Both the House and Senate are determined to pass their tax bills before Thanksgiving. That would give them just until Christmas to hash out the differences between the two versions of a major piece of legislation that would affect tens of millions of citizens. President Trump has said he wants to sign a bill by Christmas.
The process will not be easy. A major tax overhaul has not passed Congress in more than 30 years. To pass the bill with a simple majority, and not the veto-proof margin required for most Senate legislation, the bill must add no more than $1.5 trillion to the deficit in the next 10 years. For some deficit watch dogs in Congress, that is still too much, and if they refuse to support the bill, they could kill it. Republicans have a slim majority in the Senate, and losing more than three supporters would defeat the legislation.
No Democrats are expected to vote in favor. But Republican leadership in Congress is determined to fulfill their campaign promise for tax reform, especially since it would be their first major legislative accomplishment this year.
Here are some provisions of particular interest to dealers:
Corporate rate: The Senate bill would take one year to cut the corporate tax rate from 35 to 20 percent; the House bill would cut it immediately. The delay would reduce the deficit resulting from the bill by about $100 billion, but is opposed by the White House.
Pass-throughs: Many dealerships – sole proprietorships, partnerships and S corporations – pass through their income to the individual owners, who then pay personal income tax on their earnings rather than corporate tax. The House bill would cut the top pass-through rate to 25 percent, with some important limits explained in last week’s Bulletin. The Senate bill would allow the business owner to deduct some of the earnings and pay their personal income tax rate on the rest. That was enough of a reduction in rate to gain the support of the National Federation of Small Business.
Expensing: The House bill increases Section 179 small business expensing limits from $500,000 to $5 million per year and the phase-out from $2 million to $20 million.
Estate tax: The House bill doubles the exemption to $11 million for individual estates and to $22 million for married couples, and would abolish it completely after 2023. The Senate bill has the same exemptions but does not abolish the tax. A lot of commentary has pointed to the estate tax provision as evidence that the bill favors the very wealthy, which could create a political problem.
State and local taxes: The House bill ends deductions for state and local income and sales taxes and caps the property tax deduction at $10,000. The Senate bill eliminates the deductions. The provision could cost the support of Republican senators in high-tax states such as New York and New Jersey. Maryland is a fairly high tax state, but does not have any Republican senators.
Home mortgage interest deduction: The House bill would cap the deduction at $500,000; the Senate bill would keep it at $1 million. The powerful real estate lobby was ready to oppose the House version but supports the Senate one.
Electric vehicle tax credit: Both bills repeal the $7,500 tax credit as of Jan. 1, 2018. Although EVs are a small fraction of overall vehicle sales, repeal of the credit would likely have a major effect on EV sales, especially less expensive ones like the Volt.Download Bulletin PDF