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Tax Reform: Senate, House — Comparing Apples to Apples

Posted By Administration, Tuesday, November 14, 2017

The House has a tax overhaul plan and the Senate has a tax overhaul plan. One Republican Senator — South Dakota’s Mike Rounds — put it this way. The House bill is the first draft and the Senate bill is the first rewrite.

“I like it better than what I saw in the House version. The Senate was able to learn a lot from what the House found out,” Rounds said.

There are lots of differences in the two bills yet much is the same. The Senate — however — is moving more in the direction of two important groups want. They are the National Association of Home Builders (NAHB) and the National Federation of Independent Business (NFIB) and are dissatisfied with what the House put forth.

PIA National doesn’t like the House bill because it doesn’t do enough for small business. “PIA members own their own independent insurance agencies and are small business owners. Because most small businesses are organized as sole proprietors, partnerships, or Subchapter S corporations, they do not pay corporate income tax. Instead, their income ‘passes through’ the firm and appears directly on their owners’ individual tax returns, where it is taxed as normal income,” PIA said in a statement.

The association’s Vice President of Governmental Affairs Jon Gentile expanded on the statement. He said, “We are concerned the legislation may not adequately benefit small business owners who organize as S corporations. We will continue to study this proposal and work to ensure that tax reform provides the badly needed relief for small business owners. PIA looks forward to working with Congress and the administration to address our concerns.”

PIA National has not — at least at press time — not commented on the Senate bill.

The reforms proposed by both legislative bodies and the president are not without controversy. As expected and predictably, the Democrats are calling this a huge gift to the rich and corporations. Oregon Sen. Ron Wyden is on the Senate Finance Committee and he said this is “a massive handout to multinational corporations and a bonanza for tax cheats and powerful political donors.”

Just as predictably, Republicans and the president pooh-pooh that notion. Senate Finance Committee Chairman Sen. Orrin Hatch of Utah said, “This bill is not a massive tax cut for the wealthy. ... This is not a big giveaway to corporations.”

Both versions of tax reform have their controversial parts. Here are the differences between the two versions.


Tax brackets: The House has four brackets:

  12% for income to $90,000

  25% for income to $260,000

  35% for income to $1 million

  39.6% for income over $1 million


The Senate has seven brackets

  10% — up to $9,525

  12% — up to $38,700

  22.5% — up to $60,000

  25% — up to $170,000

  32.5% — up to $200,000

  35% — up to $500,000

  38.5% — $500,000 and beyond


The 38.5% figure comes into play at $500,000 for individuals and at $1 million for couples.

Who sees tax cuts in the Senate plan? The New York Times did an analysis and found lower income earners will see less of a cut than those with higher incomes:


Under $30,000

  36% will see a cut

  61% will see on change

  3% will see an increase


$30,000 to $50,000

  57% will see a cut

  27% will break even

  15% will see an increase


$50,000 to $75,000

  73% will see a cut

  9% will see no change

  17% will see an increase


$75,000 to $100,000

  78% will see a cut

  0% will see no change

  21% will see an increase


$100,000 to $200,000

  64% will see a cut

  0% will see no change

  36% will see an increase


$200,000 to $500,000

  67% will see a cut

  0% will see no change

  33% will see an increase


$500,000 and up

  82% will see a cut

  0% will see no change

  18% will see an increase


The Congressional Joint Committee on Taxation said the Democrats — as the New York Times analysis just showed — may be right in their criticism. The committee’s analysis of the Senate bill says 13.8 million households earning less than $200,000 a year — that’s 10% of all taxpayers — will see tax increases not decreases.

The hike — if the Senate measure is passed — will be about $100 to $500 a year starting in 2019. Those in the $75,000 to $200,000 will see over $500 in increases.

By 2025 — the committee notes — 21.4 million households will be paying higher taxes.

And as we reported last week, the committee also found a similar situation with the tax structure of the House bill.

Hatch disagrees completely with the report. He contends “a relatively small minority of taxpayers could see a slight increase in their taxes.”

Senate Majority Leader Mitch McConnell agrees with Hatch. “Any way you cut it, there is a possibility that some taxpayers would get a higher rate. You can't craft any tax bill that guarantees that every single taxpayer in America gets a tax break. What I'm telling you is the overall majority of taxpayers in every bracket would get relief,” he said.


