Senate Republicans unveiled their tax plan Thursday, another step forward in President Trump's bid to do the biggest overhaul of the U.S. tax code since President Reagan was in office in the 1980s.
The White House has indicated that the Senate plan, which is starkly different from the House plan, is the one to watch. Earlier this week, Trump told a few Democrats that they would like the Senate bill “a whole lot more.” But eventually, the House and Senate will have to agree on one bill, a major challenge as Republicans try to get legislation to the president's desk by Christmas.
Here are seven major ways the Senate bill differs from the House plan that came out last week — and what those changes mean for everyday Americans.
1. All state and local tax deductions (SALT) are gone. Taxpayers would lose the ability to deduct their state and local property and other taxes from their federal taxes, a break used by about 44 million people (or 30 percent of tax filers.) This is a major change to the tax code that mostly affects people earning more than $100,000 a year. Filers have been able to deduct state and local taxes since 1913. Eliminating SALT entirely would disproportionately affect people living in high-tax states such Connecticut, New Jersey, New York and California. A number of Republican House members insisted on only a partial repeal in the House bill, but the Senate has gone for a full repeal in an effort to raise more money to pay for tax cuts elsewhere.
2. The mortgage interest deduction stays. The current mortgage interest deduction rules remain intact in the Senate plan: Americans would still be able to deduct the interest they pay on the first $1 million of mortgage debt. The House plan reduced that threshold for new mortgages to $500,000, causing outcry from some real estate agents and builders as well as congressmen who represent areas with extremely hefty real estate costs. While there was pushback on the House plan, the reality is only about 6 percent of new mortgages are valued at more than $500,000, according to a report by the United for Homes campaign.
3. The estate tax stays. The estate tax (often called the “death tax” by critics) affects about 5,000 wealthy families a year. It is only assessed on property, stocks or other assets worth more than $5.49 million ($11 million per married couple) when they are passed on to heirs after the owner dies. Sen. Susan Collins (R-Maine), a key swing vote, has said she does not think the estate tax should be eliminated. The House bill would eliminate the estate tax entirely in 2024, a move that was heavily criticized as a giveaway to the mega-rich, including the Trump family. The Senate bill keeps the estate tax, although it raises the threshold so that people won't pay tax on the first $11 million of inheritance.
4. Corporations don't get the 20 percent rate until 2019. The centerpiece of the GOP tax bill is lowering the tax rate for big businesses, since many argue American companies have to pay far more than their overseas competitors. The Senate bill would still reduce the top corporate rate from 35 percent to 20 percent, but it wouldn't start the new lower rate until 2019. The House bill starts the 20 percent rate in 2018. The Trump administration wants the lower rate to begin next year because the White House believes that would help boost growth, but the Senate needed to find savings somewhere to make the bill comply with a Senate accounting rule known as the Byrd Rule.
5. Americans can still deduct big medical expenses. The House eliminated the medical expense deduction entirely, a move that worried many seniors and people with very high medical costs. The Senate has opted to keep that in the bill.
6. More small businesses get a break. The Senate allows many small businesses that are organized as “pass through” companies (i.e. partnerships, sole proprietorships and S-Corporations) to reduce their income by 17.4 percent. But certain "service businesses" such as consulting, engineering, law, medicine and financial services companies making more than $75,000 a year ($150,000 for married couples) are excluded from taking the deduction.
The National Federation of Independent Business slammed the House plan for not doing enough to help small business, a surprise to many Republicans who normally count on NFIB's support. The House plan initially had a very complex rule that only allowed 30 percent of small business income to be taxed at the lower rate of 25 percent with the rest of the business income taxed at the business owner's individual income tax rate, which could be as high as 39.6 percent. Many small business owners — about 87 percent — already pay the 25 percent rate (or less) because they don't make enough money to pay more. The Senate plan tries to expand the benefits to more business owners.
7. The Senate bill keeps seven tax brackets. In an effort to simplify the tax code, the House plan cut that to four brackets, but the change cost $1 trillion over the next decade because some filers (especially those earning between roughly $500,000 to $1 million) ended up paying less. The Senate bill keeps all seven brackets, but it lowers the top bracket from 39.6 percent to 38.5 percent.