WASHINGTON – Senate Republicans on Thursday unveiled a proposal to overhaul the U.S. tax code that breaks in significant ways with a comparable House tax plan, including on the level of top individual tax rates, the number of individual tax brackets, estate tax changes and the timing of a corporate tax-rate cut.
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The Senate bill, according to Senate Finance Committee aides, would cut the corporate tax rate to 20% starting in 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 level.
The House bill, by contrast, would cut the corporate tax rate to 20% immediately and repeal 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 top rate starts at $1 million for married couples and $500,000 for individuals, said Sen. John Hoeven (R., N.D.) The House has a 39.6% top rate and a four-bracket structure.
"Yes, the Senate bill is going to be different than the House bill, because, you know what? That's the legislative process," House Speaker Paul Ryan (R., Wis.) told reporters Thursday. "The House will pass its bill, the Senate will pass its bill and then we will get together and reconcile the differences, which is the legislative process. And that's how this process will continue."
The contrasts in the competing bills point to the challenge Republicans face advancing the overhaul through Congress, which they intend to do by year-end. If they win passage in both chambers with narrow party majorities, Senate and House Republican leaders would then need to reconcile differences with each other to come up with a bill to send to President Donald Trump.
"This is our once-in-a-generation opportunity to lower taxes and shift the economy into high gear, said Sen. Mitch McConnell (R., Ky.).
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The Senate and House part in other important ways. The Senate would end households' ability to deduct their state and local taxes from calculations of federal taxable income. The House narrows the break, allowing a deduction of 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.
"It's not where we need to be yet, but we'll get there," said Sen. Marco Rubio (R., Fla.)
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 House Ways and Means Committee on Thursday and preparing for a vote by the full House next week.
House Republicans made late changes in their bill Thursday, increasing a one-time tax on foreign profits, adding new lower rates for small businesses to win support from business groups and exempting car dealers from a limit on interest deductions.
"One thing seems clear: There isn't enough money to pay for everything that each house wants," said Greg Valliere, chief global strategist at Horizon Investments. "Something has to give -- most likely corporate tax relief, which may not be as generous as proponents expected a few weeks ago."
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 would represent 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 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 Senate Republicans are completely pulling the rug out from under their colleagues who represent suburban districts in the House," said Sen. Chuck Schumer (D., N.Y.), who has been fighting to preserve the state and local tax deduction.
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 than the House. The Senate 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't pass a bill if more than 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 they say 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, so its bill 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 federal budget 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 a 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 provisions would expire after five years. Neither bill touches the individual mandate to purchase health insurance.
However, the Senate plan breaks from the unified framework that the House, Senate and Trump administration released in September in a few ways, namely on estate tax repeal and the number of tax brackets.
Republicans played down the difference on the corporate rate cut.
"It may be delayed one year, but immediate expensing is included up front, which is a huge deal," Sen. Mike Rounds (R., S.D.) told reporters.
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 below 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 17:37 ET (22:37 GMT)