In a letter distributed to Senate Majority Leader Mitch McConnell and Senator Rand Paul, the Kentucky Chamber along with several local chambers pressed the U.S. Senate to pass sensible tax reform that improves the competitiveness of the U.S. and allows businesses to be more profitable to invest in new opportunities.
The Kentucky Chamber has been successful working with Frankfort policy makers to improve the business climate of the state, but federal tax reform remains a critical piece of the pro-business puzzle that must be adopted.
The U.S. House of Representatives passed their version of tax reform, and the U.S. Senate is poised to pass their version as early as this week.
Both Leader McConnell and Sen. Paul have expressed support for the Senate bill with Sen. Paul stating, “I plan to vote for this bill as it stands right now,” in an op-ed for Fox News on Monday.
Senator McConnell recently stated, “The tax proposals before Congress will help restore our nation’s economic growth and give our workers, families and small businesses greater confidence that the future will hold greater prosperity, more jobs and opportunity.”
Details of the Senate version continue to be discussed and differences remain between the Senate and House versions; those differences will need to be addressed. Below is the Tax Foundation’s side-by-side summary of the House and Senate versions of tax reform as of Nov. 20.
In addition to the Kentucky Chamber, local chamber signatories include Greater Louisville, Inc., Commerce Lex, Northern Kentucky Chamber, Hardin County Chamber, KYNDLE (Henderson County Chamber), and Hazard/Perry County Chamber.
Further the U.S. Chamber supports Congress’ work on tax reform and has pushed for reforms that spur economic growth.
Tax Foundation Summary, updated 11/20/2017
| Provision | House Version | Senate Version |
| Individual Income Tax Rates and Brackets | Consolidates current seven income tax rates into four, while retaining the top marginal rate of 39.6 percent and including an income recapture provision which phases out the effect of the 12 percent bracket for high earners, sometimes called a “bubble rate” | Retains seven brackets while reducing rates, bringing the top marginal rate to 38.5 percent and avoiding a bubble rate |
| Standard Deduction | $12,200 for single filers, $18,300 for heads of household, and $24,400 for joint filers, indexed to chained CPI | $12,000 for single filers, $18,000 for heads of household, and $24,000 for joint filers, indexed to chained CPI |
| Itemized Deductions | Retains state and local property tax deduction, capped at $10,000, while eliminating the remainder of the state and local tax deduction, except for taxes paid or accrued in carrying on a trade or business; limits the mortgage interest deduction to the first $500,000 in principle value | Eliminates the state and local tax deduction except for taxes paid or accrued in carrying on a trade or business; keeps the mortgage interest deduction for acquisition debt, but eliminates the deduction for equity debt. |
| Child and Family Tax Credits | Increases child tax credit value to $1,600, with the phaseout for joint filers beginning at $230,000, while creating a new $300 per-person family tax credit for those not eligible for the child tax credit, to expire after five years | Increases credit value to $2,000, with the phaseout for joint filers beginning at $500,000 (amended in the modified chairman’s mark) |
| Treatment of Pass-Through Income | Caps the pass-through rate at 25 percent and adds a lower minimum rate (added in markup), then sets anti-abuse rules that begin with the rebuttable presumption that 70 percent of pass-through income is wage income (subject to the regular rate schedule), while 30 percent is business income (subject to the lower rate cap) | Adopts a 17.4 percent deduction for pass-through income, limited to 50 percent of wage income, which may provide benefits to smaller businesses less able to take advantage of the House provisions; both proposals restrict many service providers from preferential treatment, though the Senate’s restrictions do not apply to taxpayers with taxable income of $500,000 for joint filers (amended in the modified chairman’s mark) |
| Corporate Rate Reduction Timing | Cuts rate to 20 percent, effective tax year 2018 | Cuts rate to 20 percent, delayed to tax year 2019 |
| Capital Investment | Increases the Section 179 small business expensing cap from $500,000 to $5 million, with the phaseout beginning at $20 million, and maintains current depreciation schedules for real property | Raises Section 179 small business expensing cap to $1 million with a phaseout starting at $2.5 million, and shortens the depreciation of real property to 25 years |
| Tax Treatment of Interest | Caps net interest deduction at 30 percent of earnings before interest, taxes, depreciation, and amortization (EBITDA) | Caps net interest deduction at 30 percent of earnings before interest and taxes (EBIT) |
| Net Operating Losses | Eliminates net operating loss (NOL) carrybacks while providing for indefinite net operating loss carryforwards, increased by a factor reflecting inflation and the real return to capital, while restricting the deduction of NOLs to 90 percent of current year taxable income | Eliminates net operating loss carrybacks while limiting NOL carryforwards to 80 percent of taxable income (revised in the modified chairman’s mark) |
| Cash Accounting | Increases small business eligibility for small businesses, from $5 million to $25 million | Increases small business eligibility for small businesses, from $5 million to $15 million |
| Business Credits and Deductions | Eliminates credits for orphan drugs, energy, private activity bonds, rehabilitation, and contributions for capital, among others | Modifies, but does not eliminate, the rehabilitation credit and the orphan drug credit, while retaining certain other preferences eliminated in the House version |
| International Income | Moves to a territorial system with base-erosion rules including the inclusion of 50 percent of excess returns by controlled foreign corporations in U.S. shareholders’ income, and an excise tax on payments made to foreign firms unless claimed as effectively connected income | Moves to a territorial system with anti-abuse rules and a base erosion minimum tax of the excess of 10 percent of modified taxable income over an amount equal to regular tax liability |
| Deemed Repatriation | Enacts deemed repatriation of currently deferred foreign profits at a rate of 14 percent for liquid assets and 7 percent for illiquid assets (changed in manager’s amendment) | Enacts deemed repatriation of currently deferred foreign profits at a rate of 10 percent for liquid assets and 5 percent for illiquid assets |
| Retirement Accounts | No major changes | Eliminates catch-up contributions for high-wage employees and consolidates contribution limits for 457(b)s to match 401(k)s and 403(b)s. |
| Estate Tax | Increases exemption to $10 million, indexed for inflation, with repeal after six years | Doubles the estate tax exemption |
| Individual Mandate Penalty | No change | Reduces the individual mandate penalty to $0 (added in the modified chairman’s mark) |
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