U.S. Senate Passes Tax Code Reform Legislation

Early Saturday morning (Dec. 2) the U.S. Senate voted 51 to 49 along partisan lines to pass its version of the federal Tax Cuts and Jobs Act (H.R. 1).  The plan, as passed, could add one trillion dollars to the federal debt over the next decade, which many education leaders fear could trigger calls for a significant reduction in spending for federal programs, including those that support K-12 education.  Last month, the U.S. House of Representatives, passed its own version of the tax reform legislation.

The Senate version, like the House version, would drop the corporate income tax rate to 20%, down from the current 35% and, unlike several of the provisions affecting individual income taxes, this change would be permanent.  The Senate version also nearly doubles the standard deduction to $24,000 for married filers and $12,000 for single filers and eliminates the deductibility of state and local income or sales taxes.  The plan would also Increase the child tax credit to $2,000 per child from the current $1,000.

Unlike the House version, the Senate bill would abolish the penalty for not having health insurance created by the Affordable Care Act and would create a deduction for pass-through businesses—businesses such as limited liability corporations or S-corporations—in which the owner takes the profits from the firm as income taxable on the owner’s individual income tax.

Two items to note are one amendment from Senator Ted Cruz (R-TX) to authorize an expansion of 529 education savings accounts for tuition tax credits/vouchers (similar to provisions in the House-passed bill) and an amendment from Senator Susan Collins (R-ME) to allow taxpayers to deduct up to $10,000 in property tax payments (also similar to the House-passed bill).

As a result of the latter amendment, under the Senate-passed bill, taxpayers will be able to deduct up to $10,000 in state property taxes, but, as noted, could no longer deduct state and local income or sales taxes.

The House and Senate have passed different versions of federal income tax reform, which will have to be merged into one. The House is scheduled to vote today (Dec. 4) to call for the formation of a conference committee to iron out differences between the bills passed by the two houses.

A House-Senate conference committee for H.R. 1 is expected to be named this week. House leaders say they hope to have a finished tax reform bill on the president’s desk for his signature before Christmas.

Also up on this week’s Congressional agenda is the need to pass at least a ‘stop-gap” federal spending measure before midnight Friday, Dec. 8,  when current legislation authorizing federal spending expires.  Without action, a possible federal “shutdown” could occur.

The federal government has been operating under a temporary spending bill, known as a “continuing resolution” that continues existing funding levels, thus allowing the government to function under those funding levels, but preventing new programs from being established  or funding for existing programs to be increased.

House GOP leaders expect to vote Thursday on a “two-week, spending patch” to keep the federal government running through Dec. 22 an  this week.   A simple majority is needed to pass the proposal in the House, but a 60-vote supermajority will likely be needed in the Senate, where Republicans hold only 52 seats.