6 Ways the Senate and House Disagree Over Tax Reform

Uncle Sam and taxes
Photo by Sean Locke Photography / Shutterstock.com

After months of waiting and wondering, America finally knows how Congress intends to reform the nation’s tax code.

On Thursday, Senate Republicans released their long-awaited version of tax reform. The Senate plan comes in the wake of a House Republican tax proposal announced earlier this month and advanced by the House Ways and Means Committee on Thursday afternoon.

You can read more about the details of the House tax reform plan in a pair of Money Talks News stories:

In truth, some murkiness remains about exactly how the tax code might change. Differences among Republicans in the Senate and the House mean much wrangling and horse-trading is likely in the coming days and weeks.

Significant areas of agreement between the House and the Senate tax reform plans include:

  • A near doubling of the standard deduction
  • Preservation of the adoption tax credit
  • A cut in the corporate tax rate from the current maximum of 35 percent to 20 percent
  • Elimination of the alternative minimum tax

However, the House and Senate versions also include some stark differences that will need to be reconciled if tax reform is to become a reality in this congressional session. Six of those key differences are:

The number of tax brackets

The Senate version of the plan includes seven tax brackets:

  • 10 percent
  • 12 percent
  • 22.5 percent
  • 25 percent
  • 32.5 percent
  • 35 percent
  • 38.5 percent

The House version reduces the number of tax brackets to four. In addition, the final Senate bracket is actually a slight reduction from the largest House tax bracket, which now stands at 39.6 percent.

The fate of state and local tax deductions

The new Senate proposal eliminates all state and local tax deductions. By contrast, the House plan maintains the deduction for state and local property taxes, but caps it at $10,000.

The limits on the mortgage interest deduction

Under the Senate plan, you would still be able to deduct mortgage interest expenses on your tax return if you purchase a home with up to $1 million in debt. In effect, there would be no change from the current law.

By contrast, the House plan reduces the amount of qualifying debt to $500,000. The House bill also prevents taxpayers from deducting mortgage interest on a second home.

Whether to repeal the medical expense deduction

There are major differences between the Senate and House plans for the future of the medical expense deduction. The Senate wants to preserve the current deduction, and even enhance it for the blind and the elderly.

Meanwhile, the House wants to scrap the medical expense deduction altogether.

The amount of the child tax credit

The Senate tax plan would raise the child tax credit to $1,650, up from the current $1,000. On the other hand, the House plan raises the credit to $1,600. The House also includes a $300 credit for each parent.

The future of the estate tax

Finally, the Senate plan to reform the nation’s tax code retains the estate tax, but doubles the current exemption, which stands at $5.49 million for individuals.

The House version also doubles this exemption until after the year 2023, when the estate tax would be repealed.

However, as we have previously explained, the estate tax impacts very few people:

For 2017, the estate tax effectively applies to individual estates over $5.49 million. If you’re a married couple, that means you can die with an estate worth about $11 million and pay no federal estate tax. In addition, there are lots of strategies out there, some simple, some sophisticated, to avoid or reduce the tax.

What do you think of the Senate’s tax reform plan? Sound off by commenting below or on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
13 Smart Tricks to Organize Every Room of Your Home
13 Smart Tricks to Organize Every Room of Your Home

Get your household organized with these brilliant and inexpensive tricks.

What’s the Difference Between FICO and VantageScore Credit Scores?
What’s the Difference Between FICO and VantageScore Credit Scores?

There are lots of credit scores out there, but if you’re keeping an eye on your credit, here’s the one to watch.

Don’t Toss These 7 Household Items — Sell Them
Don’t Toss These 7 Household Items — Sell Them

Here’s how to earn cash as you give new life to these unwanted items.

15 Painless Ways You Can Cut Costs in 2020
15 Painless Ways You Can Cut Costs in 2020

Follow these tips to save — so you’ll have money for things that really matter.

4 Streaming TV Services That Cost $20 a Month — or Less
4 Streaming TV Services That Cost $20 a Month — or Less

Here’s how to ditch cable and satellite TV — and save a bundle — without giving up your favorite shows.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

This Is the Most Popular Age for Claiming Social Security
This Is the Most Popular Age for Claiming Social Security

Both men and women are most likely to start receiving Social Security benefits at this age.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?
Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

You could save more than $30,000 by setting aside these costly expenses for just one year.

6 Things You Should Never Buy at Trader Joe’s
6 Things You Should Never Buy at Trader Joe’s

We love Trader Joe’s for plenty of reasons. But think twice about this handful of products.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have these documents that are crucial to their golden years — especially during a pandemic.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Unusual Ways to Declutter Your Home
7 Unusual Ways to Declutter Your Home

Tired of possessions weighing you down? Here are seven ways to declutter painlessly and effectively.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

11 Expenses That Quietly Drain Your Wallet
11 Expenses That Quietly Drain Your Wallet

It’s scandalously easy to overspend in these areas of your life.

5 Ways Joe Biden Wants Social Security to Change
5 Ways Joe Biden Wants Social Security to Change

Here’s where Biden — as well as Trump — stands on the future of the Social Security retirement system.

9 Dumb Ways You Are Ruining Your Home Value
9 Dumb Ways You Are Ruining Your Home Value

Homeowners, beware these mistakes that can drive away potential buyers.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

10 Deep Discounts Available on Amazon This Friday
10 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

10 Things That Really Are Free on Amazon
10 Things That Really Are Free on Amazon

These freebies are available to anyone — no Prime membership necessary.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on both everyday and occasional purchases.

15 Outrageously Overpriced Products — and How to Save on Them
15 Outrageously Overpriced Products — and How to Save on Them

Retailers mark up products by hundreds of times their cost — but you don’t have to pay the premium.

18 Amazon Purchases That We Are Loving Right Now
18 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.