Comparing Key Tax Reform Elements: Tax Cuts and Jobs Act

Comparing Key Tax Reform Elements: Tax Cuts and Jobs Act

Updated December 5, 2017
Comparing Key Tax Reform Elements: Tax Cuts and Jobs Act
Legislation has been proposed in the House and the Senate that would substantially modify the federal tax system. On
November 16, 2017, the House passed the Tax Cuts and Jobs Act (H.R. 1). The Senate passed its own version of the Tax
Cuts and Jobs Act on December 2, 2017. This In Focus compares selected key elements of the House and Senate proposals.
This comparison is not intended to be complete or comprehensive; such a comparison is beyond the scope of this product.
Table 1. Comparison of Major Provisions in the Tax Cuts and Jobs Act to Current Law
Tax Provision
Current Law (2017)
House (H.R. 1)
Senate (H.R. 1, as amended)
Individual Provisions
Individual tax
7 brackets: 10% | 15% | 25%
4 brackets: 12% | 25% | 35% | 39.6%. 12% 7 brackets: 10% | 12% | 22% | 24% | 32%
rates
| 28% | 33% | 35% | 39.6%.
bracket phased out at higher income
| 35% | 38.5%. (Expires 1/1/2026.)
levels.
Personal
Personal exemption: $4,050
Personal exemptions repealed. Standard
Personal exemptions repealed. Standard
exemptions and
for taxpayer, spouse, and
deduction: $12,200 (single) and $24,400
deduction: $12,000 (single) and $24,000
standard
dependents. Standard
(married) in 2018.
(married) in 2018. (Expires 1/1/2026.)
deduction
deduction: $6,350 (single)
$300 family flexibility credit for taxpayer
and $12,700 (married).
and spouse through 2022.
Inflation
Consumer Price Index
Chained CPI.
Chained CPI.
adjustment
(CPI).
Child-related
Refundable child tax credit
$1,600 credit per child (up to $1,000
$2,000 credit per child (up to $1,000
provisions/
of $1,000.
refundable). Phase-out thresholds
refundable). Phase-out thresholds
personal credits
increased. $300 non-refundable credit
increased. $500 non-refundable credit
for non-child dependents. New
for non-child dependents. Social Security
identification requirements for claiming
number requirement for refundable
credits.
credits. (Expires 1/1/2026.)
Itemized and
Various itemized and
Repeal state and local income taxes,
Repeal state and local income taxes, tax
other deductions “above-the-line”
medical expenses, tax preparation
preparation expenses, non-disaster
deductions.
expenses, personal casualty losses (with
personal casualty losses, moving
Mortgage interest
some exceptions), expenses attributable
expenses (military exception), certain
deductible on up to $1
to being an employee, moving expenses
miscellaneous itemized deductions.
million loan, plus $100,000
(military exception), educator expenses,
Modified deductions include property
for home equity loan.
alimony payments.
taxes limited to $10,000; no deduction
Modified deductions include property
for mortgage interest on home equity
taxes limited to $10,000; mortgage
loans.
interest on up to $500,000 on new loans
(Expires 1/1/2026.)
and for principal residence; alimony not
deductible or taxable.
Education
Various credits and
Reform the American Opportunity Tax
Generally not addressed (some smaller
incentives
deductions for education-
Credit and repeal other higher-education modifications).
related expenses.
incentives.
Other individual
Various exclusions, credits,
Repeal exclusion for moving expenses
Repeal exclusion for moving expenses
tax expenditures
and other individual
(military exception), other nonrefundable (military exception). Modify exclusion of
provisions.
credits (excluding adoption credit).
gain from sale of principal residence.
Modify exclusion of gain from sale of
(Expires 1/1/2026.)
principal residence.
Individual AMT
Alternative Minimum Tax
Repealed.
Increase exemption amount and
(AMT).
phaseout threshold. (Expires 1/1/2026.)
Estate tax
Tax above exemption
Double exemption amount. Repeal after
Double exemption amount. (Expires
($5.49 million, 2017).
2024 but retain step-up in basis.
1/1/2026.)
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Comparing Key Tax Reform Elements: Tax Cuts and Jobs Act
