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Comparing the Two Versions of the Tax Cuts and Jobs Act Headed to Conference

Dec 5, 2017 | Taxes

The House and Senate have each passed their own version of the Tax Cuts and Jobs Act, and lawmakers from each chamber will have to iron out the differences between the two bills in a conference committee. We've updated our comparison of how the two bills would change major provisions in the tax code and where their gross costs and savings come from. While the two bills are overall quite similar in both design and fiscal impact, there are several substantive differences conferees will have to reconcile.

Table 1 breaks down the major policy differences between the House- and Senate-passed bills. The most notable difference is that the Senate bill sunsets nearly all of its individual provisions and more of its business changes than the House version in order to comply with the Byrd rule's requirement that legislation passed through reconciliation not increase deficits beyond the ten-year budget window. Other noticeable differences include the House version's more aggressive base-broadening on the individual side and the Senate bill's repeal of the individual mandate and retention of the individual and corporate Alternative Minimum Tax.

Table 1: Major Differences in the House and Senate Versions of the Tax Cuts and Jobs Act
Area House Version Senate Version
Individual Tax
Tax Rates 12% | 25% | 35% | 39.6% 10% | 12% | 22% | 24% |32% | 35% | 38.5%
Standard Deduction $12,200 (single) / $24,400 (married) / $18,300 (head of household) $12,000 (single) / $24,000 (married) / $18,000 (head of household)
Personal Exemptions Replaced with $300 credit per person through 2022; eliminated without replacement after Eliminated
Child Tax Credit and Dependent Exemptions Dependent exemption replaced with $300 credit through 2022; CTC increased to $1,600/child – phased out at higher income than current law Dependent exemption eliminated; CTC increased to $2,000/child – phased out at higher income than House bill; separate $500 nonrefundable credit for non-child dependents
Alternative Minimum Tax Eliminated Exemption amount increased
Earned Income Tax Credit Same as current law but with program integrity measures Same as current law
Mortgage Interest Deduction Limit lowered to $500,000 of debt for new mortgages on primary residences Mostly retained; $100,000 home equity interest deduction eliminated
Charitable Deduction Mostly similar to current law Mostly similar to current law
Health Exclusion Same as current law Same as current law
State & Local Tax Deduction Eliminated for income and sales taxes; limited to $10,000 for property taxes Eliminated for income and sales taxes; limited to $10,000 for property taxes
Medical Expense Deduction Eliminated Retained; floor lowered to 7.5% of AGI for 2017 & 2018
Municipal Bond Exclusion Private activity and advance refunding bond exclusion eliminated for new bonds Advance refunding bond exclusion eliminated for new bonds
Capital Gains from Home Sales Exclusion phased out for high earners Residence requirement increased
401(k) Retirement Accounts Same as current law Same as current law
Capital Gains and Dividends Same as current law Same as current law
Higher Education Tax Benefits Consolidated to single benefit Same as current law
Indexing of Tax Provisions Chained CPI used for inflation adjustments Chained CPI used for inflation adjustments
Other Itemized Deductions Mostly eliminated More retained than House bill
Other Tax Provisions Several provisions repealed Preserves more tax provisions than House bill
Expirations $300 family and personal credits expire after 2022 All individual provisions except chained CPI expire after 2025; expanded medical expense deduction expires after 2018
Business Tax
Corporate Rates Flat rate of 20%; corporate AMT repealed Flat rate of 20% starting in 2019; corporate AMT retained
Pass-Through Businesses Top rate limited to ~35% for active owners; 25% for passive owners Creates a 23% deduction for business income capped at 50% of wage income; disallowed for active owners; expires after 2025
Depreciation Schedule Full expensing of certain equipment for 5 years; current law afterwards Full expensing of certain equipment for 5 years, then phases out over 5 years; permanently shortens depreciation lives for buildings
Small Business Expensing Increases limit to $5 million and phaseout to $20 million for five years Increases limit to $1 million and phaseout to $2.5 million permanently
Domestic Production Deduction Eliminated Eliminated starting in 2019
Interest Deduction Limit lowered from 50% to 30% of income before interest, taxes, depreciation, and amortization for businesses with gross receipts > $25 million Limit lowered from 50% to 30% of income before interest and taxes for businesses with gross receipts > $15 million
Inventory Accounting Same as current law Same as current law
R&E Expenses Amortized starting in 2023 Amortized starting in 2026
Meals and Entertainment Expenses Deduction eliminated for entertainment expenses; retained for meals Deduction eliminated for entertainment expenses; retained for certain meals
Executive Compensation Performance pay exception eliminated Performance pay exception eliminated
International Tax Territorial w/ base erosion provisions and one-time transition tax Territorial w/ base erosion provisions and one-time transition tax
Fringe Benefit Deductions Eliminates most deductions for fringe benefits Eliminates most deductions for fringe benefits
Other Tax Provisions Several provisions repealed Several provisions repealed; more retained than House bill
Expirations Temporary expensing and expanded small business expensing expire after 5 years Sunsets various business provisions related to pass-throughs, expensing, base erosion, family leave, and alcoholic beverages
Other Taxes
Excise Tax on University Endowments 1.4% tax on endowments exceeding $250,000 per student 1.4% tax on endowments exceeding $500,000 per student
Estate Tax Exemption increased to $11.2 million through 2024, then tax is eliminated Exemption doubled; tax retained
Individual Mandate Penalty Same as current law Penalty reduced to $0

 Sources: Joint Committee on Taxation, House Ways and Means Committee, Senate Finance Committee.

