Senate Tax Plan Now Includes Making Individual Tax Cuts Temporary

Senate Tax Plan Now Includes Making Individual Tax Cuts Temporary

Senate Finance Committee Chairman Orrin Hatch (R-UT) has revealed changes made to the Senate’s tax reform bill, which includes expiration dates to the tax cuts given to individuals, but will make the business tax cute permanent.

From The Hill:

The sunset clause in Hatch’s “modified mark” would mean the new individual rates in the Senate bill would end 10 years after their creation.

This would solve a key problem in the Senate, which would have to prevent the overall tax bill from adding to the deficit after 10 years to make the new individual tax rates permanent — and use special budgetary rules to pass the package with a simple-majority vote and prevent Democrats from using a filibuster.

The Senate bill also reduces the corporate tax rate from 35 percent to 20 percent. This would be permanent and would not sunset.
On Monday, Hatch hinted that temporary individual tax cuts were on the table, emphasizing that he wanted to ensure that business tax changes are permanent.

The tax cuts will expire in 2025.

Individuals

The modifications within the tax bill include an increase of the child tax credit to $2,000 instead of the $1,650 in the original bill. It has a note that will give taxpayers 5290 college savings plans for their unborn children before 2026. It will also lower alcohol-related taxes.

Hatch also reduced his 25% tax bracket to 24% and changed the 22.5% to 22%. Remember, the Senate tax bill kept seven brackets while the House reduced it to three.

Businesses

Hatch also changed the business side of the plan. From Politico:

On the business side, there are provisions aimed at making it easier for so-called pass throughs — whose owners pay taxes on their businesses through the individual side of the tax code — to claim Republicans’ reduced business rate. They are also offering businesses a new, temporary tax break for offering employees family and medical leave. Silicon Valley firms would lose a cherished break allowing them to deduct the cost of meals provided to their employees.

The legislation would also toughen the proposal’s so-called anti-base erosion rules such as increasing a proposed tax on “intangible” income on things like patents that multinationals can easily book in other countries, beyond the jurisdiction of the IRS.

This means the owners can “take full advantage of a 17.4 percent deduction on their business income — setting the levels at $250,000 for single individuals and $500,000 for joint filers.”

The government can also deny businesses a tax “deduction for settlements related to sexual harassment or sexual abuse that involve nondisclosure agreements.”

The corporate tax rate of 20% will remain permanent.

Investors

The Senate tax plan also tells which stocks investors can unload and when. From CNBC:

“It’s a good move as far as tax reform goes because it simplifies taxes, but it will leave investors with fewer choices when they sell stock, and they’ll pay more in taxes,” said Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center.

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The provision would eliminate the specific identification method, meaning stock investors would now be required to sell their oldest shares first. This also would mean that mutual fund managers would also lose the ability to pick specifically which shares to sell. The change would take effect Jan. 1.

“Requiring taxpayers to treat securities as sold on a first-in, first-out basis would be disproportionately harmful to ordinary Americans who invest with funds,” said Paul Schott Stevens, president and CEO of the Investment Company Institute.

“It would increase significantly the amount of taxable distributions made to investors every year and tie the hands of fund managers as they pursue investment strategies on behalf of savers.”

Obamacare Mandate

Hatch included language to repeal the Obamacare individual mandate. I blogged yesterday that Sen. John Thune (R-SD), the #3 Republican in the Senate, claims that “there has been a whip count and he is confident Republicans can pass a tax bill that includes a measure to repeal the mandate.”

The senators believe this will raise between $300 billion to $400 billion, which will allow them to make more tax cuts.

There has been chatter that just repealing the individual mandate will raise premiums. It provides more evidence that the government just needs to repeal Obamacare fully.

The Finance Committee should vote and approve this bill by the end of the week. The Senate hopes to consider it after Thanksgiving.

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