Overview of Tax Reform Legislation

On Thursday, November 2, Ways and Means Committee Chairman Kevin Brady (R-TX) released long-awaited tax reform legislation.  The major highlights of the bill include: 

• New individual tax brackets:
  • 12% (up to $45,000 for individuals, and $90,000 for married couples)
  • 25% ($45,000-$199,999 for individuals, and $90,000-$259,999 for married couples)
  • 35% ($200,000-$499,999 for individuals, and $260,000-$999,999 for married couples)
  • 6% ($500,000 and above for individuals, and $1 million and above for married couples)
• Corporate tax rate is reduced from 35% to 20%.
• Business income rate is lowered to 25%.
• Moves to a territorial tax system from the current worldwide system: There is a 10% tax on high-return profits, which is likely to apply to multinationals who store intellectual property overseas. There is a two-tier repatriation rate of 12% for cash held offshore and 5% for noncash.
• Standard Deduction increased from $6,350 to $12,000 for individuals and from $12,700 to $24,000 for joint filers.
• Increases Child Tax Credit from $1,000 to $1,600.
• Reduces home mortgage interest deduction cap from the current $1 million to $500,000 on newly purchased homes.
• Retains Low Income Housing Tax Credit.
• Retains Research and Development Tax Credit. 
• Caps state and local property tax deduction at $10,000.
• No change to 401(k) accounts.
• Repeal of Alternative Minimum Tax.
• Elimination of student loan deduction, medical expense deduction, adoption tax credit and electric vehicle tax credits.
• Business interest deductibility capped at 30% of interest.
• Doubles Estate Tax threshold and eliminates the tax after six years.
• Provides for immediate expensing for businesses.
• Terminates New Markets Tax Credits – none issued after 2017.
• Repeals the Historic Preservation Tax Credit.
• Repeals the tax-exempt status of Private Activity Bonds.
• Terminates tax credit bonds – none issued after 2017.
• Terminates tax-exempt bonds for professional sports stadiums.

Click here for a section-by-section summary of the bill. 

Timeline for Legislative Activity 

The House is expected to move at a brisk pace to pass tax reform legislation before Thanksgiving. The House Ways and Means Committee has announced a multi-day markup scheduled to begin at noon on Monday, November 6.  The markup is expected to last most of the week, but there is little doubt the bill will be approved by the Ways and Means Committee before next Friday. Approval in Committee sets the stage for consideration of the legislation by the full House of Representatives during the week of November 13. Chairman Brady has already said a revised draft (referred to as a chairman’s mark) responding to early feedback will be released today. 

The Senate is still aiming to release its version of a tax reform bill next Wednesday, November 8, with a markup expected during the week of November 13 and consideration in the Senate the following week. Of course, as is always the case in Washington, all or any part of this plan could be delayed as Republicans work to resolve any issues that would prevent them from getting the votes necessary to pass tax reform. It is expected that the House and Senate bills will have a number of significant differences that will need to be resolved.

As a reminder, Republicans are using a procedural maneuver known as reconciliation to move this bill out of the Senate with just a simple majority, rather than the 60 votes typically needed for legislation to pass out of that chamber. This means the bill can pass the Senate on a strict party line vote (even if two Republicans vote against the bill). With this slim margin, it is our expectation the final version of tax reform will likely be closer to the Senate-passed bill than the House bill. The goal of Congressional leaders and President Trump is to have tax reform legislation signed into law before the end of the year.