U.S. House vs Senate tax bill: What changes for Georgia

As the U.S. House and Senate work towards getting a final tax bill for President Donald Trump to sign by Christmas, here is how the two bills could affect both individuals and businesses in the state.

Individual tax brackets and standard deductions

The House bill compresses the current seven-bracket tax system into four brackets — 12 percent, 25 percent, 35 percent and 39.6 percent. The top rate remains the same and these cuts are permanent.

The bill also increases standard deductions to $12,200 for individuals, $24,400 for joint filing and $18,300 for heads of households.

The Senate bill maintains the seven-bracket system, but reduces the top marginal rate to 38.5 percent. However, the individual income tax rates will “sunset” in 2025, i.e. reset to what the current law dictates, after 2025.

The bill increases standard deductions to $12,000 for single filers, $24,000 for joint filers and $18,000 for heads of households.

Health care

The House bill leaves the Obamacare individual insurance mandate intact.

It gets rid of the provision allowing tax deductions for medical expenses.

The Senate bill repeals the Obamacare individual mandate. According to the Congressional Budget Office, this would leave 13 million people in the nation without health insurance in 2027.

The Senate will let taxpayers deduct medical expenses that exceed 7.5 percent of their adjusted gross income for tax years 2017 and 2018. After that, deductions will be allowed if they are more than 10 percent of AGI.

Child tax credits

The House bill bumps the child tax credit up to $1,600 per child. However, this is available only to families that pay income tax. For those who don’t, the bill introduces a $300-per-person family tax credit that expires in five years.

The Senate bill increases the child tax credit to $2,000. There is no provision for families that do not pay income tax.

Mortgage interest deductions

The House bill allows interest deductions on mortgage loans only up to $500,000. Current law allows deductions up to $1.1 million in debt.

The Senate has only slightly changed the amount; interest deductions will be available up to $1 million in home loans. However, this provision will also be sunset in 2025.

Education

The House bill will count graduate tuition waivers as taxable income. This means students will pay tax on money they never make. This has been a cause of concern for students in Georgia, which is a major education hub with several universities in and around Atlanta.

The bill also does away with the tax-free status for bonds, which are used by the University System of Georgia to raise money to build student dorms and facilities.

The Senate bill makes no changes for either of these provisions.

Businesses and corporations

The House has reduced the corporate tax to 20 percent, starting next year. This tax cut is permanent.

For businesses that aren’t corporations — sole proprietorships, partnerships, limited liability corporations, etc. — the bill cuts the pass-through tax rate to 25 percent, with 30 percent of this income qualifying as business income and the rest being counted as personal income.

The Senate bill also cuts the corporate tax down to 20 percent, but beginning in 2019. Unlike individual tax cuts, corporate tax cuts in the Senate version are permanent.

Meanwhile, the Senate bill has a pass-through rate of 23 percent, but limits the businesses who can claim this benefit.

Estate tax

The House bill doubles the estate tax exemption for both individuals and couples. After six years, this tax is set to be repealed.

The Senate bill doubles the estate tax exemption for individuals and couples. This provision will sunset after 2025.

Others

The House bill includes no provisions demanded by airline carriers. American airline operators have been lobbying Congress to punish Persian Gulf-based carriers, saying that their Mideast counterparts are being subsidized by their oil-rich governments.

The Senate bill was to have some provisions to get relief for U.S. carriers after U.S. Sen. Johnny Isakson added language to go after income-tax exemptions for Persian Gulf-based airlines. However, this exemption never made it to the final version of the bill.

The House bill will prove to be a boon for Georgia’s Vogtle nuclear power project. The legislation gave the project $800 million in nuclear tax credits, which would have otherwise expired in 2020, a year before the plant’s generators start operations.

However, the bill cuts tax credits to the wind industry by more than a third.

The Senate bill includes no cuts to the renewable industry. Nor does it extend tax credits for the nuclear industry.

Source: Tax analysis by Tax Foundation and Tax Policy Center

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