The corporate tax rate: The Senate will drop the corporate tax rate to 20%. That is exactly the same rate the House wants. However, the Senate’s will not go into effect until 2019 and the rate will be reduced over a 10 year period.

The House version cuts it to 20% starting next year.


Pass-through businesses: The Senate bill has a 17.4% deduction for pass-through businesses. Originally the House had a 25% rate but only 30% of revenue is eligible for that rate. The other 70% is taxed as wages under the individual rate. That will make the blended rate about 35% to 38% for many small businesses.

Wisconsin Republican Sen. Ron Johnson calls the House pass-through figures “completely unacceptable.” The NFIB has the same conclusion. It says the bill “leaves too many small businesses behind.”

The House amended the pass-through rate and sets it up this way:

  9% rate for the first $75,000 of income for a married active owner with less than $150,000 of pass-through income.


State and local taxes: Both bills do away with the deductions for state and local taxes. The House version will allow deductions for property taxes up to $10,000 but the Senate will not.


Home mortgage interest deduction: The Senate will allow the current deduction for the purchase of homes up to a price tag of $1 million. The House cuts that to $500,000.


Tax credits and deductions: Under both bills — since this is aimed at having fewer people itemize — you will not be able to deduct the cost of tax preparation.


The standard deduction the House:

  Single with no children — $12,000

  Married with or without children — $24,000

  The child tax credit goes up to $1,600 per child

  A $300 credit for each parent or non-child dependent through 2022


The standard deduction the Senate:

It’s the same $12,000/$24,000 standard deductions as the House. However, single parents will see deductions go to $18,000 from $9,300 and the child tax credit goes up to $1,650.

The upper chamber will also raise the income limit for the child credit. It starts phasing out at $1 million for married couples. The House starts phasing it out at $230,000.

The House eliminates deductions for medical expenses, teacher expenses, moving expenses and student loan interest. The Senate keeps them in place.

You can currently deduct out-of-pocket medical expenses that exceed 10% of your adjusted gross income. The Senate keeps that deduction while the House does away with it. The deduction is very helpful for elderly people and those with lower incomes needed regular care and assistance.

Student loan interest — at some income levels — can be deducted up to $2,500. The House does away with it. The Senate keeps it in place.

Currently you can deduct moving expenses — even if you don’t itemize — as long as your move is 50 miles or more. The House will drop moving expenses all together. The Senate bill does the same except it will allow some deductions for people moving who are in the military.


The estate tax: The Senate doubles the estate tax exemption from $11 million to $22 million per couple. For individuals it moves from $5.5 million to $11 million. The House bill does away with the tax entirely.

That’s the gist of both bills. But will they fly? Not if some of the wealthy have their say. Whether tax cuts are in the future or not, a group of 400 billionaires and millionaires have sent a letter to Congress saying they don’t want their taxes cut. It’s a who’s who list of entertainers, entrepreneurs, doctors and CEOs.

The signers include Ben & Jerry's Ice Cream founders Ben Cohen and Jerry Greenfield, billionaire George Soros, philanthropist Steven Rockerfeller and others who aren’t household names. They are the top 5% earners with $1.5 million in assets or more and who earn $250,000 a year or more.

The group — calling itself Responsible Wealth — contends the bill just helps the wealthy and the letter says do not pass a bill that further “exacerbates inequality” and that adds to the national debt.

One of the biggest criticisms is the changes in the estate tax. As noted earlier, taxes on estates are paid for individuals worth $5.49 million and $11 million for couples. The House bill does away with the tax entirely and the Senate doubles the threshold to $11 million for individuals and $22 million for couples.

Currently just 5,000 families a year are subject to paying the estate tax. The Senate bill turns that figure to 1,800. “Repealing the estate tax alone would lose an estimated $269 billion over 10 years — more than we would spend on the Food and Drug Administration, Centers for Disease Control, and Environmental Protection Agency combined,” the letter said.

Source links: The Hill, The Washington Post, The New York Times, MSN — link 1, link 2

Tags:  House — Comparing Apples to Apples  Insurance Content  Insurance Industry  Insurance News  Tax Reform: Senate  Weekly Industry News 

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