Though no member of Nevada’s congressional delegation has a seat at the tax bill reconciliation talks, Sen. Lisa Murkowski, R-Alaska, is being included in talks as lawmakers explore drilling options in the Arctic National Wildlife Refuge. The Senate tax bill would allow energy development in the nonwilderness portion of the refuge area, generating an estimated $1 billion in revenue over the next decade.
As a group of senators and representatives reach a final version of the GOP’s tax reform legislation, Nevadans have plenty to watch that could affect their bottom line.
The House and Senate both passed major tax reform bills in recent weeks, but key differences needed to be resolved before approval of a final bill that would go to the White House for President Donald Trump’s signature. The House bill was expected to add $1.7 trillion to the deficit over the next decade, while the Senate bill was projected to increase the deficit by $1.4 trillion, according to the Joint Committee on Taxation.
Who is helped or hurt by the tax reform measures depends on individual circumstances. Democrats say the bills benefit corporations at the expense of average Americans. Meanwhile, Republicans say the bills would boost middle-class incomes. Here are some of the provisions in play as of press time Friday.
U.S. Sen. Dean Heller, R-Nev., sponsored an amendment that lawmakers added to the Senate bill, doubling the child tax credit. The House bill would have increased the credit by 50 percent.
UNLV law school professor Francine Lipman, whose expertise includes tax law, said during a Nov. 29 event organized by progressive groups that the amendment would not help low- and middle-income families because it could only be used to pay down a tax liability, not increase a tax return.
In order to get Sen. Marco Rubio, R-Fla., on board with the reform bill, lawmakers reached an agreement Friday to increase the refundability of the Child Tax Credit from 55 percent to 70 percent.
The House bill would reduce the seven tax brackets in place now to four, according to the Washington, D.C.-based Tax Foundation, an independent research organization. Single-income earners would fall in the 12 percent rate for income under $45,000. People who earn more than that would hit a rate of 25 percent, with the next bracket jumping to 35 percent for incomes starting at $200,000. The top bracket starts at $500,000 and is taxed at 39.6 percent.
The Senate bill keeps the seven brackets but reduces rates, capping the top bracket at 38.5 percent, according to the Tax Foundation. Facing tougher rules to avoid a filibuster by the chamber’s Democrats, GOP senators have made individual income tax changes temporary to ensure the bill doesn’t deepen the deficit by more than $1.5 trillion in the next 10 years.
Also in the Senate bill is a repeal of the individual mandate of the Affordable Care Act, which creates a tax penalty for people who fail to secure health insurance coverage. This provision is excluded from the House bill. Many experts, including Heather Korbulic, the executive director of the Silver State Health Insurance Exchange, have said this mandate is vital to keeping healthy people in the insurance marketplace and stabilizing costs.
The personal exemption was put in place in 1913 to ensure that people were not taxed for a certain portion of their income, according to the Tax Policy Center, a partnership of the Urban Institute and Brookings Institution. That rate was set at $4,050 in 2017 for individuals and dependents, and would be eliminated in both the Senate and House tax bills, according to California-based accounting firm Gumbiner Savett Inc.
The firm said both bills almost double the standard deduction, which reduces the taxed portion of a person’s income. Deductions for single filers would be set at $12,200 and married couples filing jointly would qualify for $24,400 standard deduction.
Changes are also coming to pass-through taxes, which account for income that business owners earn from their proprietorships, partnerships and S-Corporations, according to Cornell Law School’s Legal Information Institute. Net income for these individuals is currently taxed at the normal income tax rates, according to accounting consulting firm Gumbiner Savett, reaching as high as 39.6 percent.
Both bills carry exemptions and exclusions. Generally, the House bill taxes up to 30 percent of net income at 25 percent, with personal income tax rates applying to the remainder, according to the firm. It also phases in a 9 percent rate for a portion of income paid to certain owners earning less than $75,000 in taxable income for a single filer.
The Senate bill would create a 23 percent deduction applicable to up to 50 percent of wage income for certain businesses, the Tax Foundation says.
Other deductions at risk
A number of other tax deductions could be lost in the conference committee’s final version.
• Republicans also wanted to repeal deductions for state and local taxes, which only apply to taxpayers who itemize their deductions, while the deduction for property taxes was capped at $10,000 in both bills. According to reports, the final bill could allow up to $10,000 in state and local or property taxes. In Nevada, a state without an income tax, residents can take a deduction on the amount of sales taxes they pay. The Tax Policy Center says eliminating these deductions would push taxpayers to demand lower local and state rates because they are no longer being partially offset by the federal deduction.
• The Senate bill would allow for tax credits for tuition paid on K-12 education. In many states, state and local taxes are a key component of education funding.
• Other differences to reconcile include a $7,500 credit for plug-in and electric vehicles. The credit is on the chopping block in the House bill but not in the Senate.
• Unlike the Senate bill, the House bill treats graduate student tuition waivers as income and removes the deduction for student loan interest payments, according to Gumbiner Savett. Sources who spoke with the Associated Press on condition of anonymity Friday, before the final bill was released, said these were some of the unpopular provisions that were nixed from the reconciled bill.
• The firm says both bills would eliminate deductions for “moving expenses, tax preparation fees and personal casualty losses.”