The Senate and the House are both moving forward with efforts to overhaul the country’s tax code, but the two houses are taking different approaches.
The Senate Finance Committee and the House approved versions of their plans last week.
“When comparing the plans, it’s clear there will be many difficult issues to overcome when the bills go to conference,” said Shawn McBurney, the Society of American Florists’ senior director of government relations.
Many of the differences involve issues that affect floral industry businesses.
- “Individual Mandate”: The Senate bill would repeal the fine imposed on individuals who do not purchase health insurance, often referred to as the “individual mandate.” The House version does not include that provision. Including that measure in the bill introduces a new level of acrimony into what is already a politically-charged climate.
- Section 179: Both bills modify Section 179 deduction and bonus depreciation. Under current law, $500,000 can be deducted and spread it out over many years. The House legislation would increase that deduction to $5 million and allow it to apply to both new and used purchased assets, while the Senate version would raise it to $1 million and continue to apply it only to new assets. Both bills would allow 100 percent expensing, which would expire in five years instead of being made permanent.
- AMT: Both versions would Eliminate the Alternative Minimum Tax (AMT).
- “Carry-back” provisions: Both bills would restrict “carry-back” provisions. Under current law, businesses can “carry back” net operating losses to the previous five years to offset a profit in order to reduce their tax liability. The House would allow for only a one-year carry-back in the case of a natural disaster, while the Senate would allow for two years.
- Business interest deduction: Both the House and Senate would restrict business interest deductions based on an entity’s size. The House would impose limits for businesses with more than $25 million in gross receipts, while the Senate would set the level at $15 million.
- Corporate rate: Like the House, the Senate would reduce the corporate tax rate to 20 percent, but does so in 2019 rather than 2018 as the House bill would.
- Pass-through businesses: The Senate approaches the taxation of pass-through businesses differently than the House. Pass-throughs are small businesses organized as sole proprietorships, partnerships, limited liability companies and S corporations and are taxed at the individual tax rate.The Senate bill creates seven individual rates, at which pass-throughs would be taxed – 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 38.5 percent. A 17.4 percent deduction on pass-throughs is included for those with income up to $500,000 for joint filers.
The Senate rates would expire at the end of 2025, reverting back to today’s rates.
- State and local taxes: The Senate bill would eliminate the federal deduction for state and local taxes, which differs from the House and is a major issue for many lawmakers from states that have high taxes.
- Estate tax: Instead of repealing the estate tax which the House bill would do in six years after doubling the exemption from the tax, the Senate would keep the tax and just double the exemption to $11 million.
Once the Senate approves its version of tax reform, it must be reconciled with the House-passed version that both chambers must pass and send to the president.
Republican leaders and President Trump have said they intend on enacting tax reform by the end of 2017.