Overview of the Senate’s Amendment to the Tax Cuts and Jobs Act

Last night, Sen. Orrin Hatch (R-UT) released the “Chairman’s Mark” to the Senate’s version of the Tax Cuts and Jobs Act. This much-anticipated amendment includes a number of important changes to the tax plan, including fitting the package within the constraints imposed by the Senate’s so-called “Byrd Rule,” which places limits on what can be adopted under the reconciliation process.

Below is a summary of major changes to the proposal.

Individual Tax Changes

• Individual Income Tax Rates: The new version of the plan makes slight changes to individual income tax rates. Rates are lowered in the three middle tax brackets, and bracket widths become a bit larger than the original Senate proposal. The new rates and brackets are below.

• Child Tax Credit: The child tax credit would be expanded further than in the original proposal and under current law. The new proposal would increase the child tax credit from $1,000 under current law to $2,000 (from $1,650 in the introduced bill). It would also increase the phaseout to $500,000 for married filers from the current law phaseout of $110,000. The phaseout, however, is decreased from $1,000,000 in the original proposal.
• Individual Mandate Penalty: Under the new proposal, the individual mandate penalty for not having qualifying health insurance would fall to $0, effectively repealing the requirement.
• Expiring Provisions: All individual income tax changes, excluding the move to Chained CPI and the elimination of the individual mandate penalty, would expire effective December 31, 2025. This includes the individual income tax rate cuts, the expanded child tax credit, the repeal of personal exemptions, and the expanded standard deduction.

Business Tax Changes

• Pass-Through Income: The new proposal would expand the number of businesses in service industries that could claim the special 17.4 percent deduction. Most service industries are disallowed the deduction, but there is an exception for smaller businesses by which they can claim the deduction regardless of industry classification. The new limit would be $500,000 for married filers and $250,000 for individuals, increased from $150,000 and $75,000 respectively in the introduced bill. The Chairman’s Mark also makes the bill’s W-2 provisions more generous, but expanded it to include sole proprietors.
• Temporary Full Expensing: The temporary full expensing provision is broadened to include qualified property for film, television, and live theater productions.
• Net Operating Losses: Starting in 2024, net operating loss (NOL) carryforwards would be limited to 80 percent of taxable income, down from 90 percent.
• Research and Experimental Expenditures: Under the new proposal, Research and Experimental (R&E) expenditures would need to be amortized, instead of deducted, starting in 2026.
• Business Tax Trigger: The proposal would also create a federal tax trigger. If federal revenues from October 1, 2017, to September 30, 2026, exceed $27.487 trillion by more than $900 billion, several business tax increases would not take effect for the 2026 tax year. These are the changes to NOLs and international base-erosion rules.
• Reduced Alcohol Excise Taxes: The proposal would lower the excise tax rate on beer, wine, and distilled spirits.