On Thursday, November 2, 2017, the U.S. House of Representatives issued its version of a tax reform bill, the “Tax Cuts and Jobs Act.” If all goes as planned, the natural timeline would allow the House an editing and deliberating period until November 13, at which time a vote would be taken. Once (and if) the House passes the bill by a majority vote (at least 218 of 435), it would then move on to the Senate for review. Following normal process, the Senate would either approve or revise the bill, then it would go back to the House for a second review and vote.
But the Senate isn’t waiting around for the House to complete its end of the process, and was actually expected to unveil its own bill to reform the tax code on Thursday, November 9; however, the Senate Committee on Finance only released some Policy Highlights (see separate post). Senate Republicans claim their bill will avoid adding a massive increase to the federal deficit and will work within the parameters of the “Byrd Rule,” which does not allow reconciliation legislation to add to the deficit past the budget window, in this case, 2027. This means that in order for the House bill to pass in the Senate with fewer than 60 votes (reconciliation method), the increase to the deficit must stop accruing after 10 years. It’s a major concern to Senate leadership that the House’s bill will fail under the Byrd Rule in its current form, in which case it will need to pass the Senate by a two-thirds vote, as it will not be eligible for a reconciliation vote.
Since it appears likely there will be separate House and Senate versions of the bill, as discussed in an earlier article, the two groups would form a joint committee that would attempt to arrive at a compromise version. The House and Senate will need to work out any differences between the two bills for the measure to move forward. A compromise version could then be sent to both the House and the Senate for their separate approval, a process that may take time.
There is a much speculation on what will be included in the Senate’s version of tax reform bill. Already, there’s movement in the Senate proposing a one-year delay before the cut in corporate tax rates from 35% to 20% would take effect. The Senate appears to also be toying with seven individual income tax brackets as compared to the four brackets in the House version. These proposed moves appear to be setting up a fight with the House over some fundamental pieces of tax overhaul.
Some of the additional expected highlights of the Senate’s version of tax reform include keeping the $1 million dollar mortgage interest deduction limit for new home sales, differing from the House bill, which places a $500,000 cap on the deduction. The Senate has also made commentary outwardly against the new method in which the House wishes to tax pass-through business revenue (70% of wages taxed at the individual rate and the remaining 30% tax at a new rate of 25%), due to a fear that it will hurt small businesses.
While there is an immense amount of back-and-forth between the two chambers, only time will tell what will make it into the final bill. It’s important to remember that the “ideal” timeline is not a hard and fast rule. There is a reason Congress has not reformed the tax code in over 30 years, and it likely stems from the complexity.
Please return to the Our Thoughts On...Tax Reform blog for more updates as they become available.