Senate Passes Tax Bill in Sprint to Finish by Year-End
By Laura Davison, Allyson Versprille and Kaustuv Basu (Bloomberg Tax)
The Senate early Saturday passed a bill to overhaul the tax code in a bid to get a signature piece of legislation to President Donald Trump before the new year.
The Senate-amended bill passed on a vote of 51-49. The vote came after last-minute negotiations between Senate leadership and key holdouts who had concerns about the treatment of pass-through entities, the state and local tax deduction, and the effect the cuts would have on the budget.
The legislation calls for a 20 percent corporate rate, a 23 percent deduction for pass-throughs, and rate cuts for individuals, though the pass-through and individual provisions are set to expire in 2026. One last-minute change retained the state and local tax deduction—a $10,000 property tax write-off—making the Senate bill more like the House version.
Many Republicans who had been withholding support for the legislation in recent days announced they could vote for the bill Friday after getting a commitment from Senate leaders to address their concerns with the plan.
In the past few days, Sens. Ron Johnson (R-Wis.) and Steve Daines (R-Mont.) negotiated to increase the deduction for pass-throughs to 23 percent from 17.4 percent. The change means that top earning pass-through owners—those taxed at the 38.5 percent rate—would pay about 29.6 percent on their business income.
The Senate bill also included some revenue raising provisions to offset these costs. Among them, is a measure to maintain the corporate alternative minimum tax, as well as the individual AMT, but with higher exemption levels than under current law.
The bill would cost about $1.45 trillion over a decade, according to estimates from the Congressional Budget Office. A Joint Committee on Taxation dynamic estimate on a previous version of the bill said it would add about $1 trillion to the deficit over 10 years.
The bill didn’t include another change that would have appeased Sen. Bob Corker (R-Tenn.), the only Republican to vote against the bill. He sought to add a mechanism that would increase tax rates if the bill were to add to the deficit. Sens. James Lankford (R-Okla.) and Jeff Flake (R-Ariz.) had initially pushed for this provision, but voted for the bill despite saying they had concerns about the deficit.
Lawmakers adopted an amendment from Sen. Ted Cruz (R-Texas) that would allow funds from Section 529 savings accounts to be used for elementary and high school tuition. Vice President Mike Pence cast the tie-breaking vote on the measure. The chamber also adopted an amendment that would remove a provision from the bill excluding universities that don’t exempt federal funding from the excise tax on their endowments. Democrats said the language in the bill was an attempt to shield Hillsdale College, a conservative college in Michigan, from the tax. The underlying tax bill would exempt endowments worth more than $500,000 per student, an increase from a $250,000 per student threshold in earlier versions.
Lawmakers rejected an amendment from Sen. Marco Rubio (R-Fla.) that would have made the $2,000 child tax credit refundable, paid for by increasing the corporate tax rate to 20.94 percent from the 20 percent in the bill. Rubio said anyone who voted against the child tax credit amendment was essentially arguing that a lower corporate tax rate is more important than American families.
The House and Senate will now begin to work out any remaining differences between their two bills, including how to approach pass-through taxation and whether the plan should include an alternative minimum tax. The final product will have to pass both chambers before Trump can sign the bill.
Senate Majority Whip John Cornyn (R-Texas) said he thinks the bill will go to conference, citing pass-through and international provisions as areas that need to be reconciled.
Other Dec. 1 changes to the Senate bill include:
- a provision specifying that master limited partnership unit holders can claim the 23 percent pass-through deduction;
- a provision for cash distributions for an S corporation converting to a C corporation;
- higher repatriation rates on corporate profits held overseas— at 14.5 percent for cash and 7.5 percent for illiquid assets, up from 10 percent and 5 percent in an earlier version of the bill, two tax lobbyists told Bloomberg Tax;
- a lower threshold for deduction of medical expenses—7.5 percent of gross income for two years.
With assistance from Greg Sullivan (Bloomberg).
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