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Senate Tax Bill Clears Finance Committee; Floor Debate Expected This Week

(Parker Tax Publishing November 2017)

Shortly before heading off for Thanksgiving recess, the Senate Finance Committee approved its version of the Tax Cuts and Jobs Act (TCJA) by a vote of 14 to 12, setting the stage for floor debate and a possible vote on the bill later this week. H.R. 1-Senate (11/16/2017).

The Finance Committee vote on TCJA ("Senate Bill") came just hours after the House passed its own version of tax reform ("House Bill"), 227 to 205.

For individuals, the most notable provisions of the Senate Bill include the reduction in most income tax rates, the increase in the standard deduction along with the repeal of the personal exemption deduction, the doubling of the child tax credit, the elimination of the state and local tax (SALT) deduction, a reduction in the amount of gain on the sale of a principal residence that is excludible from income for certain high-income filers, the elimination of numerous other deductions, the elimination of the alternative minimum tax (AMT), the repeal of the Affordable Care Act's individual healthcare mandate, and an increase in the exemption under which an individual's estate is exempt from the estate tax. Under the Senate Bill, the reduced income tax rates, the elimination of the AMT and the elimination of most deductions are set to expire after December 31, 2025.

For businesses, key provisions include the reduction of the corporate tax rate to 20 percent, increased expensing of qualified property placed in service during the year, a new 17.4 percent deduction against certain pass-through entity income, the repeal of numerous business credits, such as the work opportunity credit, the repeal of the deduction for income attributable to domestic production activities, and the repeal of the like-kind exchange rules for exchanges of other than real property.

The Senate Bill has dozens of provisions that differ from the ones in the House Bill, not the least of which is a fundamentally different approach to the new tax break for pass-through entity income. For a rundown of the key differences, see the see the November 16, 2017, issue of Parker's Federal Tax Bulletin (PFTB 2017-11-16).

Before moving to the Senate floor, the Senate Bill will face one last procedural hurdle. On Tuesday, the bill will be taken up by the Senate Budget Committee, on which Republicans hold a single seat majority. Senator Ron Johnson (R-WI) and Bob Corker (R-TN), both of whom are seen as potential "no" votes on the Senate Bill, hold seats on the Budget Committee.

If approved by the Budget Committee, floor debate on the tax bill is expected to begin on Wednesday, with a possible vote to follow later in the week. Unlike the House Bill, which was subject to a straight up or down vote when it reached the House floor, the Senate Bill will be open for amendments and is widely expected to be modified in order to win over wavering members. The Wall Street Journal has reported that changes may include adding a provision similar to the one in the House Bill allowing taxpayers to deduct state and local property taxes, with limits. A tweet by President Trump on Monday indicated that a sweetening of tax breaks on pass-through income may also be in the works.

As with healthcare repeal, Republicans can only afford to lose only two members of their own caucus if Democrats are unified in opposition. Republicans who have voiced the strongest opposition to the current version of the Senate Bill include -

(1) Ron Johnson (R-WI) - concerns that pass-through entity tax breaks are not sufficiently generous;

(2) Susan Collins (R-ME) - concerns over the repeal of individual healthcare mandate and benefits of the bill being tilted too strongly to high income taxpayers;

(3) Jeff Flake (R-AZ) - concerns about the impact of tax cuts on the federal deficit; and

(4) Bob Corker (R-TN) - concerns about the impact of tax cuts on the federal deficit.

John McCain (R-AZ), who has generally praised the Senate Bill, is nonetheless considered a possible "no" because of concerns about its impact on defense spending. At press time, his stated position on the bill is "undecided."

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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