Tax Provision
Current Law (2017)
House (H.R. 1)
Senate (H.R. 1, as amended)
Business Provisions
Corporate tax
Maximum rate of 35%.
Flat 20% rate in 2018. 25% flat rate for
Flat 20% rate in 2019.
rate
personal service corporations.
Pass-through
Taxed according to
Maximum 25% tax rate for passive
Taxed according to ordinary individual
businesses tax
ordinary individual rates up
business investors. For active owners,
rates. Taxpayers may deduct 23% of
rate
to 39.6%,
30% of income subject to 25% rate and
qualified pass-through income. Deduction
70% of income subject to ordinary
limited to 50% of W-2 wages (with
individual rates. Specified service pass-
exceptions). Deduction not available for
through income taxed at ordinary rates
specified service income unless
(with exceptions). Preferential 9% tax
taxpayer’s income does not exceed
rate for active owners earning less than
$500,000 (married) or $250,000 (single).
$150,000 (married) or $75,000 (single) in (Expires 1/1/2026.)
taxable income. 9% rate available to
specified service businesses.
Business interest Deduction for net interest
Deduction for net interest limited to
Deduction for net interest limited to
limited to 50% of adjusted
30% of adjusted taxable income. Interest
30% of adjusted taxable income. Interest
taxable income for firms
above limitation may be carried forward
above limitation may be carried forward
with debt-equity ratio above up to five years. Businesses with average
indefinitely. Businesses with average
1.5. Interest above
annual gross receipts over last three
annual gross receipts over last three
limitation may be carried
years of $25 million or less are
years of $15 million or less are
forward indefinitely.
exempted.
exempted.
Depreciation
Most assets depreciated
Full and immediate expensing (100%
Full and immediate expensing (100%
over time. Bonus
bonus depreciation) for equipment
bonus depreciation) for equipment
depreciation for equipment
through 2022. Recovery period for
through 2022; percentage reduced by
through January 1, 2020.
residential and nonresidential property
20% per year for four years starting
Immediate expensing up to
unchanged. Expansion of expensing to $5
2023. Recovery period for residential
$500,000.
million for small businesses through
and nonresidential property shortened
2022.
to 25 years. Expansion of expensing to
$1 million for small businesses.
Corporate AMT
20% in excess of $40,000.
Repealed.
Retained.
International tax
Worldwide-based with
Territorial-based with taxation of income Territorial-based with taxation of income
system
deferral of active income.
from intangibles and other anti-base-
from intangibles and other anti-base-
erosion provisions.
erosion provisions.
Tax on
Tax due when foreign-
One-time deemed repatriation: 14% on
One-time deemed repatriation: 14.5% on
repatriated
source income is
cash and cash equivalents, 7% otherwise,
cash and cash equivalents, 7.5%
earnings
repatriated to U.S. parent;
paid over 8 years. Foreign tax credits
otherwise, paid over 8 years. Foreign tax
exceptions for certain
partially available.
credits partially available.
passive and branch income.
Taxed at 35%. Foreign tax
credits available.
Other business
Various credits and
Repeal Section 199 domestic production
Repeal Section 199 domestic production
tax expenditures
deductions for businesses.
activities deduction. Net operating loss
activities deduction. NOL deduction
(NOL) deduction limited to 90% of
limited to 90% of taxable income (80%
taxable income beginning in 2018.
starting in 2023). Carryback generally
Carryback generally repealed, indefinite
repealed, indefinite carryfoward.
carryfoward with interest.
Source: CRS analysis of current law and the House-passed and Senate-passed versions of the Tax Cuts and Jobs Act (H.R. 1).
Mark P. Keightley, Specialist in Economics
Molly F. Sherlock, Specialist in Public Finance
IF10776

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Comparing Key Tax Reform Elements: Tax Cuts and Jobs Act

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