Chairman’s Mark Unveiled to Senate Tax Reform Proposal

November 16, 2017

On Nov. 14, Senate Finance Committee Chairman Orrin Hatch (R-Utah) released the modified Chairman’s Mark for the Tax Cuts and Jobs Act, that would repeal the Affordable Care Act’s (ACA’s) individual mandate and sunset a number of individual tax provisions, including the estate tax exemption, to meet a budgetary requirement to not increase the deficit after ten years.

After two days of committee deliberations, the Senate Finance Committee modified its version of the proposal by repealing the individual shared responsibility payment (individual mandate). The move will generate an estimated $318.4 billion over 10 years, according to the Joint Committee on Taxation (JCT). This raises substantial revenue—the result of fewer people receiving tax credits and thereby making more revenue available for tax reform.

Earlier this month, nonpartisan congressional research offices estimated that fully repealing the individual mandate would reduce federal budget deficits by $338 billion between 2018 and 2027 because fewer people would sign up for health insurance policies, allowing the government to subsidize fewer health insurance policies. However, the result would be 13 million fewer people with insurance by 2027, the Congressional Budget Office and the JCT wrote in the report.

The new Senate plan to overhaul the tax code also doubles the child tax credit to $2,000, and the rates for three of the seven individual tax brackets would be brought down from 22.5 percent to 22 percent, 25 percent to 24 percent and 32.5 to 32 percent — provisions that would expire in 2026.

The proposal sunsets many of the individual tax proposals after Dec. 31, 2025, including the repeal of the personal exemption, increase in the standard deduction, the repeal of the individual alternative minimum tax (AMT), the estate tax and a deduction for pass-through income. Further, the proposed reduction of the corporate tax rate to a flat 20 percent would be made permanent as well as shifts in the structure of the international tax system.

The chairman’s modification also includes additional tax relief for pass-through businesses (i.e., partnerships and S corporations), including services pass-through businesses. Taxpayers generating taxable income of up to $500,000 (married filing jointly) / $250,000 (all others) would be exempt from the W-2 wage limitation that otherwise might limit taxpayers from obtaining the full benefit of the 17.4 percent deduction on their qualifying pass-through income. In addition, pass-through income from services pass-through businesses for taxpayers with taxable income up to these levels ($500,000 / $250,000) would fully qualify for the 17.4 percent deduction.

The JCT estimates of the modified mark indicate that the bill would be compliant with the Senate’s so-called Byrd Rule to not raise deficits beyond a ten-year window. The overall revenue cost of the new plan is approximately $1.415 trillion, according to the JCT.

Some of the changes to the business side of the tax code include limiting the net operating loss deduction to 80 percent of taxable income after Dec. 31, 2023, expanding the definition of qualified property eligible for first-year depreciation allowance before Jan. 1, 2023 to include certain film, television and live theatrical productions, and allowing farming businesses to make an election so as not to be subject to a limitation on deducting business interest expenses. These farming businesses would have to use an alternative depreciation system within a recovery period of 10 years or more.

Senate Republicans are moving forward with the Chairman’s mark with the expectation it will move out of committee by Nov. 17, and on to the Senate floor the first week after Thanksgiving recess.

A copy of the chairman’s modified mark can be found here.

A score of the modified mark may be found here.

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