Senate Tax Bill: Key Differences from the House Version

Late Thursday, just hours after the House Ways and Means Committee sent the House tax bill to the floor, the Senate Finance Committee released a detailed summary of its own tax reform legislation.

The Senate bill includes a number of provisions and policies different from the House approach. (Read an analysis of the House bill here.)

Unlike the House bill, the Senate maintains Private Activity Bonds and the New Market Tax Credit. It also retains the Historic Preservation Tax Credit, but it cuts the percentage of qualified expenses in half, down to 10 percent from 20 percent.

Both the House and the Senate bill retain the Low-Income Housing Tax Credit. The Senate bill also takes a different approach to housing and local taxes by maintaining the mortgage interest deduction and fully eliminating the deduction for state and local taxes.

Private Activity Bonds (PABs)

The Senate bill preserves Private Activity Bonds, which are critical to community investments in community development and are a required component to the 4 percent Low Income Housing Tax Credit.

The House bill eliminates Private Activity Bonds.

Low Income Housing Tax Credit

Both the House and the Senate bills maintain the existing Low-Income Housing Tax Credit. The restoration of Private Activity Bonds in the Senate is important for LIHTC. PABs, including multifamily tax-exempt bonds, are estimated to finance more than half of all LIHTC-financed affordable homes annually.

New Market Tax Credit

The Senate bill maintains the New Market Tax Credit and planned allocation rounds in 2018 and 2019. New Markets Tax Credits attract private capital to economic development projects in distressed communities. According to the NMTC coalition, the program has leveraged over $80 billion in public-private investments and created more than 750,000 jobs in some of the nation’s poorest neighborhoods and towns.

The House legislation eliminates New Market Tax Credits.

Municipal Bonds

The Senate bill mirrors the House version in its treatment of municipal bonds. The measure repeals the ability to advance refund bonds. The issue may seem arcane, but the fiscal implications for a range of critical infrastructure are important.

The ability to advance refund outstanding bonds provides substantial savings to taxpayers throughout the country. Under current law, governmental bonds and 501(c)(3) bonds are permitted one opportunity to refinance at lower rates outside the 90-day period before the bonds come due. This allows public issuers to take advantage of fluctuations in interest rates to realize considerable savings on debt service, which ultimately benefits taxpayers.

In 2016, the advance refunding of more than $120 billion of municipal securities saved taxpayers at least $3 billion.

Historic Preservation Tax Credit

The Senate bill retains the Historic Preservation Tax Credit but lowers the percentage of qualified expenses from 20 percent to 10 percent. It also repeals the rehabilitation tax credit for non-historic pre-1936 properties.

The House bill eliminates the Historic Preservation Tax Credit.

Mortgage Interest Deduction

The Senate bill proposes no changes to the current mortgage interest deduction leaving the cap at $1 million.

The House bill would cap the mortgage interest deduction at $500,000 for new mortgages.

State and Local Taxes (SALT)

In a move likely to create complications for the House, the Senate version opts to eliminate entirely the state and local tax deduction.

The House bill included a compromise capping the deduction up to $10,000 for property taxes.

Corporate Tax Rate

Both the Senate and House propose a reduction of the corporate tax rate from 35 percent to 20 percent. However, the Senate bill delays the implementation of the lower rate until 2019.

What’s Next

Senate Finance Committee Chair Orrin Hatch (R-Utah) will work with leadership over the weekend to finalize the text of the bill. Markup of the legislation is expected to begin on Monday afternoon with the goal of wrapping up committee work by the end of the week.

Because the bill is being moved under budget reconciliation, it requires only a simple majority to pass the Senate. Though it will make it easier to pass the bill, budget reconciliation has limitations based on what is known as the Byrd Rule. This rule prohibits non-budgetary items from being added to budget reconciliation, and it prevents increases to the deficit beyond 10 years.

The House Ways and Means Committee approved its Tax Cuts and Jobs Act (HR 1) yesterday, clearing the way for a floor vote in the House next week. The bill was approved on a party line 24-16 vote after four days of consideration.

Top image: Senate Finance Committee Chair Orrin Hatch speaking at the 2011 Conservative Political Action Conference. Photo by Flickr user Gage Skidmore (CC BY-SA 2.0).


About the Authors
Jason Jordan is APA's director of policy. Tess Hembree is policy manager at Advocacy Associates.

November 10, 2017

By Tess Hembree, Jason Jordan