The House Passes Their Tax Reform Bill While The Senate Finance Committee Approves an Amended Version of Their Initial Proposal

On Thursday, November 16, 2017, the House passed their Tax Bill with a vote of 227-205. Thirteen Republican members (eight from New York and New Jersey), along with every single Democrat member, voted “No” on the bill.  Regardless of its passing, however, the bill still faces an uphill battle of aligning with what is emerging in the Senate.

Later that evening, the Senate Finance Committee also voted along party lines, 14-12, to approve the Republican Tax Reform Bill. The debate continued into the evening on Thursday in the Senate Finance Committee, with several new amendments to the Senate Bill emerging. The full Senate will take up the Tax Bill after the Thanksgiving Break, with the goal of passing Tax Reform by Christmas, or as President Trump put it “We’re going to give the American people a huge tax cut for Christmas – hopefully, that will be a great, big, beautiful Christmas present.”

In light of that, let us take a look at some of the amendments made by the Finance Committee to the Senate Tax Bill.

Individual Mandate

Perhaps the biggest, and certainly the one that has been getting the most coverage, is the repeal of the Individual Mandate. The Individual Mandate requires Americans (with limited exceptions) to either have health insurance or pay a penalty. This is a key component of the Affordable Care Act or Obamacare.  Republicans have famously and unsuccessfully tried to repeal the Affordable Care Act this year. This repeal is viewed by many as one final attempt to destroy the Affordable Care Act. Although not an outright appeal of the Act, this move, if it passes, is expected to create havoc for the individual healthcare marketplaces, and significantly increase costs for insurance plans in the future. The non-partisan Congressional Budget Office also estimated that this means an additional 13 million people will become uninsured in ten years. On the other side, however, such a move is anticipated to result in approximately $338 billion in savings over those same ten years.

Expiring Tax Breaks

The other item that is getting heavy coverage is that virtually all of the individual tax breaks and tax credit expansions would expire after 2025, while the corporate tax breaks would remain permanent. The reason for the expirations is so that the projected costs would not add to the deficit beyond the period covered by the budget resolution (ten years in this case). If it did, then the bill could not pass through Reconciliation, and thus since it will need more than 51 votes, will be unable to pass along straight party lines. This requires some creative math to pull off – hence the 2025 expirations.

Individual Tax Brackets

The amended Senate bill would slightly reduce the individual tax rate for several brackets, including the third bracket from 22.5% in the initial proposal down to 22%, the next bracket from 25% to 24%, the next bracket from 33% to 32%, and the top bracket from 39.6% to 38.5%. The other three brackets of 10%, 12% and 35% would remain, so that the number of brackets remain at seven. However, these changes in the tax brackets would expire after 2025.