The House of Representatives and Senate each has its own tax reform bill. Here's where they stand in the legislative process and the major differences between the two bills that you should be aware of.
A full transcript follows the video.
This video was recorded on Nov. 20, 2017.
Michael Douglass: If we're going to talk about the GOP tax plan, first thing we have to admit is that there isn't one unified plan. The House of Representatives has passed a tax bill. The Senate is considering a second in addition to the House's, and it isn't clear where President Trump will fall on either or both proposals. There are some additional considerations, too. While both houses are controlled by the Republican Party, a narrow margin in the Senate means that a handful of Republican moderates, think folks like Sen. Murkowski from Alaska, Sen. Collins from Maine, and Sen. Heller from Nevada, have a lot more influence than more moderate forces in the House, where a larger Republican majority requires less compromise.
Matt Frankel: Right. This also makes it considerably harder to get tax reform passed in the Senate, because you can only afford to lose two Republican votes, and that's assuming that Vice President Pence is the tiebreaker.
Douglass: Right. And, also, that no Democrats vote for the bill, which may or may not end up being the case. We'll see.
Frankel: Yeah, assuming that no Democrats vote for the bills, which is a good assumption at this point. There's also, the other end of the spectrum, the more fiscally conservative Republicans, people like Sen. Rand Paul come to mind. They have to compromise somehow between the left side of the Republican Party -- the names that you just mentioned -- and the far right like Sen. Paul, and try not to alienate anybody, which is not an easy task.
Douglass: This is why major tax reform very rarely happens. Of course, we're not prognosticators here. I have no idea whether these bills are going to ultimately become law. But, it's certainly interesting to talk through some of those potential differences. Of course, a clear example of this push-pull is on tax brackets. You look at the Senate proposal: It keeps all seven current tax brackets we have for income tax, but changes them a little bit, while the House simplifies them down to three.
Frankel: Right. The House's plan is more in line with what President Trump was saying on the campaign trail, it goes more along the line of simplifying, not just being a tax cut. Instead of seven tax brackets, there's three, and they're keeping the highest rate for people who make over $1 million. So, it's more of a simplification than just a cut. Whereas the Senate essentially lowers the tax rates across the board, with the exception of the lowest 10%, and the 35% bracket. Like, you said, it's more of a cut than a simplification, which is kind of the goal of reform. So, the question is, are we going to get a tax reform, or are we going to get a tax cut? Those are two different things.
Douglass: Right, definitely. Speaking of tax cuts, generally speaking, you look at both bills, one of the things they had in common is they both double the standard deduction.
Frankel: Right. They both roughly double the standard deduction. The House's bill has slightly higher numbers in the language. I think that could just be because the House's bill is based on the 2018 figures and the Senate's is compared to the 2017 IRS figures. But, under the current law, single filers would get a $6,500 standard deduction, and married couples would get $13,000. The House and Senate make those roughly $12,000 and $24,000, respectively, but they get rid of the personal exemption, which for certain people, they would still come out ahead, but for others, like me, for example, it would hurt, because you get a personal exemption for every member of your household, and large families could definitely lose with this.
Douglass: Right. That's interesting. When I was thinking about beneficiaries of the bill this morning, one of the groups that sprang to mind was families, because the adoption tax credit is preserved, you see some expansion of the child tax credit, and of course there's the family flexible credit also introduced in the House bill. But it's interesting, because as you pointed out, losing that personal exemption could make a big difference.
Frankel: Definitely. It depends what the child tax credit winds up being. In the House's bill, it's currently set at $1,600, whereas in the Senate's bill, it's set a little bit higher at $2,000. There's that family flexible credit, which, in the House's bill, can be taken for not only non-child dependents, but for the taxpayer and their spouse themselves, whereas in the Senate, as it's worded, it's just for dependents that aren't children. So, there's a whole lot of wiggle room in the bill right now as it's written, to where we can't really tell who's going to be the winners or losers.
Douglass: And this is one of the key things that I think anyone listening to this episode -- or really any commentary on bills that have not yet been signed into law -- should really consider. There has to be this big pillar of salt, because so much changes between when a bill is introduced and when it's signed into law, and things that may benefit one group are often balanced out by things that can harm that group, as well.