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$1.5 Trillion Tax Reform Plan Signed Into Law

The bill was the most significant overhaul of America’s tax system in decades and a legislative victory for the President,
who has struggled during his first year in office to pass major bills that would deliver on campaign promises,
even with Republicans having the majority in both chambers of Congress.

Under the new law, individual tax rates will be lowered, but those cuts are set to expire in 2025. The standard deduction, which will almost double, is likely to become more popular. The tax credit for children will also double, which Republicans have said will benefit lower-income families. The largest cut in the new tax law — which will not expire — benefits corporations.

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BREAKING: Senate Passes Sweeping Tax Rewrite

by MICPA | Dec 02, 2017
Senate Republicans announced early Saturday morning they have passed - by the slim margin of 51 to 49 – their version of the Tax Reform Bill.

The Votes Are In Before Breakfast!

Senate Republicans announced early Saturday morning they have passed - by the slim margin of 51 to 49 – their version of the Tax Reform Bill.  After a frantic round of negotiations, the Republicans came together almost unanimously, with Senator Bob Corker of Tennessee the lone GOP holdout. Democrats collectively opposed the bill. The centerpiece of the plan is a move to lower the corporate tax rate from 35 percent to 20 percent, starting in 2019. The Senate tax bill would also temporarily cut tax rates for families and individuals until 2025.

On Friday, Republican Senators Jeff Flake of Arizona, Ron Johnson of Wisconsin and Susan Collins of Maine, got on board with their party’s plan, supplying the votes needed and clearing yet another hurdle on the path of this administration’s reformation of the tax policy. Senator Flake said he had secured leadership backing for two priorities: one related to how businesses can deduct major investments like equipment purchases; and the second involving a solution for immigrants brought without authorization to the United States as children. 

“Having secured both of those objectives, I am pleased to announce I will vote in support of the tax reform bill,” Flake said in a statement.

Senator Johnson announced he was on board after leadership sweetened the deal for certain businesses whose owners pay taxes through the individual code rather than at corporate rates.  

Pass-Through Businesses Score A Significant Victory
The Senate bill will improve the tax deduction for owners of businesses that are organized as pass-through entities, meaning the business income is taxed at the individual owner’s tax rate.

The Senate bill will now allow those pass-through owners to deduct 23 percent of their business income, up from 17.4 percent in the original bill, and also slightly below the 25% deduction in the House version of the bill.

The change is estimated to cost the United States government $114 billion over a decade.

Obamacare Takes A Hit
Also included in this version of the Senate bill is repeal of the individual mandate from the Affordable Care Act, a major change that was added in recent weeks as part of a broader effort to dismantle the Obama-era law, which mandates penalties for many Americans who don’t have health insurance.

What Happens Next
While this vote clearly marks a victory for the Republican Tax Reform effort, it is not the end of the process. The bill still needs to reconcile with the House-passed legislation, something GOP leaders hope to do before the December 8 deadline, when government funding would expire. The House and Senate bills overlap in many ways, and lawmakers expressed optimism about getting a final deal done before the holiday break.

“The bills are not all that different,” said Senate Majority Leader Mitch McConnell. “We tried to move ours somewhat in the House direction.”

For months, Republican leaders have held weekly meetings so that the tax plans they unveiled would be largely unified, making it possible for legislation to sail through Congress before the end of the year. However, the House and Senate proposals vary on a few important provisions that will be challenging for lawmakers to rectify in the coming weeks, in part because of competing political priorities facing lawmakers in each chamber.

Key Differences To Keep An Eye On

House Bill

Senate Bill

Top individual rate

39.6%

38.5%

Number of individual brackets

Four

Seven

Student-loan interest rate deduction

Eliminates

Preserves

Medical expense deduction

Eliminates

Temporarily expands

Child tax credit

$1,600 per child

$2,000 per child

Corporate tax rate reduction

Starts in 2018

Starts in 2019

Business Investments

Full expensing, expires after 2022

Full expensing, phases out after 2022

  

Other Items Of Note

  • AMT -To balance the proposed deficit, the Alternative Minimum Tax or AMT is not fully repealed.
  • State and Local Tax Deduction

The stickiest issue thus far has been the state and local tax deduction, which allows people to deduct their state and local income, sales and property taxes.

The House Bill: Limits the deduction to just property taxes and caps it at $10,000.

The Senate Bill: The original bill called for the elimination of the SALT deduction entirely, but Senator Susan Collins, Republican of Maine, insisted on including the limited property tax deduction of up to $10,000. 

For more information, visit the MICPA’s tax reform resources page and check back often for additional updates.

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