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Comparing the Conference Report With the House & Senate Tax Bills

Dec 19, 2017 | Taxes

The House-Senate conference committee has released its version of the Tax Cuts and Jobs Act (TCJA), and we've updated our blog comparing the final agreement with the House and Senate bills.

Table 1 looks at the major policy differences between the three versions of the TCJA. The conference agreement draws from both bills, but overall it is more similar to the Senate bill – particularly it's sunsetting of nearly all individual provisions to get around the Senate's Byrd Rule. In some cases where the House and Senate differ significantly, the conference committee essentially splits the difference, as it does with the mortgage interest deduction. In other areas, the conference agreement actually takes a step backwards from both bills: it retains (but limits) the deduction for state and local income and sales taxes that the House and Senate both eliminate, ignores both bill's changes to the exclusion for capital gains on home sales, and starts the delayed amortization of R&D expenses that lawmakers will likely prevent from going into effect much earlier than either bill.

Table 1: Major Differences in the House, Senate, and Conference Versions of the Tax Cuts and Jobs Act
Area House Senate Conference
Individual Tax
Tax Rates 12% | 25% | 35% | 39.6% 10% | 12% | 22% | 24% |32% | 35% | 38.5% 10% | 12% | 22% | 24% |32% | 35% | 37%
Standard Deduction $12,200 (single) / $24,400 (married) / $18,300 (head of household) $12,000 (single) / $24,000 (married) / $18,000 (head of household) $12,000 (single) / $24,000 (married) / $18,000 (head of household)
Personal Exemptions Replaced with $300 credit per person through 2022; eliminated without replacement after Eliminated Eliminated
Child Tax Credit and Dependent Exemptions Dependent exemption replaced with $300 credit through 2022; CTC increased to $1,600/child – phased out at higher income than current law Dependent exemption eliminated; CTC increased to $2,000/child – phased out at higher income than House bill; separate $500 nonrefundable credit for non-child dependents Dependent exemption eliminated; CTC increased to $2,000/child with up to $1,400 refundable – phased out at higher income than current law; separate $500 nonrefundable credit for non-child dependents
Alternative Minimum Tax Eliminated Exemption amount increased Exemption amount increased
Earned Income Tax Credit Same as current law but with program integrity measures Same as current law Same as current law
Mortgage Interest Deduction Limit lowered to $500,000 of debt for new mortgages on primary residences Mostly retained; $100,000 home equity interest deduction eliminated Limit lowered to $750,000 of debt for new mortgages
Charitable Deduction Mostly similar to current law Mostly similar to current law Mostly similar to current law
Health Exclusion Same as current law Same as current law Same as current law
State & Local Tax Deduction Eliminated for income and sales taxes; limited to $10,000 for property taxes Eliminated for income and sales taxes; limited to $10,000 for property taxes Deduction capped at $10,000
Medical Expense Deduction Eliminated Retained; floor lowered to 7.5% of AGI for 2017 & 2018 Retained; floor lowered to 7.5% of AGI for 2017 & 2018
Municipal Bond Exclusion Private activity and advance refunding bond exclusion eliminated for new bonds Advance refunding bond exclusion eliminated for new bonds Advance refunding bond exclusion eliminated for new bonds
Capital Gains from Home Sales Exclusion phased out for high earners Residence requirement increased Same as current law
401(k) Retirement Accounts Same as current law Same as current law Same as current law
Capital Gains and Dividends Same as current law Same as current law Same as current law
Higher Education Tax Benefits Consolidated to single benefit Same as current law Same as current law
Indexing of Tax Provisions Chained CPI used for inflation adjustments Chained CPI used for inflation adjustments Chained CPI used for inflation adjustments
Other Itemized Deductions Mostly eliminated More retained than House bill Generally follows Senate bill
Other Tax Provisions Several provisions repealed Preserves more tax provisions than House bill Generally follows Senate bill
Expirations $300 family and personal credits expire after 2022 All individual provisions except chained CPI expire after 2025; expanded medical expense deduction expires after 2018 Most individual provisions except chained CPI expire after 2025; expanded medical expense deduction expires after 2018
Business Tax
Corporate Rates Flat rate of 20%; corporate AMT repealed Flat rate of 20% starting in 2019; corporate AMT retained Flat rate of 21%; corporate AMT repealed
Pass-Through Businesses Top rate limited to ~35% for active owners; 25% for passive owners Creates a 23% deduction for business income capped at 50% of wage income; disallowed for active owners; expires after 2025 Creates a 20% deduction for business income capped at 50% of wage income; disallowed for active owners; expires after 2025
Depreciation Schedule Full expensing of certain equipment for 5 years; current law afterwards Full expensing of certain equipment for 5 years, then phases out over 5 years; permanently shortens depreciation lives for buildings Full expensing of certain equipment for 5 years, then phases out over 5 years
Small Business Expensing Increases limit to $5 million and phaseout to $20 million for five years Increases limit to $1 million and phaseout to $2.5 million permanently Increases limit to $1 million and phaseout to $2.5 million permanently
Domestic Production Deduction Eliminated Eliminated starting in 2019 Eliminated
Interest Deduction Limit lowered from 50% to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for businesses with gross receipts > $25 million Limit lowered from 50% to 30% of earnings before interest and taxes (EBIT) for businesses with gross receipts > $15 million Limit lowered to 30% of EBITDA for four years and EBIT thereafter for businesses with gross receipts > $25 million
Inventory Accounting Same as current law Same as current law Same as current law
R&E Expenses Amortized starting in 2023 Amortized starting in 2026 Amortized starting in 2021
Meals and Entertainment Expenses Deduction eliminated for entertainment expenses; retained for meals Deduction eliminated for entertainment expenses; retained for certain meals Deduction eliminated for entertainment expenses; retained for certain meals
Executive Compensation Performance pay exception eliminated Performance pay exception eliminated Performance pay exception eliminated
International Tax Territorial w/ base erosion provisions and one-time transition tax Territorial w/ base erosion provisions and one-time transition tax Territorial w/ base erosion provisions and one-time transition tax
Fringe Benefit Deductions Eliminates most deductions for fringe benefits Eliminates most deductions for fringe benefits Eliminates most deductions for fringe benefits
Other Tax Provisions Several provisions repealed Several provisions repealed; more retained than House bill Several provisions repealed; more retained than House bill, but less than Senate bill
Expirations Temporary expensing and expanded small business expensing expire after 5 years Sunsets various business provisions related to pass-throughs, expensing, base erosion, family leave, and alcoholic beverages Sunsets various business provisions related to pass-throughs, expensing, base erosion, family leave, and alcoholic beverages
Other Taxes
Excise Tax on University Endowments 1.4% tax on endowments exceeding $250,000 per student 1.4% tax on endowments exceeding $500,000 per student 1.4% tax on endowments exceeding $500,000 per student
Estate Tax Exemption increased to $11.2 million through 2024, then tax is eliminated Exemption doubled; tax retained Exemption doubled; tax retained
Individual Mandate Penalty Same as current law Penalty reduced to $0 Penalty reduced to $0

