Economy & Business

House and Senate Tax Plans: A Comparison

House Ways and Means chairman Kevin Brady (left) and fellow GOP congressmen unveil the GOP tax plan. (Reuters photo: Joshua Roberts)
Some differences are cosmetic, but others run deep.

With the House version of the GOP tax reform passed and the Senate version approved by the Finance Committee, we are getting closer to landing a bill on the president’s desk. Once the Senate finishes and passes its bill, the two houses of Congress will have to agree to, and pass, a final version.

Here are some of the differences between the bill the House passed and the one the Senate is working on. Both prioritize simplification of the tax code. Some differences are just a matter of amounts, but others involve competing approaches to key issues.

1. Tax Brackets: The Senate bill keeps seven brackets, whereas the House bill consolidates them to four.

2. Top Rate: The House bill keeps a top rate of 39.6 percent, but the Senate version reduces this to 38.5 percent.

3. Standard Deduction: Both plans roughly double the current standard deduction, but the new one is slightly higher in the House plan than in the Senate one: $12,200 vs. $12,000 for single filers, $18,300 vs. $18,000 for heads of household, and $24,400 vs. $24,000 for joint filers.

4. Individual Mandate: The Senate tax bill includes a repeal of the mandate for individuals to buy health insurance, whereas the House wanted to vote on that separately.

5. Child Tax Credit: The Senate plan increases the child tax credit to $2,000 from its current $1,000 per child, whereas the House plan increases it to $1,600, plus a new $300 credit for parents and non-dependent children. However, counteracting both the increased standard deduction and the higher credits, the plans eliminate personal and dependent exemptions.

6. Mortgage-Interest Deduction: The Senate plan keeps the current mortgage-interest deduction (which applies to the first $1 million in principal) for home purchases but eliminates it for equity debt. The House plan limits the deduction to the first $500,000 in principal but grandfathers homes that have already been purchased. It would also remove the deduction for second homes and for equity debt.

7. Estate Tax: The House plan would increase the exemption to $10 million (up from the current $5.49 million) and repeal the tax entirely after six years. The Senate plan would double the exemption but leave the tax in place.

8. State and Local Tax Deductions: Both bills eliminate the state- and local-tax deduction, except for businesses. However, the House version retains local property-tax deductions (capped at $10,000).

9. Corporate Tax Rate: Both plans reduce the rate to 20 percent from 35 percent, but the House plan would be effective from fiscal year 2018, whereas the Senate plan would start the lower rate in 2019.

10. Pass-Through Businesses: Traditionally, income from these businesses (such as sole proprietorships, S-corporations, and partnerships) has been taxed as personal income for their owners. The House plan introduces a 25 percent direct tax instead. It also places into effect safeguards so that the provision cannot be abused (with people reclassifying normal income as small-business income). The Senate approaches the problem differently, creating a 17.4 percent tax deduction for certain pass-through income.

Thomas Massie (R., Ky.) indicated that the House is likely to go along with whatever the Senate passes, because passage in the Senate will be more difficult than it is in the House. Not only is the Senate more evenly divided politically (52–48), but it’s where the strictest rules of the “reconciliation” process are enforced. This means, for example, that the bill can’t increase deficits outside a ten-year budget window — a rule the House’s bill breaks.

Perhaps the lower chamber will accept the Senate plan across the board.

It would not be difficult for the House to adopt the Senate’s child-tax-credit amount, standard deduction, or corporate-tax-cut start date. Some members of the House might find other differences harder to swallow, though, such as the Senate’s policies regarding pass-through business income and the estate tax. And the Senate may yet change its own bill before passing it, perhaps to something a bit closer to the House legislation.

To pass the Senate, however, the bill needs to broadly satisfy both the fiscal conservatives and the moderates in the chamber. And the bill will need to pass the Senate again after the conference committee, so some of the more politically unpopular elements of the House plan will likely be left behind.

Given that the House shifted from a deficit-neutral proposal last month to echoing the Senate’s apparent willingness to run deficits, perhaps the lower chamber will accept the Senate plan across the board. After all, the existing Senate plan would achieve some long-time GOP tax priorities, such as lower taxes for small businesses, and a more competitive corporate rate. Given how quickly this process has moved so far, we’ll probably know soon enough.


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— Jibran Khan is the Thomas L. Rhodes Journalism Fellow at the National Review Institute.