On December 15, congressional Republicans released the final text of their comprehensive tax reform plan, the Tax Cuts and Jobs Act. The finished product — a bill of over 500 pages — follows a week of intense negotiations between the U.S. House and Senate, during which leadership made many changes to the bill to secure the necessary votes in each chamber. On Tuesday, December 19, the House passed the bill by a vote of 227-203. The Senate is expected to vote late Tuesday night or on Wedneday, December 20. Passage by both chambers would send the bill to the president’s desk for his signature.
For counties, the final tax reform package represents a mixed bag. Many county priorities were preserved, including the tax-exempt status of municipal bonds and private activity bonds (PABs), tax treatment of certain governmental pension plans — and some housing incentives, such as the New Markets Tax Credit (NMTC). However, other provisions in the bill could place significant financial constraints on counties, most notably changes capping the deduction for state and local taxes (SALT), eliminating the tax-exempt status of advance refunding bonds, and the absence of a further delay or repeal of the Cadillac Tax — an excise tax on high value employer-sponsored health insurance plans.
To view a chart detailing county priorities in the tax reform bill, please click here.
The comprehensive tax reform plan released on December 15 follows House passage of H.R. 1 on November 16 and Senate passage of S. 1 on December 2. During the week of December 5, House and Senate leaders appointed over a dozen conferees, or negotiators, to the official conference committee on tax reform. These members, along with congressional leadership, negotiated many aspects of the bill, including corporate tax rates, treatment of businesses filing as individuals, child tax credits, the SALT deduction and more.
The final bill represents a compromise between the House and Senate versions of the bill in many of these areas. The Tax Cuts and Jobs Act maintains seven individual tax brackets as is the case under current law, but reduces the rates for all tax brackets. It doubles the standard deduction individuals and families may take, reduces the corporate tax rate to 21 percent beginning in 2018 and includes a new deduction for owners of pass-through businesses — businesses filing on the individual side of the tax code. Perhaps most notably, the bill phases out all income tax provisions, including the rate cuts, at the end of 2025, setting up a significant fiscal decision for future lawmakers.
If the bill becomes law next week, it will reshape the tax and revenue landscape across the country. The Congressional Budget Office expects significant federal deficits in 2018 and 2019 as filers and businesses adjust to new provisions and tax rates. States — many of which “couple” their tax systems with the federal government’s — also will see changes, and could react to changes at the federal level to increase incentives for businesses or residents. Speaker Ryan has already indicated the federal government will need to review its spending in 2018, including potential reforms to major entitlement programs.
In the meantime, lawmakers will also be tasked with passing technical corrections to the Tax Cuts and Jobs Act as unintended consequences become apparent. NACo will continue to advocate for county priorities as a part of this process.
- Click here to view a comparison chart of the House, Senate and conference tax reform bills