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Finance Republicans chart their own course for tax reform

The Senate and tax reform

On November 9, Senate Finance Committee Chairman Orrin Hatch, R-Utah, released his version of a comprehensive tax reform proposal aimed at reducing rates and providing other tax relief for corporations, individuals, and pass-through entities. Since then, the Senate Finance Committee released a modified version of the Tax Cuts and Jobs Act (H.R. 1) in mid-November, and the Senate voted to approve its version of comprehensive tax reform legislation on December 2. Learn more about the Senate tax reform proposals and legislation.

Update: Senate tax reform bill crosses finish line after major rewrite

December 2, 2017

The Senate has voted almost entirely along party lines to approve its version of comprehensive tax reform legislation, but not before Republican leaders made some significant modifications to win support from wavering members within their own ranks.

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Making sense of tax reform

Jonathan Traub, managing principal, Tax Policy group, Deloitte Tax LLP, provides perspective on the Finance Committee proposal. Learn more about: the potential impact on multinationals, US companies, pass-throughs, and individuals; corporate reactions to the proposed bill; and finding opportunity through change as you plan for potential tax reform.

Update: Hatch unveils modifications to Tax Cuts and Jobs Act

November 14, 2017

Senate Finance Committee Chairman Orrin Hatch has released a modified version of his Tax Cuts and Jobs Act on November 14, that calls for significant new revenue offsets as well as proposals to pare back some of the tax relief provisions included in the measure as originally introduced in early November.

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Overview of the Finance Committee tax reform proposal

The Tax Cuts and Jobs Act, which was released as a technical summary rather than in legislative language. (The Finance Committee typically marks up "conceptual" language and releases a formal statutory proposal closer to the time a bill is ready to move to the Senate floor). The measure broadly follows the contours of the tax reform bill bearing the same name that was approved in the House Ways and Means Committee earlier in the day. (For a detailed summary of the Ways and Means bill as originally released on November 2, see Tax News & Views, Vol. 18, No. 40, Nov. 3, 2017, and learn more about the legislative draft in a video featuring Jonathan Traub, managing principal, Tax Policy group, Deloitte Tax LLP).

But the Finance proposal also lives up to Hatch’s oft-repeated promise that Senate Republican taxwriters would not simply “rubber stamp” any tax reform legislation put forward by their House counterparts. Most notably, the Finance Committee proposal, like the Ways and Means bill, would reduce the corporate tax rate to 20 percent; however, the Finance proposal would delay implementation of the rate cut until 2019, while the Ways and Means provision would be effective beginning in 2018. The Finance bill provides significant relief from the estate tax but stops short of the full repeal included in the Ways and Means package. It proposes no changes to the current-law deduction for mortgage interest on home purchases (which the Ways and Means bill would cap at interest paid on loan amounts of up to $500,000); but, it would fully repeal the deduction for state and local taxes (something House taxwriters would retain, although only for property taxes and even then subject to a cap).

In a revenue estimate released in conjunction with the technical summary, the Joint Committee on Taxation (JCT) staff projects that the Finance Committee bill would increase the deficit by just under $1.5 trillion over the 10-year budget window (2018-2027). The recently approved unified budget resolution for fiscal year 2018, affords fast-track budget reconciliation protections to a tax bill that increases the federal deficit on net by up to $1.5 trillion over 10 years. Of note, the revenue loss in the last year of that window is more than $216 billion, suggesting the measure would not be compliant with the Byrd Rule (which requires reconciliation bills to not increase the deficit outside the current budget window), foreshadowing that major–and potentially unpopular–surgery will need to be done to the bill before it can be taken up by the full Senate.

What’s here, what’s ahead

This special edition of Tax News & Views looks at the key ways in which the Finance Committee proposal differs from the Ways and Means proposal and considers what’s ahead as Hatch makes plans for a Finance Committee markup and eventual consideration on the Senate floor.

Read below for an overview of the topics included in this special edition, or download the full PDF.

