.)
  • Rep. Richard Neal (D-Mass.)
  • Rep. Kristi Noem (R-S. Dak.)
  • Rep. Devin Nunes (R-Calif.)
  • Rep. Peter Roskam (R-Ill.)
  • Rep. John Shimkus (R-Ill.)
  • Rep. Greg Walden (R-Ore.)
  • Rep. Don Young (R-Alaska)

Contact information for Senate members of the conference committee, and all senators, is here while information for all House members is here. If you have thoughts about tax reform, please contact your members of the House and Senate or the members of the conference committee.

The conference committee has several issues to work out. Here are the major differences and similarities between the House and Senate tax bills:

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 (through 2025) cuts tax rates to 10%, 12%, 22%, 24%, 32%, 35%, and 38.5%. Eliminates the personal exemption, but nearly doubles the standard deduction. Increases the exemption for the AMT. These provisions also expire after 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 23%. This provision would expire at the end of 2025 and is prohibited for anyone in a service business, except for married couples with taxable incomes under $500,000 and individuals with incomes under $250,000 if single.

Preserves existing business structure commonly referred as IC-DISC (Interest Charge Domestic International Sales Corporation), which will allow pass-through businesses to benefit from the international tax reforms included in the bill.

Corporate Tax Rate

Permanently reduces the rate to 20% starting in 2018. Repeals the corporate AMT.

Permanently reduces the rate to 20% starting in 2019. Retains the corporate AMT.

Estate Tax

Eliminates completely and permanently starting in 2024. Doubles the current exemption until then.

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) through 2025.

LIFO

Retains LIFO

Retains LIFO

Territorial Tax &Repatriation

Moves to a territorial system with base-erosion rules, including the inclusion of 50% of excess returns by controlled foreign corporations in U.S. shareholders’ income, and an excise tax on payments made to foreign firms unless claimed as effectively connected income.

Businesses can repatriate cash at a 14% rate and noncash holdings at a 7% rate.

Moves to a territorial system with anti-abuse rules and a base erosion minimum tax of the excess of 10% of modified taxable income over an amount equal to regular tax liability.

Businesses can repatriate cash at a 14.5% rate and noncash holdings at a 7.5% 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 of short-lived capital investment, such as machinery and equipment, for five years; increases the Section 179 small business expensing cap from $500,000 to $5 million, with the phase-out beginning at $20 million, and maintains current depreciation schedules for real property.

Full expensing of short-lived capital investment, such as machinery and equipment, for five years, then phases out the provision over the subsequent five; raises Section 179 small business expensing cap to $1 million with a phase-out starting at $2.5 million; and shortens the depreciation of real property to 25 years.

State & Local Tax Deduction

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

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

Health Care Mandate

Keeps the health insurance mandate in place

Repeals requirement that Americans be covered by health insurance

Some small business groups like the S-Corporation Association still have reservations about tax reform and whether it will provide equitable treatment for small and large businesses. The associations outlined those reservations in comments to House and Senate conference committee leaders. Click here to read them.