This week MMG was tracking the differences in the tax reform bills coming out of Congress while keeping an eye on how the Virginia election results could impact the GOP’s tax reform strategy.
Breaking Down the Senate and House Tax Bills
Key differences exist between the Senate and House tax reform bills, Politico reports. Here are the highlights:
- Corporate Tax: The Senate would implement a 20 percent corporate tax rate starting in 2019; the House would implement it immediately.
- Individual Taxes: The Senate would keep seven individual tax brackets; the House would lower the number to four.
- State and Local Taxes: The Senate would fully eliminate the ability to deduct state and local taxes; the House would allow up to $10,000 in state and local property taxes to be deducted.
- Estate Tax: The Senate would double the current exemption to $11 million for individuals and $22 million for a married couple; the House would double the exemption, then repeal it in 2025.
- Mortgage Interest Deductions: The Senate would preserve the mortgage interest deduction; the House would halve it to $500,000 and disallow a deduction on second homes.
- Student Loan Interest and Medical Expenses: The Senate would keep the deductions for student loan interest and medical expenses, as well as adoption credits. The House would eliminate the deductions for medical expenses and student loan interest.
- Child Tax Credit: The Senate would expand the credit to $1,650 per child; the House would expand it to $1,600 with a “$300 credit for a taxpayer, his or her spouse, and dependents who are not children under 17.”
- Pass-Through Businesses: The Senate would create a deduction that effectively creates a tax rate for pass-through entities in the low 30 percent range. The House would implement a 25 percent rate for pass-throughs, though this would generally only apply to the first 30 percent of a business owner’s income.
Still SALTy About the Mortgage Interest Deduction
Tax reform just got a little bit harder in the wake of the Virginia elections, according to the WSJ. With Democrats potentially retaking the Virginia state legislature for the first time since 1999, Republicans need to have a comprehensive legislative win to retain the House in midterm elections. A majority of Republican voters in high-tax states want a comprehensive tax reform package passed, but these same voters would be hit hardest by repeal of the state and local tax, or SALT, and mortgage interest deductions.
A House Divided
Twenty-nine Republicans in the House will not be seeking reelection, per The Hill. Democrats need to secure 24 seats in order for them to gain a majority. Republicans’ failure to repeal and replace the Affordable Care Act and their dwindling approval ratings make a change in the party controlling the House increasingly likely. This should (and has) lit a fire under the Republican leadership to pass a tax reform package this year—but will that be enough?
Ben Marsico works on public policy issues for ACG.