Tax reform divide poses big challenge for congress

WASHINGTON — The House and Senate tax overhaul plans are similar, but crucial differences are creating headaches for Republican leaders. And then there’s the timetable they’ve set of finishing in time to get the final version to President Donald Trump by Christmas.

Here’s a rundown on the major differences:

Individual tax rates

The Senate measure keeps the number of personal income tax brackets, seven, though it changes the rates to 10, 12, 22.5, 25, 32.5, 35 and 38.5 percent.

The House bill shrinks the number of brackets from seven to four, with rates of 12, 25, 35 and 39.6 percent.

The inheritance tax on multimillion-dollar estates, called the estate tax, is an especially hotbutton issue.

Currently, when someone dies, the person inheriting the estate must pay taxes on its value above $5.5 million for individuals, $11 million for couples. The House bill doubles those limits and then repeals the whole tax after 2023. The Senate version doubles those exemption amounts — but doesn’t repeal the tax.

Deductions

The Senate bill would eliminate a taxpayer’s ability to deduct state income taxes and local property taxes. But the final bill may have to closely track a House compromise that provides a property tax deduction of up to $10,000.

The Senate bill preserves popular individual tax breaks for large medical expenses, mortgage interest, electric vehicles and college costs that were targeted by the House. The House limits deductibility of mortgage interest to the first $500,000 of a loan, and eliminates a deduction for medical expenses.

Business

Both the House and Senate versions slash the tax rate for corporations to 20 percent from the current 35 percent. But there’s a big twist: The Senate bill delays the rate cut for a year.

Trump actually had been demanding 15 percent and reportedly was initially furious at the 20 percent figure.

The issue is setting the corporate rate at a level that experts and tax writers believe would bring the U.S. closer to its overseas competitors.

The electric car industry — notably makers Tesla and Chevrolet — and producers of wind power for generating electricity are losers under the House bill. The tax credit of up to $7,500 for plugin electric vehicles would be repealed, and the credit for wind energy would be reduced. But the Senate version retains the incentives.

The loss of tax credits for renewable energy would free billions to help pay for the corporate tax cuts in the legislation. But in addition to environmentalists’ objections, the prospect also angers some Republican senators, including powerful Chuck Grassley of Iowa, who has vowed to defend the credit.

There’s a special rate for businesses whose profits are counted in the owners’ personal tax returns. Millions of U.S. businesses use this “pass-through” format. The House bill taxes many of them at a maximum 25 percent, down from 39.6 percent currently, and adds a lower minimum rate. The Senate version would set a new 17.4 percent deduction for “pass-through” income, aimed to help smaller businesses.