The Senate passed its version of the tax reform bill early Saturday morning on a vote of 51-49. The vote came after last-minute negotiations between Senate leadership and key holdouts who had concerns about the treatment of pass-through entities, the state and local tax deduction, and the effect the cuts would have on the budget.
The legislation calls for a 20 percent corporate rate, a 23 percent deduction for pass-throughs, and rate cuts for individuals, though the pass-through and individual provisions are set to expire in 2026. One last-minute change retained the state and local tax deduction – up to a $10,000 property tax write-off—making the Senate bill more like the House version.
The change with respect to pass through entities means that top earning pass-through owners—those taxed at the 38.5 percent rate—would pay about 29.6 percent on their business income.
The Senate bill also included some revenue raising provisions to offset these costs. Among them is a measure to maintain the corporate alternative minimum tax, as well as the individual AMT, but with higher exemption levels than under current law.
The bill would cost about $1.45 trillion over a decade, according to estimates from the Congressional Budget Office.
Last-minute changes to the Senate bill include:
The House and Senate will now begin to work out any remaining differences between their two bills, including how to approach pass-through taxation and whether the plan should include an alternative minimum tax. The final, identical version of the bill will have to pass both chambers before Trump can sign the bill into law. Importantly, neither the House nor the Senate tax reform bills contain provisions that would impact the upcoming filing season.