After deliberating over amendments and debating for several hours, the Senate passed its version of tax reform at nearly 2 a.m. on December 2. The House passed its own tax reform bill on November 16.
As noted in the November 17, 2017 Week in Review, the Senate’s bill differs from the House version, and reconciling those differences into a bill that could be signed by President Trump will be a challenge.
Let’s take a quick look at the differences that affect small businesses:
Pass-through entities — One major difference is the treatment of pass-through entities, typically small businesses. The House-passed bill would tax pass-throughs at individual tax rates while the Senate’s bill would allow a 23 percent deduction of qualifying pass-through income and reduce the highest tax rate on pass-throughs to slightly less than 30 percent.
Direct expensing — The Senate bill would allow businesses to immediately and fully expense new equipment for five years. After that the provision is phased out by 20 percentage points per year. The House bill limits expensing to five years.
Alternative Minimum Tax (AMT) — The Senate amended its bill to keep the alternative minimum tax (AMT) in place but raises the amount of income exempt from it. The House bill would fully repeal the AMT.
Tax rates — The Senate bill makes reductions in individual tax rates temporary through 2025 as opposed to the House bill which lowered rates and reduced the number of brackets permanently. Both bills would permanently reduce the corporate tax rate to 20 percent, but the Senate bill would delay the reduction until 2019.
Health insurance — Significantly, the Senate bill retained the provision that repeals the fine imposed on individuals who do not purchase health insurance, often referred to as the “individual mandate.” The House version did not include that repeal.
Conferees from the House and the Senate must now meet to write a final bill that both chambers can pass. Republican leaders and President Trump have said they hope to have the final bill signed before Christmas, but we will make no predictions about that.
