Published: Mon, November 13, 2017
Markets | By Noel Gibbs

Senate GOP Unveils Tax Bill With More Pain for Blue States

Senate GOP Unveils Tax Bill With More Pain for Blue States

House Republicans appear on track to pass their version of the bill next week, but in the Senate Majority Leader Mitch McConnell has a slim 52-48 majority that has proven hard to corral. Some Republicans are predicting doom and gloom if they walk into an election year with nothing done. And that's not the only healthcare-related area in which the two bills differ.

The Senate bill differs from the House bill in several significant ways, including the elimination of all deductions for state and local taxes, a move that would disproportionately affect 44 million Americans living in states with high taxes, including California, Connecticut, Illinois and NY. Under the House bill, the pass-through tax rate could be as low as 9% for some income for an individual owner earning less than $75,000.

And unlike the House version, the Senate bill would fully repeal the deduction for state and local taxes, which has become a sticking point with GOP congressmen from high-tax states like NY and New Jersey, whose constituents depend on that deduction.

On the other hand, the House bill would lower the cap on the mortgage interest deduction, an idea that caused intense blowback from the real estate lobby, but the Senate tax measure would leave it unchanged. The Senate also broke with the House by keeping the deduction for medical expenses and student loan interest. 'I misspoke on that, ' McConnell told the New York Times on Friday, noting that it wasn't possible to guarantee that 'no one sees a tax increase'.

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Leon LaBrecque, managing partner at LJPR Financial Advisors, compared the effect of both plans on a couple who earn $150,000 in pass-through compensation as their only income, using the standard deduction of $24,000 allowed by each proposal.

The Senate bill would reduce the number of wealthy people who pay the estate tax by doubling the current threshold for the tax, which now kicks in for individuals on estates worth over $5.6 million.

Meanwhile, on the other side of the Capitol, the tax-writing House Ways and Means Committee voted along party lines Thursday to move ahead with a newer version of their plan.

Where the Senate and House bills diverge on pass-through policy is how tax relief is determined.

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The Senate tax bill would preserve that deduction, according to a summary of that legislation.

The tax bill must deepen federal deficits by no more than $1.5 trillion over the coming decade. In the Senate, a parliamentary procedure known as the Byrd rule requires 60 votes for any legislation that adds to the deficit outside that 10-year budget window.

That could force them to scramble for more revenue as the process moves along.

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