The United States Senate released details of its version of a tax reform bill on Thursday, and in many key ways, it is consistent with the Tax Cuts and Jobs Act released by House of Representatives leaders a week ago. For example, the new bill would reduce the corporate tax rate to 20%, repeal the alternative minimum tax, increase the standard deduction, and repeal many popular itemized deductions.
However, there are some major differences between the two bills, and this could pose a problem if both bills pass their respective chambers. Here are nine of the biggest differences Americans should be aware of in the Senate's tax bill, based on what we know so far.
1. The corporate tax rate cut would be delayed until 2019
The Tax Cuts and Jobs Act, which was introduced a week prior to the Senate's bill, called for an immediate and permanent reduction in the corporate tax rate to 20%. The Senate's version also calls for a permanent 20% rate, but the reduction wouldn't apply until the 2019 tax year. This would reduce the cost of the tax plan, and therefore would potentially make it easier to get the bill through Congress.
2. There would still be seven individual tax brackets
This is perhaps the biggest, and most surprising, difference since one of the key principles in the GOP's tax framework calls not only for a tax cut, but a simplification of the tax code. One way the Tax Cuts and Jobs Act achieves this is by consolidating the seven current tax brackets into just four.
The Senate bill is just a tax cut. It keeps the seven-bracket structure, but changes some of the rates. The seven marginal tax rates would become 10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%. While it's not yet clear the income ranges each one would apply to, this certainly looks like a tax cut for most people.
3. A slightly higher child tax credit
Many Senators have argued that the expanded $1,600 child tax credit in the Tax Cuts and Jobs Act isn't enough, and some were pushing for $2,000. It appears that there was a bit of compromise here, because the Senate bill increases the child tax credit slightly to $1,650.
4. The mortgage interest deduction would remain as is
The Senate tax bill leaves the popular mortgage interest deduction alone. Taxpayers who itemize deductions would still be able to deduct the interest on up to $1 million of mortgage debt, while the Tax Cuts and Jobs Act would cut the maximum to $500,000.
5. No deduction for property taxes
One of the most controversial parts of tax reform is the deduction for state and local taxes, which is a big tax break for people who live in high-tax states like California, New York, and New Jersey. The Tax Cuts and Jobs Act contained a compromise that allowed a deduction for property taxes up to $10,000. In contrast, the Senate bill repeals the deduction in its entirety.
6. The estate tax stays for the super-rich
The Tax Cuts and Jobs Act proposes immediately doubling the estate tax exemption, and then repeals it after six years. On the other hand, the Senate version of the bill only does the first part.
Repealing the estate tax is seen as a massive tax break for the rich, so this could be an attempt from Republicans to address one of the main criticisms of the GOP's tax platform.
7. The adoption tax credit remains
Under current law, parents who choose to adopt can claim a tax credit for certain adoption-related expenses. This is a lucrative credit for those who can take advantage of it, as it is capped at $13,460 per child.
The Senate's tax bill keeps the adoption tax credit, while it would be eliminated under the House's plan.
8. Student loan interest would still be deductible
The Tax Cuts and Jobs Act would make several important changes to education tax benefits, including a repeal of the popular student loan interest deduction. The Senate bill keeps this deduction, which would be a major boost to all Americans with student loan debt, as the deduction can be taken even if a taxpayer doesn't itemize.
9. Medical expense deduction would remain
Another deduction that would survive under the Senate's tax plan is the medical expense deduction. Under current tax law, individuals can deduct unreimbursed medical expenses that are in excess of 10% of their adjusted gross income. This isn't a widely used deduction, as a small percentage of Americans have enough medical expenses to qualify, but it is a big deal for people who need it.
Take all of this with a grain of salt
There are many similarities between the two plans, but there are plenty of key differences as well. Before any tax bill can be signed into law, the House and Senate need to pass identical versions of a tax bill, so any final bill is likely to look significantly different than either of the bills we've seen so far.
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