In the short time since the Senate's version of the Tax Cuts and Jobs Act was initially released, there have been several updates, additions, and modifications designed to capture as much support among Republican senators as possible. However, the final passage of the bill occurred late on Friday night, with 51 of the 52 Republican senators supporting the legislation after a flurry of last-minute changes.
While the finer details of some of these changes are still unclear (the version of the bill that was voted on had some handwritten parts and phrases like "Add language..."), we do know what some of the major changes made to the bill are.
1. Higher deductions for pass-through businesses
In contrast to the House of Representatives' version of the bill, which provides for lower tax rates for pass-through businesses such as partnerships, LLCs, and S-Corps, the Senate's bill would continue to tax pass-through income at the regular income tax rates.
However, the bill would allow these business owners to deduct a certain percentage of their income before the regular tax rates are applied. The original version of the bill called for a deduction of 17.4% of pass-through income. The latest version got a bit more generous, increasing the allowable deduction to 23% of pass-through income.
2. Matching the House's property tax deduction
One of the most controversial parts of the Senate's version of the Tax Cuts and Jobs Act was its complete elimination of the deduction for state and local taxes. This included the deduction for income taxes, as well as property taxes.
In order to make the bill more appealing to senators in high-tax states, the latest version of the bill matches the House version. While state and local income taxes still would not be deductible, the legislation allows for a deduction of up to $10,000 for state and local property taxes.
3. The alternative minimum tax would remain
The Senate's bill originally proposed getting rid of the Alternative Minimum Tax, or AMT. The newest version keeps the AMT in order to help pay for some of the other last-minute changes.
However, it does address one of Republicans' biggest complaints about the tax by raising the amount of income necessary to trigger the AMT. While it was originally intended to ensure that high-earners paid a minimum amount of tax, in recent years it had increasingly begun affecting middle-income households.
4. Slightly more favorable business expensing
In addition to a lower corporate tax rate, another major change to business taxes would be change to how businesses write off expenses. Under current tax law, businesses are required to depreciate expenses such as equipment over several years.
The Senate's bill allows businesses to immediately deduct their entire cost, giving a bigger incentive to invest in new equipment. Originally, the bill would have allowed this for just five years, after which time it would be eliminated. Now, this benefit will begin to phase out after the initial five-year period.
5. One deduction would get better than it is now
This one might come as a surprise to many people, considering that one of the biggest themes of tax reform is to reduce or eliminate deductions.
One major complaint about the Tax Cuts and Jobs Act is that the medical expense deduction, which would have been retained, would not benefit nearly as many people as it currently does, due to the higher standard deduction. In response to this, the AGI threshold for deducting medical expenses has been lowered to 7.5% of AGI from 10% in the original bill.
6. Catch-up contributions would still be allowed
The previous version of the Senate's bill wouldn't make changes to retirement savings for most people, but would have eliminated the pre-tax "catch-up" provisions that apply to older workers. The version of the bill that passed does not include this, so 401(k) contribution rules would remain the same.
What will the final tax reform package look like?
To be clear, even though this legislation has passed the Senate, it will still be some time before tax reform is signed into law. There are still some big differences between the House and Senate versions, and before any tax reform law can become law, the two chambers must pass identical versions. So, it's likely that the eventual tax reform package will look substantially different than the bill just passed by the Senate, so take all of its provisions -- including these last-minute changes -- with a big grain of salt.