Senate Republicans revealed an amended tax reform bill late Tuesday night that would phase out the individual tax reductions in order to make the budget math work.
In the altered bill released by Senate Finance Committee Chairman Orrin Hatch, R-Utah, all the tax breaks on the individual side of the code — including the lower tax rates, doubled standard deduction, expanded child tax credits, and tax cuts for noncorporate businesses -- would revert back in 2025. The only major individual change that would remain in place is a stingier measure of inflation that would effectively raise taxes over time by pushing families into higher tax brackets.
Those stark changes are meant to address the problem facing the original bill, namely that it would have run afoul of budget rules by adding to deficits beyond the 10th year. By conflicting with the rule, the bill could not proceed through the reconciliation process that would allow it to avoid a Democratic filibuster.
The updated bill appears to accord with the Senate rules. It is a $1.4 trillion tax cut over 10 years that turns into a tax hike over time, raising $30 billion in the 10th year, according to Congress' Joint Committee on Taxation.
The improved score is partly a reflection of the fact that many individual tax breaks expire. Also, Republicans had announced earlier Tuesday the the amended bill would repeal Obamacare's individual mandate penalties, a change that freed up $318 billion over the decade.
That repeal would raise revenues and reduce spending, allowing those funds to be dedicated to lowering the planned 22.5 percent bracket to 22 percent; the 25 percent bracket to 24 percent; and the 32.5 percent to 32 percent.
The bill's child tax credits would also be made more generous, increased from a proposed $1,650 to $2,000. That level was a major ask by Republican senators Marco Rubio of Florida and Mike Lee of Utah. The credits, however, would also phase out in 2025.
The child credits would also be available to fewer high-earning families than previously envisioned, phasing out at $500,000 for married couples rather than $1 million. Nor would the credits be refundable to families that don't have taxable income, as some Republicans sought, meaning that many low-income parents wouldn't benefit.
“Remaking the tax code in a way that will lift hardworking, middle-class families has been among the chief goals of our effort,” Hatch said in a statement.
With Tuesday night's amendments, Senate taxwriters effectively placed the same bet that their House counterparts did a week earlier, setting some of the most popular tax breaks to be temporary and counting on future congresses to renew them.
Though many of the individual tax breaks would expire, the lower 20 percent corporate tax rate would be made permanent. Republicans have maintained that a permanently lower corporate tax rate will lead to a surge in business investment, pushing up wages.
For businesses that file through the individual side of the tax code, though, such as sole proprietorships, partnerships, and S-Corporations, the tax breaks would be sunset in 2025 along with the other individual tax cuts.
Nevertheless, the National Federation of Independent Business, a key small business group comprising many such pass-through companies, endorsed the amended bill as it was released Tuesday night.
The amended bill also included a raft of small miscellaneous changes. It would lower excise taxes on alcoholic beverages through a bill originally offered as an amendment by Sen. Rob Portman, R-Ohio. It would allow special write-offs for the costs of replanting citrus trees damaged by storms, a policy sought by Florida lawmakers. It would double the deduction for the cost of school supplies purchased out-of-pocket by teachers, a break that Sen. Scott Brown, D-Ohio, had proposed as an amendment.
The Senate Finance Committee is scheduled to resume considering the bill Wednesday morning with the goal of advancing it to the full Senate on Thursday.