Senate Republicans began rolling out tax legislation Thursday that complements the House version but also departs from it in some key ways.
Among the major differences:
State and local tax deduction
The Senate bill would completely eliminate the deduction for state and local taxes. The House version allows taxpayers to deduct up to $10,000 in property taxes, a compromise with Republicans in high-tax states. The Senate GOP would eliminate deductions for property taxes and income or sales taxes, raising more revenue to devote to lowering tax rates.
Estate tax
The Senate legislation would double the exemption for the estate tax, which applies now only to estates over $11 million for couples.
The House bill calls for eliminating the estate tax after five years, and would immediately double the threshold.
Child tax credit
The Senate bill would increase the child tax credit from $1,000 to $1,650 and “substantially” increase the cap on income eligibility for the credit. That change would be permanent.
The House bill would raise the child tax credit to $1,600 and increase the income phase-out for claiming the credit from $110,000 to $230,000 for families. It also would create a new family tax credit of $300 that would have been available to parents. The family credit would expire after five years, although Republicans have said their intention is that future congresses would renew it.
Brackets
The Senate bill would create seven income tax brackets: 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent, and 38.5 percent.
The purpose of retaining that number of brackets, a Senate Finance aide said, would be to deliver tax relief to families through rate cuts, offsetting the elimination of the state and local tax deduction and the elimination of personal exemptions.
The House, by contrast, seeks to ensure tax cuts for middle-class families in part by including the $300 parent credit. It set rates of 12 percent, 25 percent, 35 percent, and 39.6 percent.
Mortgage interest deduction
The Senate bill preserves the mortgage interest deduction, available for home loan balances of up to $1 million.
The House plans to cap it at $500,000.
Although the upper chamber retains the break, far fewer people would claim it because the Senate, like the House, aims to double the standard deduction. People have the choice between taking the standard deduction or itemizing specific deductions such as the one for mortgage interest.
Other individual tax breaks
The Senate would retain deductions for student loan interest and teachers’ expenses, as well as an adoption tax credit.
The House would eliminate those, although it sought Thursday afternoon to amend its bill to reinstate the adoption credit.
Small business tax rate
While the House bill would create a special new 25 percent tax rate for small businesses that file through the individual side of the code, such as sole proprietorships and partnerships, the Senate would go in a different direction.
The Senate would create a deduction for the income of such pass-through businesses. Although a Senate aide said the size of the deduction was still being adjusted as of Thursday afternoon, it would translate to a tax rate in the “low 30s” for higher-earning businesses. While the top rate would be higher, making it less favorable to big pass-through businesses, the tax cuts on lower levels of income might please smaller businesses.
