Key differences between the Senate and House tax plans

Senate Republicans on Thursday unveiled a tax-reform bill that breaks with the House in significant ways, taking into account various objections from constituents and special interest groups to the House plan. 

If the House Republican bill was a first draft of tax reform, the Senate bill is the first rewrite.

“I like it better than what I saw in the House version,” said Sen. Mike RoundsMike RoundsEight Republicans join Democrats to confirm head of DOJ environmental division Bipartisan group says it's still on track after setback on Senate floor Schumer sets up key vote on bipartisan deal MORE (R-S.D.). “The Senate was able to learn a lot from what the House found out." 

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The Senate bill attempts to mollify opposition from two important special interest groups, the National Association of Home Builders and the National Federation of Independent Business.

But it will likely draw strong opposition from moderate House Republicans in wealthy suburban districts whose constituents take big deductions for local taxes.

Here are the key differences between the Senate and House bills. 

State and local taxes 

The Senate bill will entirely repeal the deduction for state and local taxes, making no exception for property taxes.

The House bill, in a bid to win support from moderate Republicans, would allow deductions up to $10,000 for property taxes.

Senate Republicans see little need to allow property tax deductions, as they don’t have members in their conference from high-tax states such as California, New York, New Jersey and Illinois.

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Senate Democratic Leader Charles SchumerChuck SchumerManchin on reported boos at Democratic luncheon: 'I heard a lot of nos' Wisconsin GOP quietly prepares Ron Johnson backup plans Senate infrastructure talks spill over into rare Sunday session MORE (N.Y.) is trying to exploit the difference by calling on House GOP moderates to kill tax reform.

Reps. Barbara ComstockBarbara Jean ComstockThe Memo: Trump pours gas on tribalism with Jan. 6 rewrite Former GOP rep calls on party to move on from 'patron saint of sore losers' Trump The Hill's Morning Report - Presented by Facebook - Biden mission abroad: reward friends, constrain adversaries MORE (R-Va.), Ed Royce (R-Calif.), Erik Paulsen (R-Minn.), Peter Roskam (R-Ill.) and Mimi Walters (R-Calif.) represent districts where a significant percentage of voters take big deductions for local taxes.

Roskam and Paulsen are both members of the House Ways and Means Committee and voted for the House bill. Roskam is also chairman of the panel's tax-policy subcommittee.

Home mortgage interest deduction

The Senate would keep in place the deduction for newly purchased homes up to $1 million while the House plan would cut the threshold to $500,000.

The House Ways and Means Committee added the lower cap on mortgage interest deductions as a last-minute revenue raiser and it drew strong opposition from the National Association of Home Builders, a powerful special interest group.

Sen. Tim ScottTimothy (Tim) Eugene ScottTrump helps raise million in first six months of 2021 Senate passes bill to award Congressional Gold Medal to first Black NHL player Scott: 'There is hope' for police reform bill MORE (R-S.C.), a member of the Finance Committee, pushed to raise the limit, arguing that homes priced between $500,000 and $1 million are average in high-income areas such as San Francisco, New York and the District of Columbia.

Popular tax credits and deductions

The Senate would keep in place a variety of popular tax credits and deductions that would have been eliminated by the House tax bill released last week.

It preserves tax credits and deductions for adoption, medical expense, teacher expenses and student loan interest.

“We stayed kind of inside the big structural issues,” said a Senate Finance Committee aide.

The House Ways and Means Committee on Thursday adopted an amendment to restore the adoption tax credit.

The Senate bill would also raise the income limit for the child credit. In the Senate bill, the child tax credit starts to phase out at $1 million of income for married couples, compared to $230,000 in the House bill. The credit is increased to $1,650 in the Senate bill and $1,600 in the House bill.

Tax brackets

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The House bill would condense the number of tax brackets to four: 12 percent for income up to $90,000; 25 percent for income up to $260,000; 35 percent for income up to $1 million; and 39.6 percent for income over $1 million.

The Senate bill would establish seven tax brackets at 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and 38.5 percent for the nation’s highest income earners. 

The top rate kicks in for individuals who earn $500,000 and couples who earn $1 million.

Senate Republicans said they were concerned about the optics of changing the 10 percent bracket to 12 percent while cutting the corporate tax rate, even though low-income earners would be covered by the doubling of the standard deduction in both bills.

Estate tax

The Senate bill would double the estate-tax exemption for wealthy estates from $11 million to $22 million per couple (or from $5.5 million to $11 million per individual) while the House bill would repeal the estate tax entirely.

Moderate Sen. Susan CollinsSusan Margaret CollinsSchumer: Democrats 'on track' to pass bipartisan deal, .5T budget Sunday shows - Delta variant, infrastructure dominate Collins says negotiators are 'just about finished' with infrastructure bill MORE (R-Maine) last week said she opposed getting rid of the estate tax entirely.

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Corporate tax rate

The Senate would cut the corporate tax rate to 20 percent, like the House would, but delay its implementation until 2019 to reduce the projected cost of the bill over ten years.

The House would cut the corporate tax rate next year.

Pass-through businesses

The Senate would establish a 17.4 percent deduction for pass-through businesses based on the Section 199 domestic manufacturing deduction that would lower the effective tax rate for small businesses in the top tax rate to slightly more than 30 percent, according to a Senate Finance Committee aide.

It would apply to certain domestic non-service pass-through income, according to the committee.

The House bill, by contrast, would establish a 25 percent rate for pass-through companies but would only make 30 percent of their revenue eligible for that rate and tax the other 70 percent as wages under the individual tax rate. That would result in a blended rate for many small businesses between 35 percent and 38 percent.

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Sen. Ron JohnsonRonald (Ron) Harold JohnsonWisconsin GOP quietly prepares Ron Johnson backup plans Biden's bipartisan deal faces Senate gauntlet Trump urged DOJ officials to call election corrupt 'and leave the rest to me' MORE (R-Wis.) last week called the House formula “completely unacceptable.”

The National Federation of Independent Business (NFIB), which contributes money overwhelmingly in favor of GOP candidates, complained the House bill “leaves too many small businesses behind.”

On Thursday the group said, “We are very encouraged by the plan introduced by [Senate Finance Committee] Chairman [Orrin] Hatch [R-Utah.].”

The House on Thursday adopted an amendment to provide additional relief to small businesses and won back the support of NFIB. It would create a new nine-percent tax rate for the first $75,000 of income of a married active owner who has less than $150,000 of pass-through income.

NFIB president Juanita Duggan said her group was “grateful” the House Ways and Means Committee listened to NFIB's concerns.

Naomi Jagoda contributed to this report.