Coming Down the Home Stretch on Tax Reform

Congress Architect of the Capitol/WikipediaThe House and Senate passed their own versions of a tax reform bill surprisingly fast. But now the hard work starts, as they need to turn those two bills into one. The trick is to produce a bill that can pass both chambers again, meaning a bill that appeases some powerful interest groups while still making the budget math work.

In some respects, this conference process may be easier than we think. Once lawmakers have come this far with such a big bill—when stakes are this high—it’s hard to imagine them not doing everything they can to cross the finish line. Helping in the process is the fact that their bills aren’t so vastly different in terms of philosophy and provisions that it makes reconciling differences impossible.

For instance, both bills would permanently lower the corporate income tax rate to 20 percent. They would get rid of the state and local tax deduction but retain a $10,000 exception for property taxes and make changes to the mortgage interest deduction. They both would improve investment taxes and allow 529 college savings accounts to apply to some primary and secondary education expenses.

Yet they aren’t identical. Some differences are small, such as the date of implementation of the corporate income tax reduction; the House chose 2018, and the Senate bill says 2019. Also, the Senate bill would sunset many of its provisions, including the child tax credit expansion and the reductions in individual rates, and the House bill wouldn’t. But most people agree that this is a budget gimmick to make the math work in the Senate and that most of the sunset provisions would be extended when the time comes.

Other differences are big. For instance, both chambers adopted very different treatment of pass-through income (for businesses such as partnerships, sole proprietorships, S corporations and limited liability companies), with the Senate bill making it so generous that it could lead to further problems down the road. Another major difference to overcome has to do with the monstrous alternative minimum tax.

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