Despite a few noticeable policy differences, the two bills are similar in terms of their overall fiscal impact; each carry an official cost of more than $1.4 trillion over the next ten years, though the cost of the Senate version is slightly higher than that of the House bill after accounting for the gimmicks in the two bills. The Joint Committee on Taxation has not dynamically scored the House bill, but it estimated a previous version of the Senate bill would generate about $400 billion in net dynamic feedback.

Table 2 compares how much each of the provisions in each plan costs or saves. On net, the House-passed bill contains about $1.1 trillion in business tax cuts, $200 billion in individual tax cuts, and $151 billion from eventually repealing the estate tax. The Senate-passed bill, meanwhile, includes around $910 billion in net individual tax cuts, $770 billion in net business tax cuts, $83 billion in estate tax cuts; and $318 billion in savings from setting the individual mandate penalty to $0. When comparing individual provisions, it is important to keep in mind that the Senate sunsets most changes after 2025 while the House bill makes most of them permanent.

Table 2: 10-Year Costs or Savings (-) in the House and Senate Tax Cuts and Jobs Act by Provision
Policy House Senate
Individual Tax Cuts    
Reduce and/or consolidate individual income tax rates $1.1 trillion $1.2 trillion*
Roughly double the standard deduction $921 billion $737 billion*
Repeal or modify the Alternative Minimum Tax (AMT) $696 billion $636 billion*
Increase the child tax credit and/or create dependent tax credit $641 billion* $580 billion*
Other tax cuts $0 billion $12 billion*
Subtotal, Individual Tax Cuts $3.3 trillion $3.1 trillion
     
Individual Tax Increases    
Repeal personal exemptions -$1.6 trillion -$1.2 trillion*
Reform itemized deductions -$1.3 trillion -$829 trillion*
Use chained CPI to index tax provisions -$128 billion -$134 billion
Reform higher education tax benefits -$65 billion N/A
Require Social Security number to obtain child tax credit and other changes -$42 billion -$24 billion*
Eliminate certain exclusions -$36 billion -$6 billion*
Other provisions -$15 billion -$8 billion*
Subtotal, Individual Tax Increases -$3.1 trillion -$2.2 trillion
     
Business Tax Cuts    
Reduce corporate tax rate to 20% and repeal corporate AMT $1.5 trillion $1.3 trillion^
Reduce taxes for pass-through businesses $597 billion $477 billion*
Move to territorial system for foreign taxation $207 billion $216 billion
Reform taxation of intangible property N/A $99 billion
Increase small business write-offs $41 billion* $52 billion
Move to full expensing of investments for five years* $25 billion* $108 billion*
Other provisions $29 billion $42 billion
Subtotal, Business Tax Cuts $2.4 trillion $2.3 trillion
     
Business Tax Increases    
Reduce limit on interest expense deductions -$172 billion -$307 billion
Enact base erosion or other revenue-raising provisions for foreign taxation -$209 billion -$300 billion
Enact one-time tax on overseas earnings -$293 billion -$298 billion
Limit carryover of net operating losses -$156 billion -$158 billion
Limit pass-through losses to $250K/$500K N/A -$137 billion
Eliminate R&E expensing with delay -$109 billion^ -$62 billion^
Eliminate domestic production activities deduction -$95 billion -$84 billion^
Reform tax treatment of bonds -$57 billion -$17 billion
Modify orphan drug tax credit -$54 billion -$30 billion
Reform tax treatment of insurance companies -$40 billion -$27 billion
Limit deductions for meals, entertainment, and transportation -$34 billion -$40 billion
Limit deferral of gain on like-kind exchanges to real property -$31 billion -$31 billion
Reform tax treatment of banks and financial instruments -$14 billion -$17 billion
Reform tax treatment of executive compensation -$13 billion -$11 billion
Other changes -$50 billion -$37 billion
Subtotal, Business Tax Increases -$1.3 trillion -$1.6 trillion
     
Reduce and/or Repeal Estate Tax $151 billion^ $83 billion*
     
Eliminate Individual Mandate N/A -$318 billion
     
Conventional Total $1.44 trillion $1.45 trillion
Dynamic Feedback ? ~-$400 billion
Dynamic Total  ? $1.05 Trillion
     
Extend business expensing $175 billion $0-$80 billion
Delay R&E amortization $110 billion $60 billion
Extend individual tax provisions beyond expiration $225 billion $290-$300 billion
Other gimmicks N/A $110 billion
Conventional Cost Without Expirations $1.9 trillion $2.0 trillion
Potential Dynamic Feedback ? ~-$450 billion
Dynamic Cost Without Expirations ? ~$1.6 trillion
     
Conventional Cost with Interest $1.70 trillion ~$1.75 trillion
Dynamic Cost with Interest ? ~$1.25 trillion
Conventional "True" Cost with Interest $2.3 trillion ~$2.3 trillion
Dynamic "True" Cost with Interest ? ~$1.8 trillion

Sources: Joint Committee on Taxation and CRFB calculations. * = Provision is sunset. ^ = Provision is delayed.

This blog was corrected after publication to reflect the final Senate bill's individual rates. The original version included rates from an earlier version of the bill. The grouping of certain provisions in Table 2 was also changed modestly, though the totals remain the same.

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