WASHINGTON – Senate Republicans unveiled a proposal to overhaul the U.S. tax code Thursday that breaks in significant ways with a comparable House tax plan, including the level of top individual tax rates, the number of individual tax brackets, the timing of a corporate tax-rate cut and the particulars of estate tax changes.
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The Senate bill, according to Senate Finance Committee aides, would delay a corporate tax rate cut until 2019. It would also double the estate tax exemption to a maximum of about $11 million per person, but it would leave the 40% tax itself in place for estates above that exemption level.
The House bill, by contrast, cuts the corporate tax rate to 20% immediately and repeals the estate tax starting in 2024. The Senate bill also sets a 38.5% top tax rate for individuals and preserves a seven-bracket structure. The House has a 39.6% top rate and a four-bracket structure.
The Senate and House part in other important ways. The Senate would fully remove the ability of households to deduct their state and local taxes from calculations of federal taxable income. The House narrows the deduction but not completely; it leaves in place an ability to deduct up to $10,000 in property taxes.
The Senate also would set the child tax credit at $1,650, up from $1,600 in the House, but below where some GOP senators want it set.
More details were likely to be released later on Thursday.
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The contrasts in the competing bills point to the challenge the GOP faces advancing the overhaul through Congress. After winning passage in both chambers with narrow party majorities, Senate and House Republican leaders then will need to reconcile differences with each other to come up with a bill to send to President Donal Trump.
They aim to do this by year-end.
The Senate Finance Committee is scheduled to consider the bill next week, and the full Senate may vote the week after Thanksgiving. Meanwhile, House Republicans are moving toward getting their bill out of the Ways and Means Committee on Thursday and preparing for a vote by the full House next week.
After they struggled and failed to pass a health care bill and lost in state elections on Tuesday, Republicans see the tax bill as their best chance to rack up a legislative victory while they have full control of the Congress and the White House.
The overhaul represents the most thorough rewrite of the tax system since 1986. The policy gaps between the House and Senate will require Republicans to reconcile dozens or hundreds of differences.
The existence of competing plans will affect the dynamics of debate in the weeks ahead. Some House members may be wary of backing plans in their chamber if they can see that their favored provisions will fail in the Senate. The reverse may also be true. Some House members may be willing to advance the process because they like the Senate bill better.
In some respects, the Senate has less flexibility in the House. The Finance panel has a 14-12 party split, meaning that Republicans need to keep all of their members together in the committee.
And in the full Senate, Republicans have 52 seats. They can only have two members of their party vote no. Some worry about big deficits;, some prioritize larger child tax credits; some don't want tax cuts that favor the wealthiest Americans. And many will have narrow, state-focused priorities and the clout to insist on them.
Differences between the House and Senate are especially evident in the evolving debate about the state and local tax deduction. Most Republican senators are prepared to eliminate the deduction, which hits high tax states like New York, New Jersey and California hardest. Senate Republicans tend not to represent high taxed states like that. With full repeal, the Senate bill has money to address other Republican priorities -- like a child tax credit and keeping some other favored deductions. In the House, by contrast, the party can't afford to lose too many members from New York or New Jersey and it keeps remnants of the state and local deduction.
Another obstacle: The Senate bill faces what's known as the Byrd Rule, a requirement that the overhaul not increase deficits beyond the first 10 years. As constructed now, the bill may not meet that test. Committee aides say they will need to adjust it to comply. Otherwise, Republicans would be unable to get a bill through the Senate on a fast-track process -- likely along party lines -- with just 50 votes.
The Senate bill preserves some tax breaks that the House bill would eliminate. Those include the ability to deduct mortgage interest on loans up to $1 million, and deductions for medical expenses and student loan interest. The Senate bill would also retain an extra deduction for the blind and elderly and the ability to deduct mortgage interest on second homes.
In other ways, the House and Senate tax plans fall in the same framework. They would each cut taxes by about $1.5 trillion over a decade, repeal the alternative minimum tax, repeal personal exemptions and nearly double the standard deduction. They would both remove narrow tax breaks and create a one-time tax on stockpiled foreign profits. Both would have immediate write-offs for business investments, but those would both expire after five years.
The Senate proposes different rules on international taxes than the House does. Those include a 12.5% tax on certain foreign profits produced from intangible assets such as patents and copyrights, whether those assets are in the U.S. or abroad. That would affect U.S.-based technology and pharmaceutical companies. The plan also includes a new rule to limit tax avoidance by foreign-based companies operating in the U.S.
The Senate differs in how it treats pass-through businesses -- partnerships, S-corporations and other businesses that pay taxes through individual tax returns. The Senate bill would create a new deduction for pass-through business income. The deduction lowers the top tax rate for these business from the current 39.6%, but keeps it above 30%. That is higher than the new 25% rate that congressional leaders have promised and which is in the House bill. It could be a point of contention for business groups, depending on the details.
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(END) Dow Jones Newswires
November 09, 2017 15:25 ET (20:25 GMT)