 Sources: TCJA Conference Report, Joint Committee on Taxation, House Ways and Means Committee, Senate Finance Committee.

Overall, the conference bill is more costly than both the House and Senate versions, especially after accounting for gimmicks. We estimate that if all temporary provisions were made permanent, the House bill would cost $1.9 trillion, the Senate bill $2.0 trillion, and the conference bill would cost up to $2.2 trillion. The Joint Committee on Taxation (JCT) has not released a dynamic score of the conference agreement, but based on its dynamic analysis of the House and Senate bills, we estimate it would generate around $400 billion in net dynamic feedback, or $450 billion if all temporary provisions were made permanent – not nearly enough to offset its cost.

Table 2 breaks down the fiscal impact of different provisions in the House, Senate, and conference bill. On net, the House-passed bill contains about $1.1 trillion in business tax cuts, $200 billion in individual tax cuts, and $151 billion from eventually repealing the estate tax. The Senate-passed bill includes around $910 billion in net individual tax cuts, $770 billion in net business tax cuts, $83 billion in estate tax cuts; and $318 billion in savings from repealing the individual mandate. The final conference bill contains $1.1 trillion in net individual tax cuts, $590 billion in net business tax cuts, $83 billion in estate tax cuts, and $314 billion in savings from repealing the individual mandate.

Note that for the individual provisions, that the Senate and conference committee sunset most changes after 2025 while the House bill makes most of them permanent.

