Upcoming Tax Legislation

Republican legislation to cut and reform taxes has the potential to be the most significant policy development of the past year.  If it passes Congress, it will not only boost productivity growth and incomes, it will spur further pro-growth legislation.
Key similarities in the House & Senate bills  
Here are similar provisions in each bill that will likely be in the final bill. 

1. Both bills cut corporate tax rate to 20% (House in 2018, Senate 2019).
2. Both House and Senate bills reduce tax rates by increasing the brackets that apply to current rates (the House bill has 4 tax brackets, the Senate 7).
3. Both bills double the standard deduction to $24,000 for married couples.  (Currently 30% (45 million people) itemize, by doubling the deduction only 10% (15 million) would itemize.  IRS would have 30 million fewer detailed returns to check meaning more scrutiny for those who itemize.
4. Both bills repeal the personal exemption for each family member (currently $4,150).
5. Both bills repeal the AMT (alternative minimum tax).
6. Both bills repeal the deduction of state and local (The House bill allows filers to deduct up to $10,000 of property taxes).
7. Both bills change a provision allowing for the exemption of $1/2 million in profits from the sale of a home (you must live in the house 5 out of 8 years instead of current 2 out of 3 years; House bill limits the deduction for high earners).
8. Both bills double the current estate tax exemption from $5 million per person to $10 million (adjusted for inflation).  For 2018 the exemption is $22.4 million for married couple.

Key differences in the House & Senate bills
 
The most important difference between the bills is the Senate bill repeals the mandate to buy health insurance.  The House bill does not.  In addition, the House bill limits deductions for some higher earners, raising the top marginal tax rate for certain payers.  The Senate bill slightly lowers the highest marginal tax rate.
 
How Senators will vote 
Predicting votes in the Senate can be hazardous, but here’s what I expect and why.
Sen. Ron Johnson (R. WI) says he opposes both the House and Senate bills because they fail to allow a tax cut for pass through businesses, such as limited liability companies and partnerships.  Johnson is a businessman who has identified a major shortcoming in both the Senate and House bills.  The flaw is a mistake that will be corrected in each bill.  Johnson will then vote yes.
Sens. Jeff Flake (R. AZ) and Bob Corker (R. TN) have expressed concerns about the budget deficits caused by the tax bill.  They already voted for the budget which included the $1.5 trillion loss in revenue.  There is no reason for them not to support the final bill.  They vote yes.
Sen. Rand Paul (R. KY) was the only Senate Republican to vote against the budget.  However, he has been instrumental in promoting many of the provisions in the Senate bill.  He will vote yes.
 
Sen. John McCain (R. AZ) was one of only three Republicans to vote against repealing Obamacare.  He said his vote against repeal was due to the lack of transparency regarding its replacement.  He agrees that the procedure for tax cuts and reform has been more transparent.  McCain will vote yes.
Sens. Susan Collins (R. ME) and Lisa Murkowski (R. AK) are the other two Republicans who voted not to repeal Obamacare.  They have expressed concern over repeal of the mandate to buy health insurance, saying it can increase the cost of health insurance premiums. 
The Senate tax bill includes Murkowski’s main objective of expanding oil drilling in ANWR (Arctic National Wildlife Refuge).  Murkowski will vote yes.  This leaves Susan Collins as the only no note.
If this analysis is correct (and no other Senators step up to block the bill), the Senate will approve the tax legislation with 51 votes. 
The Compromise
The final step will be the compromise between the House and Senate.  It is likely to repeal of the mandate requiring people to buy health
insurance.  Doing so not only counts for reducing the deficit, it also increases savings for those earning less than $50,000 a year.
The compromise will also eliminate most of the deductions associated with state and local taxes.  The House will probably get to keep their $10,000 allowance for state property taxes. 
Eliminating the state and local tax deduction will encourage high-tax states to reduce both their tax rates and their spending in an effort to stay competitive.  It will further boost real growth nationally and curtail the cycle of raising taxes to increase public employee benefits to fund contributions to liberal lawmakers.
Voting to prevent most individuals from a tax cut might seem to be a difficult decision for Democrats.  It isn’t.  Many recognize how this bill will lead to explosive growth and the demise of many of liberal assumptions.  All Democrats will oppose the legislation.
The final vote will be close.  However, with the jobs of so many Republicans depending on a victory, the odds favor passage of this important policy change.