House and Senate Go to Conference on Tax Reform

by Denise A. Bode & Anne C. Canfield

 

The House and Senate each passed their own versions of tax reform on November 16th and December 2nd, respectively. This past week, the House and Senate appointed their conferees.

Some of the key differences to be ironed out between the House and the Senate include:

  • On the individual side
    • Estate tax reform: House repeals eventually; Senate increases the exemption.
    • Mortgage interest deduction: House caps at $500,000 for new homes; Senate leaves it at $1 million which is existing law.
    • ACA Individual mandate: House has no provision; Senate repeals  it.
    • Temporary tax cuts: House and Senate have different effective sunset dates for individual provisions
  • On the business side
    • Pass-through business income: House taxes at 25% rate; Senate provides 23% deduction.
    • Alternative Minimum Tax: House repeals it for individual and corporations; Senate retains it with increased exemptions for individuals and retains current law for corporations.
    • Business expensing: House allows full expensing for 5 years; In the Senate, after 5 years of 100% expensing, the rate phases down to 80%, 60%, 40%, and 20% over the next 4 years.

While a formal conference is underway, the “Big 6” (the Chairman of the two tax-writing committees, Senator Orrin Hatch (R-UT) and Rep. Kevin Brady (R-TX), House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), and senior leaders in the Administration (White House NEC Director Gary Cohn and Treasury Secretary Steve Mnuchin) will work with the tax-writing committee staff in closed-door negotiations to iron out the differences between the two bills, and then present a package to the conferees. In fact, committee staffs have already been pre-conferencing these issues to be ready to provide options and revenue costs to the conferees.

Once an agreement is reached, the members of the conference committee are asked to review the compromise and sign a conference report. That report typically includes proposed legislative text and a joint explanatory statement that describes the agreement. If a majority of each chamber’s delegation signs the conference report, it will go to the full House and Senate for a vote. Neither chamber can make changes to the agreement after the conferees sign it.  While most conference reports are a take it or leave it proposition, if any of the provisions in the compromise measure violate the “Byrd” rule, they can be removed via a point of order.

Odds are that final passage of tax reform Conference Report will occur the week of December 18th, after which the bill will be enrolled and sent to the President for signature. They are aiming to get it on the President’s desk by Christmas Eve.

Once enacted, a General Explanation of the Tax Cut and Jobs Act (“Act”) will be written by the Joint Committee on Taxation, which in addition to providing an explanation of the Act, also provides an official interpretation of the bill.  After the 1986 tax reform was passed in October 22, 1986, the explanation was not released until May 4, 1987.  Undoubtedly, once enacted, a technical corrections bill will also be needed, especially given the speed with which this bill will have been enacted. Following the enactment of 1986 act, a technical corrections bill was enacted to correct errors and further refine the law two years later, in the fall of 1988.  This next year will provide an opportunity to make changes to the Act.

Resource: Here is the link to the Joint Committee on Taxation’s side-by-side comparison of the House- and Senate-passed versions of the “Tax Cuts and Jobs Act.”

Click here to view the full MBS Tax Reform Overview. 


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                FROM THE CHART ROOM

                Who Needs OPEC?
                Net imports of crude and refined products hit record low last week

                OPEC

                U.S. net oil imports, including crude and refined products, last week dropped to the lowest level in data going back to 1990, the U.S. Energy Information Administration reported Wednesday. That puts the country on track toward its lowest monthly imports since before the Arab oil embargo of 1973, Laura Blewit reports.

                For OPEC, which for decades counted on the U.S. market as its top client, the situation could deteriorate further as rising oil prices spur shale production from Texas to North Dakota, said Roger Diwan, a veteran OPEC watcher at consultant IHS Markit.


                 

                 

                Michael Best Strategies’ Energy Team

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