Income tax brackets
Republicans originally wanted to collapse the tax brackets to three, from seven, in part to achieve their goal of simplifying the tax code so people could file on a postcard. That proved difficult. The House plan went with four brackets: 12 percent, 25 percent, 35 percent and a top rate that stays at 39.6 percent for millionaires.
The Senate bill sticks with seven brackets of 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent and 35 percent but lowers the top rate to 38.5 percent for high-income individuals and couples.
State and local tax deduction
Perhaps the thorniest issue has been the state and local tax deduction, which allows people to deduct their state and local income, sales and property taxes. The House bill limits the deduction to just property taxes and caps it at $10,000.
The Senate plan originally eliminated the so-called SALT deduction entirely, which angered many upper-middle-class families and spooked House members who have objected to the more generous scaled-back version in their chamber.
But the Senate later added that House property tax provision into its bill to satisfy Sen. Susan Collins, R-Maine, who had said it had to be done before she commits to the bill.
Mortgage interest deduction
Republicans in the House would cap the deduction for mortgage interest debt at $500,000, down from the current cap of $1 million.
Senate Republicans decided to leave the deduction alone, a big victory for real estate lobbyists, who have been vocal in their opposition to changing it. But that could make the House bill even more expensive.
Cutting the corporate tax rate
Reducing the corporate tax rate to 20 percent, from 35 percent, is at the center of both the House and the Senate tax plans. How soon they get there is the only difference. The House bill immediately cuts the corporate tax rate, fulfilling the wishes of President Donald Trump.
The Senate imposes a one-year delay on lowering the rate, allowing Senate Republicans to preserve other deductions that the House ends. Economists have debated the delay’s effect on economic growth.
Increasing the corporate tax rate would be a troublesome development for many Republicans and Trump, who drew a red line on a 20 percent corporate rate.
Republicans are united in their desire to give small businesses a tax break, but their plans differ in how to provide a tax cut. House lawmakers created a new 25 percent tax for pass-through businesses — sole proprietorships, partnerships and S corporations that pay taxes at the individual rate of their owners. However, they erected guardrails to prevent the new rate from becoming a loophole that wealthy individuals can exploit by converting themselves into entities to take advantage of the 25 percent rate.
The Senate takes a different approach, creating a new deduction for pass-through businesses along with other incentives to promote investment. To satisfy the concerns of certain senators, including Ron Johnson of Wisconsin and Steve Daines of Montana, the deduction was increased to 23 percent from 17.4 percent in the bill.
Making tax code more ‘America First’
A main priority of the Republican tax effort has been making the U.S. tax system more competitive so that companies invest here and so that they do not have an incentive to shift profits to lower-tax jurisdictions. The Senate plan will impose taxes on American and foreign companies that shift offshore money earned in the United States. There would be an effective minimum tax on money earned domestically and a 12.5 percent tax on foreign revenue from intellectual property.
The original House approach would have levied a 20 percent “excise tax” on payments between U.S. and foreign companies that are affiliated with each other. This idea set off substantial confusion and opposition from drug and insurance lobbyists and was tweaked during the Ways and Means Committee’s amendment process.
Adoption, education, health
To cut business and individual tax rates and double the standard deduction for individuals and families, Republicans had to do away with many popular tax credits and other prized deductions. The House initially eliminated a tax credit for adoptions but later restored it. The House repealed deductions for medical expenses and counted tuition waivers that are widely used by graduate students as taxable income.
In the Senate, Republicans also preserve the adoption tax credit. Unlike the House, they maintain the deduction for medical expenses and provide “education relief” for graduate students.
New York Times