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Conference Report to Accompany H.R. 1, Tax Cuts and Jobs Act

Floor Situation

On Wednesday, December 20, 2017, the House will concur in the Senate Amendment to the Conference Report to Accompany H.R. 1, the Tax Cuts and Jobs Act, under. H.R. 1 was introduced on November 2, 2017, by Rep. Kevin Brady (R-TX) and was referred to the Committee on Ways and Means, which ordered the reported on November 9, 2017 by a vote of 24-16. The House passed H.R. 1 on November 16, 2017 by a vote of 227-205. H.R. 1 passed the Senate, with an amendment, on December 2, 2017 by a vote of 51-49. On December 4, 2017, the House disagreed to the Senate amendment and request a conference by a vote of 222-192. On December 6, 2017, the Senate insisted on its amendment and agreed to go to conference. The Conference Report Passed the House on December 19, 2017 by a vote of 227-203. After points of order were made in the Senate against the Conference Report, the Senate adopted an amendment on December 20, 2017 by a vote of 51-48.


Summary

The Senate Amendment to the Conference Report addresses three provisions that violated various provisions of the Byrd Rule, and were found to be “extraneous matter”. The first is the short title, the “Tax Cuts and Jobs Act”. The second provision pertains to the expansion of 529 plans for K-12 education and homeschooling. The Amendment still permits parents to use up to $10,000 through 529 accounts to save for private school tuition or use for private, public or religious school expenses. However, the amendment does not permit parents schooling their children at home to use the accounts for K-12 education expenses. Finally, the third provision struck the words “tuition-paying” from the provision exempting taxes on private university endowments. Originally structured, the Conference Report stated the endowment tax only applied to colleges with at least 500 tuition-paying students, which would exempt small colleges that have a large number of their student population work in exchange for tuition. 

The Conference Report to accompany H.R. 1 reforms the nation’s tax code for the first time in 31 years, providing tax relief to all Americans and lowering taxes on businesses. 

Under the Conference Report, individuals will pay the following rates:

  • 10% up to $9,525
  • 12% up to $38,700
  • 22% up to $82,500
  • 24% up to $157,500
  • 32% up to $200,000
  • 35% up to $500,000
  • 37% over $500,000

For married couples filing jointly, the following rates apply:

  • 10% up to $19,050
  • 12% up to $77,400
  • 22% up to $165,000
  • 24% up to $315,000
  • 32% up to $400,000
  • 35% up to $600,000
  • 37% over $600,000

The Conference Report also doubles the standard deduction – from $6,500 to $12,000 for individuals and $13,000 to $24,000 for married couples. It preserves the current rate of 23.8% for capital gains and dividends.

The report establishes a new Family Tax Credit, which expands the Child Tax Credit from $1000 to $2000 for children under 17 and provides a $500 credit for each each non-child dependent. The tax credit is fully refundable up to $1,400 and begins to phase-out for single parents making $200,000 and families making over $400,000. Parents must provide a child’s valid Social Security Number in order to receive this credit.

The report preserves the mortgage interest deduction at a new level, covering interest on up to $750,000 in mortgage principal on first or second homes, and grandfathers existing mortgages.

The report continues to allow people to write off the cost of state and local taxes up to $10,000 for both property and income (or sales) taxes.

The report preserves the deduction for medical expenses, including an expansion to 7.5% of adjusted gross income for 2017 and 2018.  It also preserves the deduction for charitable contributions.

Additional elements important for families:

  • Preserving the adoption tax credit
  • Preserving the child and dependent care tax credit
  • Expanding 529 Savings Plans by allowing some funds to be used for K-12 purposes
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  • Preserving the deduction for student loan interest, the deduction for classroom supplies bought by teachers, and the exemption of the value of reduced tuition for graduate students.

The exemption amounts for the individual alternative minimum tax (AMT) are increased and the exemption amount phase-out thresholds are increased to $500,000 for individual and $1 million for married couples. The individual AMT operates alongside the regular income tax. It requires many taxpayers to calculate their liability twice—once under the rules for the regular income tax and once under the AMT rules—and then pay the higher amount. These modifications will dramatically reduce the number of people affected by the AMT.

