Updated: Thursday, November 9, 2017, 4:28 PM
WASHINGTON – Senate Republicans unveiled their tax plan Thursday, another step forward in President Trump’s bid to do the biggest overhaul of the U.S. tax code since President Ronald Reagan was in office in the 1980s.
The White House has indicated that the Senate bill, which is starkly different from the House plan, is the one to watch. Earlier this week, Trump told a few Democrats that they would like the Senate bill “a whole lot more.” But eventually, the House and Senate will have to agree on one bill, a major challenge as Republicans try to get legislation to the president’s desk by Christmas.
Here are five major ways the Senate bill differs from the House plan that came out last week — and what those changes mean for everyday Americans.
All state and local tax deductions (SALT) are gone. Taxpayers would lose the ability to deduct their state and local property and other taxes from their federal taxes, a break used by about 44 million people (or 30 percent of tax filers.) This is a major change to the tax code that mostly affects people earning more than $100,000 a year. Filers have been able to deduct state and local taxes since 1913. Eliminating SALT entirely would disproportionately affect people living in high-tax states such Connecticut, New Jersey, New York and California. A number of Republican House members insisted on only a partial repeal in the House bill, but the Senate has gone for a full repeal in an effort to raise more money to pay for tax cuts elsewhere.
The mortgage interest deduction stays. The current mortgage interest deduction rules remain intact in the Senate plan: Americans would still be able to deduct the interest they pay on the first $1 million of mortgage debt. The House plan reduced that threshold for new mortgages to $500,000, causing outcry from some real estate agents and builders as well as congressmen who represent areas with extremely hefty real estate costs. But while there was pushback on the House plan, the reality is only about 6 percent of new mortgages are valued at more than $500,000, according to a report by the United for Homes campaign.
The estate tax stays. The estate tax (often called the “death tax” by critics) currently affects about 5,000 wealthy families a year. It is only assessed on property, stocks or other assets worth more than $5.49 million when they are passed on to heirs after the owner dies. Sen. Susan Collins (R., Maine), a key swing vote, has said she will not vote for a bill that gets rid of the estate tax. The House bill would eliminate the estate tax entirely in 2024, a move that was heavily criticized as a giveaway to the mega-rich, including the Trump family. The Senate bill keeps the estate tax.
Corporations don’t get the 20 percent rate until 2019. The centerpiece of the GOP tax bill is lowering the tax rate for big businesses, since many argue American companies have to pay far more than their overseas competitors. The Senate bill would still reduce the top corporate rate from 35 percent to 20 percent, but it wouldn’t start the new lower rate until 2019. The House bill starts the 20 percent rate in 2018. The Trump administration wants the lower rate to begin next year because the White House believes that would help boost growth, but the Senate needed to find savings somewhere to make the bill comply with a Senate accounting rule known as the Byrd Rule.
The Senate bill keeps 7 tax brackets. In an effort to simplify the tax code, the House plan cut that to 4 brackets, but the change cost $1 trillion over the next decade because some filers (especially those earning between roughly $500,000 to $1 million) ended up paying less. The Senate bill keeps all 7 brackets.
Read full story: 5 big changes in the Senate tax bill (and what they mean for you)