Following the failure of repeated efforts to repeal and replace Obamacare earlier this year, the Republican-led Congress has turned its attention to tax reform.
On Thursday, November 16, the House of Representatives passed H.R. 1, the Tax Cuts and Jobs Act, by a vote of 227-205. All 192 House Democrats voted against the bill, and 13 House Republicans joined them. The Republican members of New York’s congressional delegation were split on the legislation, with Reps. Chris Collins, John Katko, Tom Reed, and Claudia Tenney voting “yea” and Reps. Dan Donovan, John Faso, Pete King, Elise Stefanik, and Lee Zeldin voting “nay.”
The Tax Cuts and Jobs Act would reduce the corporate tax rate from 35% to 20%, reduce the number of individual tax brackets from seven to four, reduce some tax rates, repeal the alternative minimum tax, increase the estate tax exemption and eventually repeal the tax altogether, repeal tax deductions for medical expenses and student loan interest, limit the mortgage interest deduction, create a special 25% tax rate for pass-through income, and increase the standard deduction. The bill has created controversy in New York and other high-tax states because it would repeal the deduction for state and local taxes and limit the property tax deduction. According to the Congressional Budget Office, the bill would increase the national debt by approximately $1.5 million over the next 10 years. There is debate about whether the economic growth unleashed by the bill is likely to bring in enough tax revenue to prevent a spike in the federal budget deficit.
Significantly, the Tax Cuts and Jobs Act passed by the House of Representatives last week contains several family-friendly provisions. In a victory for family advocates, the bill would increase the child tax credit from $1,000 to $1,600 per child. The bill would also retain an existing adoption tax credit, and would make it possible for families to use 529 savings plans to pay for their children’s elementary and secondary education costs (not just college costs) and for apprenticeship programs.
Tax reform legislation faces an uncertain path forward. The U.S. Senate is working on its own tax reform bill, but that bill—which is still a work in progress—is expected to differ from the House bill in significant ways; for instance, the Senate bill would repeal the Obamacare individual mandate and retain the mortgage tax deduction. Significantly, however, the Senate bill would eliminate the property tax deduction; this issue could be a sticking point for New York’s Republican members of Congress and for members from the States of California and New Jersey. As of this writing, several Republican senators are undecided on the Senate bill, and Sen. Ron Johnson (R-WI) has stated that he cannot support the bill in its current form. With Senate Democrats expected to unanimously oppose the legislation, Republicans face a challenging task in attempting to corral 50 votes in favor of the bill. Nevertheless, Senate Republicans expect to hold a floor vote in the very near future. If the Senate passes a tax reform proposal, it will be necessary to form a conference committee to craft a bill that is acceptable to both the House and the Senate. The unified bill would then face House and Senate votes, and, if passed, would be forwarded to the White House.