Reconciling House and Senate Tax Bills

Republicans will try Monday to urgently reconcile the tax overhaul bills they passed in the House and Senate, entering a delicate period where they have to retain the support of their party’s conservative and moderate members. Discussions are expected to continue throughout the week and could conclude as early as next week with the drafting of a so-called “conference report” that constitutes the final legislation. That bill must pass each chamber before Trump can sign it into law.

The most delicate discussions will probably take place over how to tax so-called “pass-through” businesses. There are millions of these firms in the United States, and they can range from small businesses to large real estate companies and professional sports franchises. They are often owned by a single entity or partnership, and their income is passed through to the owners, who pay taxes on that money through the individual income tax code.

The two bills take markedly different approaches to the taxation of pass-through business income, with the House bill providing a much larger tax cut.

There are several other issues that need to be resolved.

The Senate bills begins lowering the corporate tax rate in 2019, and the House bill begins lowering it in 2018. The House and Senate bills take different approaches to the individual tax brackets: The House bill has only four brackets, and the top rate remains unchanged at 39.6 percent; the Senate bill keeps seven brackets but lowers the top rate to 38.5.

The House bill creates a five-year “family flexibility credit” that aims to help families lower their taxes. The Senate bill doesn’t have such a measure.

The House bill entirely eliminates the estate tax — a tax paid on inheritances that is limited near exclusively to the very wealthy — beginning in 2024, while the Senate bill scales it back dramatically without getting rid of it entirely.

The Senate moved to resolve one potential sticking point between the two chambers — moving to scale back, rather than eliminate entirely, the deduction for state and local taxes. The Senate bill adopts a House compromise that would allow individuals to deduct up to $10,000 in property taxes only.

The Senate bill allows almost all of the tax cuts for individuals and families to expire after 2025 — a step that was taken to make sure the bill didn’t add to the deficit beyond the levels permitted under complex Senate rules. White House budget director Mick Mulvaney insisted again Sunday that those cuts wouldn’t really expire because a future Congress would extend them.