Key Changes in Senate Tax Reform Bill Heading into the Vote-a-Rama

December 1, 2017

This evening, the Senate looks to cap a frenetic few days with the adoption of a “wraparound” amendment to H.R. 1, the Tax Cuts and Jobs Act. A so-called “vote-a-rama” will transpire later this evening, with dozens of floor amendments considered, followed—presumably—by a vote on final passage. These amendments will be drawn to the manager’s amendment which was released this evening around 6 p.m., which incorporated a range of individual members’ amendments that had been prepared for the bill, along with new language negotiated throughout the day. Many of these amendments are technical, clarifying or making minor revisions to non-notable provisions. Some, however, stand out—and were, in some cases, the result of intense negotiations.

A few Senators played an outsized role in securing these revisions. Senator Susan Collins (R-ME) secured the retention of the state and local tax deduction for property (capped), a lower threshold for claiming unreimbursed health-care costs, and the restoration of catch-up retirement contributions for certain employees. Senator Jeff Flake (R-AZ) obtained a gradual phaseout of the bill’s expensing provisions, rather than a sunset after year five. Senators Ron Johnson (R-WI) and Steve Daines (R-MT) prevailed in their effort to increase the pass-through deduction from 17.4 to 23 percent. Of course, each of these provisions comes at a cost, necessitating a series of pay-fors.

What follows is a brief summary of the most notable provisions of the tax bill in the form in which it enters the “vote-a-rama.” It is by no means an exhaustive list of all differences since the bill reported from the Senate Finance Committee, and it is entirely possible that additional substantive changes will be made on the floor, but does attempt to capture the key changes in the version of the bill now before the Senate.

Treatment of Pass-Through Income

Increases the deduction for income of qualifying pass-through businesses from 17.4 to 23.0 percent, and broadens eligibility requirements to include income from publicly traded partnerships (Sec. 11011)

State and Local Tax Deduction

Restores the deduction for state and local property taxes (but not income or sales taxes), capped at $10,000, identical to the House provision (Sec. 11042)

Alternative Minimum Taxes

Restores both the individual and corporate alternative minimum taxes (AMTs), but increases the individual AMT exemption by about 40 percent compared to current law (Sec. 12001)

Capital Investment

Continues to allow full expensing of short-lived capital investment (currently subject to “bonus” depreciation), such as equipment and machinery, for five years, but then phases out the provision by 20 percentage points per year thereafter rather than sunsetting it immediately (Sec. 13201)

Deemed Repatriation

Modifies the rates on deemed repatriation of currently deferred foreign profits, to a rate of 14.49 percent for cash and cash-equivalent profits and 7.49 percent for reinvested foreign earnings (Sec. 14103)

Medical Expense Deduction

For tax years 2017 and 2018, the medical expense deduction may be taken if these expenses exceed 7.5 percent, rather than 10 percent under current law, of AGI (Sec. 11028)

Miscellaneous Provisions

Reverts to current law treatment of catch-up contributions to the retirement accounts of public and charitable organization employees; restores the IC-DISC tax incentive for small- and medium-sized manufacturers of domestic goods sold abroad

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