Table 2: 10-Year Costs or Savings (-) in the House, Senate, and Conference Tax Cuts and Jobs Act by Provision
Policy House Senate Conference
Individual Tax Cuts      
Reduce and/or consolidate individual income tax rates $1.1 trillion $1.2 trillion* $1.2 trillion*
Roughly double the standard deduction $921 billion $737 billion* $720 billion*
Repeal or modify the Alternative Minimum Tax (AMT) $696 billion $636 billion* $637 billion*
Increase the child tax credit and/or create dependent tax credit $641 billion* $580 billion* $573 billion*
Other tax cuts $0 billion $12 billion* $11 billion*
Subtotal, Individual Tax Cuts $3.3 trillion $3.1 trillion $3.2 trillion
       
Individual Tax Increases      
Repeal personal exemptions -$1.6 trillion -$1.2 trillion* -$1.2 trillion*
Reform itemized deductions -$1.3 trillion -$829 billion* -$668 billion*
Use chained CPI to index tax provisions -$128 billion -$134 billion -$134 billion
Reform higher education tax benefits -$65 billion N/A N/A
Require Social Security number to obtain child tax credit and other changes -$42 billion -$24 billion* -$30 billion*
Eliminate certain exclusions -$36 billion -$6 billion* -$5 billion*
Other provisions -$15 billion -$8 billion* -$15 billion*
Subtotal, Individual Tax Increases -$3.1 trillion -$2.2 trillion -$2.1 trillion
       
Business Tax Cuts      
Reduce corporate tax rate and repeal corporate AMT $1.5 trillion $1.3 trillion^ $1.4 trillion
Reduce taxes for pass-through businesses $597 billion $477 billion* $415 billion*
Move to territorial system for foreign taxation $207 billion $216 billion $224 billion
Reform taxation of intangible property N/A $99 billion $64 billion
Increase small business write-offs $41 billion* $52 billion $56 billion
Move to full expensing of investments for five years* $25 billion* $108 billion* $91 billion*
Other provisions $29 billion $42 billion $25 billion
Subtotal, Business Tax Cuts $2.4 trillion $2.3 trillion $2.3 trillion
       
Business Tax Increases      
Reduce limit on interest expense deductions -$172 billion -$307 billion -$253 billion^
Enact base erosion or other revenue-raising provisions for foreign taxation -$209 billion -$300 billion -$279 billion
Enact one-time tax on overseas earnings -$293 billion -$298 billion -$339 billion
Limit carryover of net operating losses -$156 billion -$158 billion -$201 billion
Limit pass-through losses to $250K/$500K N/A -$137 billion -$150 billion
Eliminate R&E expensing with delay -$109 billion^ -$62 billion^ -$120 billion^
Eliminate domestic production activities deduction -$95 billion -$84 billion^ -$98 billion
Reform tax treatment of bonds -$57 billion -$17 billion -$18 billion
Modify orphan drug tax credit -$54 billion -$30 billion -$33 billion
Reform tax treatment of insurance companies -$40 billion -$27 billion -$40 billion
Limit deductions for meals, entertainment, and transportation -$34 billion -$40 billion -$41billion
Limit deferral of gain on like-kind exchanges to real property -$31 billion -$31 billion -$31 billion
Reform tax treatment of banks and financial instruments -$14 billion -$17 billion -$15 billion
Reform tax treatment of executive compensation -$13 billion -$11 billion -$11 billion
Other changes -$50 billion -$37 billion -$41 billion
Subtotal, Business Tax Increases -$1.3 trillion -$1.6 trillion -$1.7 trillion
       
Reduce and/or Repeal Estate Tax $151 billion^ $83 billion* $83 billion*
       
Eliminate Individual Mandate N/A -$318 billion -$314 billion
       
Conventional Total $1.44 trillion $1.45 trillion $1.46 trillion
Dynamic Feedback ~-$430 billion ~-$400 billion ~-$400 billion
Dynamic Total  $1.01 trillion $1.05 Trillion $1.05 Trillion
       
Extend business expensing $175 billion $0-$80 billion $0-$80 billion
Delay R&E amortization $110 billion $60 billion $120 billion
Extend individual tax provisions beyond expiration $225 billion $290-$300 billion $315 billion
Tighten business interest deduction after four years N/A N/A $0-$75 billion
Other gimmicks N/A $145 billion $135 billion
Conventional Cost Without Expirations $1.9 trillion $2.0 trillion $2.0-$2.2 trillion
Potential Dynamic Feedback ? ~-$450 billion ~-$450 billion
Dynamic Cost Without Expirations ? ~$1.6 trillion ~$1.6-$1.7 trillion
       
Conventional Cost with Interest $1.70 trillion ~$1.75 trillion ~$1.77 trillion
Dynamic Cost with Interest ? ~$1.25 trillion ~$1.30 trillion
Conventional "True" Cost with Interest $2.3 trillion ~$2.3 trillion ~$2.4-$2.5 trillion
Dynamic "True" Cost with Interest ? ~$1.8 trillion ~$1.9-$2.0 trillion

Sources: TCJA Conference Report, Joint Committee on Taxation and CRFB calculations. * = Provision is sunset. ^ = Provision is delayed.

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