Senate Republicans' proposal to rewrite the tax code breaks significantly with the one crafted by the House GOP, confronting party leaders with dozens of differences to reconcile and little time before the year-end deadline they've set to pass it.
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The Senate plan, released Thursday, contrasts with the House in key areas, including the timing of a corporate tax-rate cut, the number of individual tax brackets, the details of international tax rules, and the particulars of estate-tax changes.
Despite the differences, Republicans say they are confident they can prevail in cutting taxes by about $1.5 trillion over a decade, aided by an advertising blitz from business groups and conservatives and motivated by the political imperative to rack up a major legislative victory ahead of next year's mid-term elections.
House and Senate Republicans are trying to refine and pass their respective bills in the next few weeks, needing to reconcile their differences while operating with slim majorities and working against the backdrop of rough election defeats this week that make some lawmakers more wary of disturbing a restive electorate.
"We still have a lot more work, but we're really excited," said Gary Cohn, Mr. Trump's chief economic adviser.
The Senate bill, according to Senate Finance Committee aides, would delay until 2019 a cut in the corporate tax rate to 20%. It also would 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 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.).
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The House bill, by contrast, would cut the corporate tax rate immediately and repeal the estate tax starting in 2025. The House plan proposes a 39.6% top rate for individuals and a four-bracket structure.
"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," House Speaker Paul Ryan (R., Wis.) told reporters Thursday. "And that's how this process will continue."
Stocks fell during the day amid worries over the prospects for a tax rewrite, and the specter of a delay in corporate tax relief, but pared their declines later. The Dow Jones Industrial Average had fallen as many as 253 points by early afternoon, but ended the day down 101.42 points, or 0.4%, at 23462.94, The S&P 500 fell 0.4%, while the Nasdaq Composite dropped 0.6%.
Mark Travis, chief executive of Intrepid Capital Management, a Milwaukee-based fund manager, said Thursday's selloff intensified following reports that the Senate tax bill would delay the corporate-tax-rate cut until 2019. He added that would likely cause investors to sell some of their assets to lock in some of the year's gains.
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 moved their bill out of the Ways and Means Committee Thursday, preparing for a vote by the full House next week.
"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 for a legislative victory while they have full control of the Congress and the White House. But some of the changes they're proposing could be liabilities in the swing districts they're defending in the House.
House Republicans made late changes in their bill Thursday, keeping the adoption tax credit, increasing a one-time tax on foreign profits, adding lower rates for small businesses, bumping up taxes on multinational corporations and exempting car dealers from a limit on interest deductions.
Differences between the House and Senate are especially evident in the debate about the state and local tax deduction. Republican senators are prepared to eliminate the deduction, which hits high-tax blue states like New York, New Jersey and California hardest.
The Senate would repeal the deduction, a decision that freed up money for other priorities. The House narrows the deduction but doesn't completely end it; it leaves in place the ability to deduct up to $10,000 in property taxes.
"Senate Republicans are completely pulling the rug out from under their colleagues who represent suburban districts in the House," said Sen. Charles Schumer (D., N.Y.), who has been fighting to preserve the state and local tax deduction.
As the debate moves ahead, the Senate Republican will operate with 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 that the plan would add too much to federal budget deficits. some prioritize larger child tax credits; some don't want tax cuts that they believe favor the wealthiest Americans. And many will have narrow, state-focused priorities and the clout to insist on them.
Another obstacle: The Senate bill faces what is 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, Senate Finance Committee aides said. The 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 without needing Democratic votes.
In other ways, the House and Senate tax plans fall in the same framework. They each would 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.
Sen. John Thune (R., S.D.) said the additional brackets were needed to direct more tax cuts to middle-class households; no analysis is available yet.
The Senate also would set the child tax credit at $1,650, up from $1,600 in the House. Sens. Marco Rubio (R., Fla.) and Mike Lee (R., Utah) said that's not enough.
The Senate proposes different rules on international taxes than the House. 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, while the House has a special rate but limits on who can get that rate.
Write to Richard Rubin at firstname.lastname@example.org
(END) Dow Jones Newswires
November 09, 2017 19:53 ET (00:53 GMT)