Corporate tax provisions — pages 2-4

  • Corporate rate reduction
  • Dividends received deduction
  • Modification of the net operating loss deduction
  • Limitation on business interest
  • Contributions to capital

Alternative minimum tax (AMT) — page 4

Cost recovery — page 4

Revenue recognition — page 4

Special rules for taxable year of inclusion — page 4

Like-kind exchanges of real property — page 4

Deduction for local lobbying expenses — page 4

Section 199 Deduction — page 5

Limitation on deduction by employers for fringe benefit expenses — page 5

Treatment of self-created property — page 5

Sale or exchange of patents — page 5

Depreciation on luxury automobiles and personal use property — page 5

Depreciation of farm property — page 5

Recovery period of real property — page 6

Business credits — pages 6-7

  • Orphan drug credit
  • Rehabilitation credit
  • Deduction for unused business credits
  • Other general business credits

Small business provisions — page 7

  • Section 179 expensing
  • Accounting methods

Transition to territoriality — pages 7-8

  • Dividends received deduction
  • Limitation on losses with respect to 10-percent-owned foreign corporations
  • Taxation of deferred foreign income upon transition
  • Limitation on assessment extended
  • Consistent with the Ways and Means Committee bill

Rules related to passive and mobile income — pages 8-9

  • Global intangible low-taxed income
  • Deduction for foreign-derived intangible income

Treatment of hybrid transactions — page 9

Base erosion proposals — pages 9-10

  • Information reporting requirement

Additional provisions not included in Ways and Means Committee bill — page 10

  • Codification of Rev Rul. 91-32

Other international tax modifications also included in the Ways and Means bill — page 10

  • Modification of insurance exception to the passive foreign investment company rules

Pass-through provisions — pages 10-12

  • 17.4 percent deduction of domestic qualified business income
  • Tax gain on the sale of a partnership interest on look-through basis
  • Modification of the definition of substantial built-in loss in the case of transfer of partnership interest
  • Charitable contributions and foreign taxes taken into account in determining limitation on allowance of partner’s share of loss
  • Loss limitation rules applicable to individuals

Insurance company provisions — pages 13-14

  • General corporate net operating loss (NOL) carryback and carryover periods would apply to life insurers
  • Repeal of small life insurance company deduction
  • Repeal of change in basis 10-year-spread under IRC section 807(f)
  • Repeal special rule for distributions from policyholders surplus accounts
  • Modification of proration rules for property-casualty insurance companies
  • Repeal of special estimated tax payments
  • Increase DAC capitalization rates
  • Require tax reporting for life settlement transactions
  • Clarify tax basis of life insurance contracts
  • Narrow the exception to transfer-for-value rules

Tax rate modifications for individuals — page 14

Pass-through taxation on individual returns — page 14

Individual itemized deductions and personal exemptions — page 15

  • Personal exemptions
  • Deductions and exclusions for employer-provided benefits

AMT repeal and other items of note — page 16

  • AMT
  • Family tax credits
  • Other notable provisions
  • Paid preparer due diligence requirement for head of household status
  • Personal exemption repeal and requirements

Estate and gift tax provisions — pages 16-17

Compensation — page 17

  • Nonqualified deferred compensation
  • Modification of limitation on excessive employee remuneration
  • Excise tax on excess tax-exempt organization executive compensation

Retirement savings — pages 17-19

  • Conformity of contribution limits for employer-sponsored retirement plans
  • Application of 10 percent early withdrawal tax to governmental section 457(b) plans
  • Elimination of catch-up contributions for high-wage employees

Worker classification and information reporting requirements — page 19

Tax-exempt organizations — pages 19-20

  • Finance provisions not in the Ways and Means proposal
  • Ways and Means provisions not in the Finance proposal

Next steps — pages 20-21

Tax reform proposal clears Ways and Means — page 21

Notable changes — pages 21-22

  • International provisions
  • Other amendments

Democratic amendments rejected — page 22

Moving toward a floor vote — pages 22-23

Download the PDF for all of the details.

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