Senate Republicans on Thursday unveiled a tax reform bill that breaks with the House in significant ways. If the House Republican bill was a first draft of tax reform, the Senate bill is the first rewrite.
Here are the key differences between the Senate and House bills.
State and local taxes
The Senate bill will entirely repeal the deduction for state and local taxes, making no exception for property taxes. The House bill would allow deductions up to $10,000 for property taxes.
Home mortgage interest deduction
The Senate would keep in place the deduction for newly purchased homes up to $1 million while the House plan would cut the threshold to $500,000.
Popular tax credits and deductions
The Senate would keep in place a variety of popular tax credits and deductions that would have been eliminated by the House tax bill released last week. It preserves tax credits and deductions for adoption, medical expense, teacher expenses, and student loan interest.
Tax brackets
The House bill would condense the number of tax brackets to four: 12 percent for income up to $90,000; 25 percent for income up to $260,000; 35 percent for income up to $1 million; and 39.6 percent for income over $1 million.
The Senate bill would establish seven tax brackets at 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and 38.5 percent for the nation’s highest income earners.
Estate tax
The Senate bill would double the estate-tax exemption for wealthy estates from $11 million to $22 million per couple (or from $5.5 million to $11 million per individual) while the House bill would repeal the estate tax entirely.
Corporate tax rate
The Senate would cut the corporate tax rate to 20 percent, like the House would, but delay its implementation until 2019 to reduce the projected cost of the bill over ten years. The House would cut the corporate tax rate next year.
Pass-through businesses
The Senate would establish a 17.4 percent deduction for pass-through businesses based on the Section 199 domestic manufacturing deduction that would lower the effective tax rate for small businesses in the top tax rate to slightly more than 30 percent, according to Senate Finance Committee aide.
The House bill, by contrast, would have established a 25 percent rate for pass-through companies but would only make 30 percent of their revenue eligible for that rate and tax the other 70 percent as wages under the individual tax rate. That would result in a blended rate for many small businesses between 35 percent and 38 percent.