Today, the Senate takes the next step toward passage of a comprehensive tax reform bill, a procedural vote to begin the floor debate.
On November 16, the GOP-majority Senate Finance Committee voted to approve its version of tax reform legislation. The Tax Cuts and Jobs Act was taken up by the Senate Budget Committee on Tuesday, its last stop before the Senate floor.
The Senate Budget Committee paired the tax legislation with a separate measure from the Senate Energy and Natural Resources Committee that permits drilling in a portion of the Arctic National Wildlife Refuge (ANWR), which is projected to raise more than $1 billion over 10 years. This likely ensures a “yes” vote from Sen. Lisa Murkowski (R-AK), who has long advocated for such a provision.
GOP lawmakers need only 50 votes to pass the bill using budget reconciliation. Republicans currently have a 52-48 majority in the Senate, which means they could pass legislation without any Democratic votes. Senate Majority Leader Mitch McConnell (R-KY) will be working through the week to lock down 50 votes.
While the bill has the potential to significantly impact both higher education and the entire nonprofit sector, it also includes major changes for individuals and corporations. Below are some of the most impactful changes outside the higher education sphere in the Senate tax legislation. For more information on higher education-specific impacts, visit NACUBO’s tax reform webpage.
Individual Income Tax Brackets
- Unlike the House tax legislation, which would condense the number of brackets to four, the Senate tax bill maintains the current seven tax brackets but lowers the rates on most brackets to benefit lower-income earners. These individual rate cuts would expire in 2026.
Affordable Care Act Individual Insurance Mandate
- The Senate bill proposes to abolish the tax penalty on an individual for failing to maintain health insurance, starting in 2019. Currently, the House bill contains no such provision.
Mortgage Interest Deduction
- Unlike the House’s more restrictive proposal on this deduction, the Senate bill preserves the mortgage interest deduction for interest paid on home mortgages of less than $1 million.
- Like the House proposal, the Senate tax bill would expand the standard deduction for individuals to $12,000 and for joint filers to $24,000. Unlike the House, the Senate bill would eliminate this expansion in 2026. This proposed expansion would have consequences for the nonprofit sector in the form of decreased charitable giving.
- Personal exemptions would be eliminated under both the House and Senate plans. However, the impact for some filers would be offset, at least temporarily, by new or expanded credits.
Child Tax Credit
- The Senate bill proposes a generous expansion of the child tax credit to $2,000 per child and expands eligibility to joint filers earning up to $500,000. However, this expansion would end in 2026.
- Similar to the House proposal, the Senate plan would maintain the estate tax but would double the threshold for exclusion from the tax. The higher threshold would be eliminated in 2026 under the Senate plan, while the tax itself would be fully repealed in 2025 under the House plan.
State and Local Tax Deductions
- The Senate bill eliminates all deductions for both state and local income taxes as well as property taxes. The House legislation has a similar provision but maintains a deduction for property taxes of up to $10,000.
Alternative Minimum Tax (AMT)
- Both the House and Senate legislation would repeal the AMT.
Corporate Tax Cuts
- Both the House and Senate plans call for a sizeable corporate tax rate cut: 20 percent, from the current 35 percent. However, the Senate would delay this cut until January 1, 2019, while the House would implement it immediately in 2018.