On an early December morning, you may think you heard a strong gust of winter wind blow against your front door. In actuality, it was a deep breath of relief being exhaled by Senate Majority Leader Mitch McConnell (R-KY) who managed to get the Senate tax reform bill passed in the wee hours of the morning on Saturday.
The final tally was 51 – 49 and not requiring Vice President Pence to cast the tie-breaking vote. After the debacle with healthcare reform, this was dubbed “do or die” for the Republican Party. Exhausted yet jubilant Senator John Barrasso (R-WY) stated: “The American people wanted change, and we were able to deliver.”
Things got hairy late in the day on Thursday with a parliamentary procedure roadblock. Senator Bob Corker’s (R-TN) “trigger feature” would not be permitted under Senate rules as written. At the crux of the issue was a report from the congressional Joint Committee on Taxation that the bill would add $1 trillion debt to the federal budget deficit over a decade. This increase was calculated after taking expected growth into consideration and leaving GOP lawmakers scrambling to find a way to make the changes which would suffice to get enough lawmakers to a “yes” vote.
Hope re-emerged for the desperate McConnell and his colleagues on Friday morning after swinging two GOP holdouts into the yes column. Senators Steve Daines (R-MT) and Ron Johnson (R-WI) said they would support the bill after securing changes reflecting more favorable tax rates for small businesses, known as “pass-throughs.”
Senator Jeff Flake (R-AZ) announced at noon that he would support the bill after solidifying support for a solution to immigrants brought illegally to the US as children (DACA) along with a deduction related to how businesses deduct major investments.
In the end, the Senate GOP tax bill, hailed the “Tax Cuts and Jobs Act,” passed and includes the following:
- The corporate tax rate falls from 35 percent to 20 percent starting in 2019
- Many small businesses organized as “pass-through” companies (sole proprietorships, partnerships, LLCs and S corporations) currently taxed at their individual tax rate, will not have to pay tax on 23% of their income.
- The tax rates for families and individuals is lower for most Americans until 2026. The bill keeps seven tax brackets, but it cuts the rates at every level while raising many of the income thresholds keeping taxpayers in lower brackets.
- The standard deduction doubles, resulting in taxpayers not being taxed on income up to $24,000 for married couples and $12,000 for individuals.
- The child tax credit doubles from$1,000 per child to $2,000.
- The personal exemption goes away – it currently allows taxpayers to deduct $4,050 per person in each household.
- State and local tax deductions (SALT) from federal taxable income is eliminated although the bill allows for people to deduct up to $10,000 in property taxes.
- The individual mandate for the Affordable Care Act is repealed.
- The estate tax is eliminated for all but the wealthiest (approximately 1,800).
- The threshold for the Alternative Minimum Tax (AMT) raises slightly.
- Deductions for casualty losses from storms or theft, tax preparation fees, moving expenses and people who bike to work are no longer permitted.
- The teacher expense credit doubles from $250 to $500.
- The bill does not make any changes the student loan deduction or the “tuition waiver” for graduate students.
- The medical expense deduction stays and increases for next three years.
- People selling their homes now have to live in them at least five of the past eight years to qualify for $250,000 tax-free gain on sale of primary residence. Previously it was two of the past five years.
Passing this bill is the largest change to the U.S. tax code in 30 years. It lowers taxes for American families, and especially for businesses – the foundation of President Trump’s plan to boost the economy.
The Senate tax bill will now need to be reconciled with the House version. Finally, both the House and Senate would need to pass the revised measure before sending it to President Trump’s desk for signature.
Keep an eye on the impact of repealing the Obamacare mandate. It is not getting the attention it deserves as this could be a stake in the heart of the Affordable Care Act. Remember the House already voted to repeal. This fast-paced process is unlike anything our politicians are used to and is history in the making. We at Liberty Nation are on top of the story, and will keep you up to date every step of the way.