Further, the estate tax exemption amount is doubled immediately to completely exclude up to $11.2 million in assets.

In addition, beginning on January 1, 2019, the Obamacare individual mandate penalty is permanently repealed.

The report reduces the corporate tax rate from 35% to 21% immediately and permanently.  It also repeals the corporate alternative minimum tax.

Under the report, the taxable income of, and tax burden on, owners, partners and shareholders of S-corporations, LLCs and partnerships -- who pay their share of the business' taxes through their individual tax returns -- is lowered through a deduction equal for 20% of their pass-through business income.  This deduction is available to all owners, partners, and shareholders of pass-through businesses, but is subject to a phase-out for anyone in a service business with taxable income of more than $157,500 if single or $315,000 if married. In addition, at income levels above those thresholds, the full deduction is available only if one of two alternative tests based on wages paid by the business and capital invested in the business is satisfied. If the owner, partner, or shareholder in a pass-through business also draws a salary from the business, that salary would be subject to ordinary income tax rates.

Under the report, the corporate tax is shifted to a modern, competitive territorial tax system. To avoid creating tax incentives for companies to shift profits or jobs abroad, the bill includes anti base erosion measures that impose tax on certain income of foreign affiliates. As a transition into the territorial tax system, the bill provides for deemed repatriation of earnings trapped offshore at effective tax rates of 8% for earnings held in illiquid assets and 15.5% for earnings held in liquid assets.

Under the report, businesses are allowed to immediately write off the full cost of acquisitions of new and used equipment.  The report also provides relief for small businesses in the form of simplified accounting rules, enhanced rules for expensing, and protection of the deduction for interest on loans. The legislation retains the low-income housing tax credit, preserves the research and development tax credit, and retains the tax-preferred status of private activity bonds. The legislation also retains with modifications the orphan drug tax credit and the rehabilitation tax credit.

Under the report, an excise tax of 1.4% is imposed on net investment income of certain private colleges and universities if their endowment assets exceed $500,000 per tuition-paying student.

In addition, the report establishes an environmentally responsible oil and gas program in the non-wilderness 1002 Area of the Arctic National Wildlife Refuge (ANWR). Congress specifically set aside the 1.57-million acre 1002 Area for potential future development. Two lease sales will be held over the next decade and surface development will be limited to 2,000 federal acres – just one ten-thousandth of all of ANWR.


Background

On October 26, 2017, the House agreed to the Senate Amendment to H.Con.Res. 71, establishing a budget for fiscal year 2018 and budget levels for fiscal years 2019-2027. In addition, the resolution included reconciliation instructions on tax reform for the Senate Finance Committee and the House Committee on Ways and Means.

As mentioned above, the House passed H.R. 1 on November 16, 2017 by a vote of 227-205. H.R. 1 passed the Senate, with an amendment, on December 2, 2017 by a vote of 51-49. On December 4, 2017, the House disagreed to the Senate amendment and request a conference by a vote of 222-192. On December 6, 2017, the Senate insisted on its amendment and agreed to go to conference.

Under the current tax code, the individual tax rates are as follows:

  • 10% up to $9,325 for an individual and up to $18,650 for joint filers
  • 15% up to $37,950 for an individual and up to $75,900 for joint filers
  • 25% up to $91,900 for an individual and up to $153,100 for joint filers
  • 28% up to $191,650 for an individual and up to $233,350 for joint filers
  • 33% up to $416,700 for an individual and up to $416,700 for joint filers
  • 35% up to $418,400 for an individual and up to $470,700 for joint filers
  • 39.6% over $418,400 for an individual and over $470,700 for joint filers

The current corporate rate is 35% and the top rate on pass-through income is the maximum individual rate of 39.6%.


Cost

The Joint Committee on Taxation estimates that this legislation will reduce revenues by $1.456 trillion ($1.483 trillion in off-budget effects are eliminated).


Staff Contact

For questions or further information please contact Jake Vreeburg with the House Republican Policy Committee by email or at 2-1374.

115th Congress