Connect with us

What’s In the 2017 Senate Tax Plan? How Does It Compare to the House Plan?

senate_tax_plan

Taxes

What’s In the 2017 Senate Tax Plan? How Does It Compare to the House Plan?

With healthcare reform on pause, the Republican-led House and Senate are trying to complete tax reform before the 2017 Christmas recess. You can read our report on the House Plan, but what about the Senate Tax Plan? We explain the details and how it compares to the House plan which was passed on November 16.

Key Details of the Senate Tax Plan

Even though the U.S. House of Representatives just passed their version of the Tax Cuts and Jobs Act, there are several key differences between the House and Senate versions. This means that if the Senate version passes, compromises will need to be made between the Senate and House bills to put a reform package on the President’s desk. Until the same bill passes both houses of Congress, tax reform cannot be signed into law.

Let’s look at the key details of the Senate’s plan.

There Are Still Seven Tax Brackets

In our current tax code, we have seven different income tax brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%. The House Plan consolidates the number of brackets to four that range between 12% and 39.6%.

The Senate plan keeps the current number of seven brackets that will remain virtually identical except the top bracket will reduce from 39.6% to 38.6%.

Under either plan, most families will pay 25% federal income tax or less.

It’s Harder to Itemize

Like the House plan, it will be very hard to “itemize.” Since most taxpayers do not have enough qualifying itemized deductions, this isn’t a big deal. If you do currently file an itemized return, the standard deduction for singles will increase from $6,350 to $12,000. And, the married filing jointly standard deduction will increase from $12,700 to $24,000.

If you can itemize, you will be able to deduct up to $1,000,000 in paid home mortgage interest. The House plan caps the mortgage interest deduction at $500,000.

State and Local Tax Deductions Are Eliminated

The elimination of state and local tax deductions for paid income tax, sales tax, and property tax will be the hardest sell for the representatives of high-tax states. The Senate plan will not let you claim any State or Local taxes paid, period.

With the House plan, you can deduct up to $10,000 in property taxes paid each year.

Obamacare Individual Mandate Is Removed

The Senate Tax Plan will make healthcare coverage optional again, just like before the Affordable Care Act was passed in 2010. If you’re currently paying the tax penalty because it’s cheaper than the monthly premiums, this is good news.

But, this will be another point of contention as the House plan doesn’t remove the individual mandate and certain lawmakers think the repeal of the mandate will defund the Obamacare marketplaces and cancel the insurance coverage.

Child Tax Credit Increases to $1,650 Per Child

For every child you have, the current tax code gives you a $1,000 tax credit that lowers your total tax obligation once your adjusted gross income has been calculated. If you don’t owe any federal income tax, you can receive the $1,000 as a refund.

The Senate tax plan increased the credit to $1,650 ($1,600 for the House plan) and the first $1,000 can be refundable to all taxpayers. If you owe federal income tax, you can also receive the remaining $650 as an additional refund depending on the amount you owe.

Alternative Minimum Tax is Repealed

If you make more than $200,000 a year, you might have to pay the Alternative Minimum Tax (AMT). It is being removed by both tax plans to help make the tax code more simple.

Corporate Tax Rate Reduces to 20% In 2019

The House plan calls for the immediate reduction of the corporate income tax rate in 2018 from 35% to 20%.

The Senate plan proposes the same reduction but the reduction won’t go into effect until tax year 2019, one year later.

Either way, the corporate tax rate will drop 15%, the only question is when the change goes into effect. This is a victory for the anti-tax advocates that have been trying to lower the corporate tax for years to spur commercial profits as the U.S. has the highest corporate tax rate in the developed world. As the theory goes, multinational companies will keep more money in the U.S. instead of overseas where they pay a lower tax rate on the profits. Only time will tell if this prediction rings true.

One-Time Tax on Reshored Corporate Profits

The Senate and House plans are also offering a one-time tax discount on all money that multi-national companies currently have deposited overseas.  They want to make sure they bring it back to American banks. The Senate plan’s “repatriation tax” will charge up to 10% (instead of the current 35%) to put American dollars back into the American economy. This is another platform anti-tax advocates have been pushing to help strengthen the American economy and boost job growth.

Will the Senate Tax Plan Pass?

That’s currently anybody’s guess. The Republicans have a smaller majority in the Senate which means they need every vote they can get. Passing tax reform in the Senate will be harder because of this fact.

There might be revisions made to the bill to ensure it receives enough votes to pass. Some places where the Republicans might make changes are the State and Local tax deductions elimination and the individual healthcare mandate. Those will be the two most contended positions in the Senate and House.

Summary

If the Senate tax plan passes, the House and Senate will need to work together to pass a joint bill. What that bill looks like will largely depend on how many changes are made to the current Senate plan so it can receive enough passing votes. If both houses of Congress can come together, this will be the most significant tax reform passed in 30 years.

Continue Reading
You may also like...
Advertisement
Click to comment

Leave a Reply

More in Taxes

Advertisement
Advertisement

Trending

Advertisement
To Top