A last-minute scramble to shore up support from wavering Republican senators injected significant changes into the Senate tax bill.
The overhaul will still cut taxes on individuals and businesses, but the changes will reduce some benefits while sweetening others. Some of the provisions lawmakers wanted will cost additional money, prompting the need to find offsets.
Here’s a look at the main changes that are expected to be included in the Senate’s revised bill to be voted on later today.
Senate lawmakers, in search of additional revenue, are expected not to entirely eliminate the alternative minimum tax, or A.M.T., on individuals as originally proposed.
The A.M.T. was created to limit the amount of deductions available to the richest Americans. Over the years, though, inflation has eaten away at its effectiveness — as has the exclusion of interest and dividend income, which insulates the richest Americans.
But it brings in a lot of revenue — as much as $1 trillion over the next decade — so lawmakers are now planning to reduce, rather than repeal, the tax. The Senate bill will increase the individual exemption amounts that taxpayers using the A.M.T. are entitled to and will increase the taxable income level at which those exemption amounts begin to phase out. Both moves will provide some relief to those whose income and use of deductions requires them to use the A.M.T., but it is far different from the House bill, which eliminates the tax as part of its tax code “simplification” effort.
About 30 percent of households earning $200,000 to $500,000 in 2016 are being hit by the alternative minimum tax, as are 63 percent of those earning $500,000 to $1 million, according to calculations from the nonpartisan Tax Policy Center in Washington. But only 20 percent of households with incomes greater than $1 million are subject to the A.M.T.
The Senate bill also retains the corporate A.M.T., which was slated for elimination in both the Senate and House bill. Together, the changes are expected to raise about $173 billion over the next decade.
The Senate bill is expected to allow taxpayers to deduct up to $10,000 in state and local property taxes paid, a provision in unison with the House bill.
The original Senate bill called for elimination of the state and local tax deduction, which is primarily used in high-tax, Democrat-leaning states. But Senator Susan Collins, Republican of Maine, insisted on including the limited property tax deduction, which will cost about $148 billion over a decade. That could ease one potential area of contention with the House bill.
The Senate bill will sweeten the tax deduction for owners of businesses that are organized as pass-throughs, meaning the business income is taxed at the individual owner’s tax rate.
The Senate bill will now allow those pass-through owners to deduct 23 percent of their business income, up from 17.4 percent in the original bill. That is above the 20 percent deduction in the House bill and a significant win for Senator Ron Johnson, Republican of Wisconsin, whose family owned business is operated as a pass-through.
The change will cost the United States government $114 billion over a decade.
Another change pushed by Ms. Collins will lower the threshold for Americans to deduct medical expenses. Under current law, individuals can deduct out-of-pocket medical expenses that exceed 10 percent of adjusted gross income. The revised bill will lower that to 7.5 percent of adjusted gross income, a change that will help older Americans and those with lower incomes.
However, the House bill eliminated the deduction altogether, so that will be one area of potential contention when the two chambers try to reconcile their versions. The cost of that change is unclear, as of now.
The Senate bill increases the tax rate that companies will have to pay on foreign corporate profits. The “deemed repatriation” provision in the Senate will now subject untaxed foreign corporate profits to immediate taxation at a rate of 14 percent for cash holdings and 7 percent for noncash holdings. That is up from the original proposal of 10 percent and 5 percent and in line with the House version.
The change is expected to bring in an additional $97 billion over a decade.