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House Passes Tax Reform Bill
House Passes Tax Bill
Senate Begins Hearings; Adds Healthcare Repeal

November 22, 2017 -- On a strict party line vote, the U.S. House of Representatives passed the Tax Cuts and Jobs Act bill, H.R. 1, by a vote of 227–205, on November 15, as 13 Republicans broke ranks to join all Democrats voting no on the legislation.

The legislation passed without any changes to the version approved by the House Ways and Means Committee earlier in the month.

The House bill features four tax brackets for individuals (down from the current seven brackets); a larger standard deduction; the repeal of many itemized deductions; a reduction of the corporate income tax rate to 20%; repeal of the alternative minimum tax and, after 2023, repeal of the estate and generation-skipping taxes, along with many other changes.

The bill has now moved to the U.S. Senate where the Senate Finance Committee approved its own version of the Tax Cuts and Jobs Act late on November 15. The Senate finance version differs significantly from the bill the House passed and also now includes a provision seeking repeal of the Affordable Care Act. The full Senate is expected to consider the massive tax bill after Congress’s Thanksgiving break. (See Senate Tax Bill Changes)

If passed as currently written, the new tax changes would take effect in 2018, meaning no provisions would be retroactive to the 2017 tax year. President Trump has urged passage of the tax bill by Christmas.

If passed, the massive tax bill would go on to the joint administrative rules committee where a multitude of administration and enforcement issues would be promulgated. Experts in the accounting and tax industry are urging completion of the entire process by early spring so tax forms and preparation software can be done and educating practitioners can begin sooner than traditional late fall updates.


NSA Analysis of Tax Bill Provisions
from the National Society of Accountants

Tax Reform May Require Medicare Cuts,
Affect Federal Government Funding


November 17, 2017 -- Uh-oh.

A Congressional Budget Office report says the $1.5 trillion tax-cut proposal being pushed by Republicans would trigger $25 billion in automatic spending cuts to Medicare starting in January – six weeks from now - plus another $111 billion in reductions to other programs, including farm subsidies. That's because of a law colloquially known as "Paygo."

President Donald Trump has promised repeatedly not to cut Medicare and, while Republicans are generally opposed to government spending, there is broad support for farm subsidies given that most Republicans in the Senate represent farm states.

Waiving the automatic cuts could take 60 votes in the Senate, requiring support from at least eight Democrats in a chamber Republicans control 52-48.  One solution for Republicans could be to try to waive the cuts as part of the tax reform bill.  Or, they could promise to do it later, which could worry moderates who in the meantime would be voting for a bill that cuts benefits to senior citizens.

Here's the dilemma for Democrats: Should they help waive the spending reductions, even though that would help the GOP enact the tax cuts? Or, should Democrats continue doing all they can to make the tax-cut plan difficult for Republicans to pass, even though recipients of Medicare and other programs would suffer and they could be blamed?

If the Republicans enact the tax bill without the waiver, the matter would likely become part of a December legislative free-for-all that currently includes must-do legislation including reauthorizing children's health insurance and funding the government to avoid a shutdown.
 

Eight Sleeper "Pay-Fors" in the House Tax Bill

November 17, 2017 -- As mentioned in the NSAlert on November 3, the budget rules under which the tax reform bill will be considered require no more than $1.5 trillion in net revenue losses from the bill over the ten year period following enactment. 

Since AMT repeal, corporate and individual tax cuts, and other provisions would reduce revenues far more than $1.5 trillion, Republicans turned to some unexpected places to drum up the money needed to pay for tax cuts without adding too much to the deficit. Some of these unexpected revenue sources in the House bill include:

-- The bill would impose a 1.4 percent excise tax on investment income for certain private colleges. The levy applies to colleges that enroll more than 500 students and have assets worth more than $100,000 per student. It would apply to fewer than 150 colleges, according to analysis from the Chronicle of Higher Education. Still, the provision would bring in about $3 billion over a decade.

-- The bill proposes ending the Hope Scholarship Tax Credit, worth up to $1,500, and the Lifetime Learning Credit. It retains the American Opportunity Tax Credit. In total those changes would generate $17.3 billion over a decade, according to estimates from the Joint Committee on Taxation.
Nearly $48 billion would come from changes such as ending deductions for student loan interest and repealing employer-provided tuition reimbursement.

-- The bill would cut what is known as the orphan drug credit, a tax break to incentivize drugmakers to develop medicine that affects a small segment of the population. The provision would raise $54 billion.

-- The tax bill includes 11 insurance-related revenue raising provisions, including modifying how life insurance companies calculate their reserves and altering discount rules for property and casualty insurers.  The provision would raise $50.8 billion.

-- The bill would raise $33.5 billion by repealing the provision whereby individuals can currently deduct up to 50 percent of meal and entertainment-related expenses if they can establish the cost was directly related to their business. 

-- The bill proposes repealing the deduction for employer-provided gyms, a change worth $2 billion.

-- Ending a deduction for employer-provided qualified parking and transportation would bring in $10.8 billion.

-- No deduction would be allowed for entertainment, amusement, recreation, or membership dues, a change worth $21 billion. "It is difficult for the IRS to determine whether entertainment expenses are directly related to a trade or business, creating uncertainty for taxpayers as well as the potential for significant abuse," the committee said in the bill summary.

-- The bill would raise $30.5 billion by restricting the use of tax-free like-kind exchanges to real-estate transactions.  Like-kind exchanges, under tax code Section 1031, have been in the tax code since the 1920s.

-- The bill ends a deduction for moving expenses worth $10.6 billion in revenue. Under current law, individuals can deduct moving expenses tied to starting a new job, even if they don't itemize their deductions.

-- The bill raises $7.7 billion by repealing an exclusion for moving expense reimbursement. Currently, qualified moving expense reimbursements provided by an employer can be excluded from the employee's income.

-- Alimony payments are generally an above-the-line deduction under current law. Alimony payments would no longer be deductible for the payor or included in the payee's income. The provision, which raises $8.3 billion, applies to any divorce or separation starting after 2017.

 
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