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Senate Enters Tax Reform Debate...

November 13, 2017
As expected, late last week the U.S. Senate jumped into the tax reform debate with the introduction of Senate Finance Committee Chairman Orrin Hatch's "Chairman's Mark" measure.  The Senate version of the tax reform proposal has the same basic goals as the House bill (H.R. 1), which was passed on a party line vote last week by the Ways and Means Committee: simplification of the Tax Code with modest reductions in individual tax levels for many Americans combined with significant reductions in the corporate tax rate designed to jump start economic growth and repatriate billions of dollars now held by U.S. companies in other nations. The good news for fraternals is that the 501 (c)(8) exemption - like virtually all provisions of the 501(c) section of the Tax Code - remains in place. This is not a "fortuitous accident," but rather the result of years of hard work by Alliance staff and professional advocates, combined with member engagement in grassroots activities designed to raise awareness of the powerful positive impact that fraternals have on consumers' financial security and the nation's social fabric. You can review selected highlights of the Senate measure prepared for the Alliance by our federal advocacy firm, Capitol Counsel here. The Alliance staff is still working closely with Capitol Counsel to review each provision of the new measure carefully to ensure that there are no "unintended consequences" that may negatively impact fraternals. Our preliminary review of the measure shows that the following key differences between the House and Senate versions of tax reform legislation:
  • The Senate bill will entirely repeal the deduction for state and local taxes, making no exception for property taxes. The House bill, in a bid to win support from moderate Republicans, would allow deductions up to $10,000 for property taxes.
  • The Senate would keep in place the deduction for newly purchased homes up to $1 million while the House plan would cut the threshold to $500,000.
  • It preserves tax credits and deductions for adoption, medical expense, teacher expenses and student loan interest.
  • The House bill would condense the number of tax brackets to four: 12 percent for income up to $90,000; 25 percent for income up to $260,000; 35 percent for income up to $1 million; and 39.6 percent for income over $1 million. The Senate bill would establish seven tax brackets at 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and 38.5 percent for the nation's highest income earners.
  • The Senate bill would double the estate-tax exemption for wealthy estates from $11 million to $22 million per couple (or from $5.5 million to $11 million per individual) while the House bill would repeal the estate tax entirely.
  • The Senate would cut the corporate tax rate to 20 percent, like the House would, but delay its implementation until 2019 to reduce the projected cost of the bill over ten years.
You will note that there are provisions in the bill that affect commercial life insurers and tax-exempt organizations. The provisions affecting commercial life insurers deal primarily with the calculation and taxation of reserves, rather than the taxation of life insurance products. Our colleagues at the American Council of Life Insurers are working closely with congressional leaders on amendments that would make these proposals more acceptable to commercial insurers. The provisions related to tax-exempt organizations focus on educational institutions' investment income, i.e. endowment funds, and do not affect fraternals. Hearings on H.R. 1 are scheduled for this week in the House of Representatives. The Senate Finance Committee is likely to take action on the "Chairman's Mark" this week, as well. The overarching goal is to have a final tax reform measure on the President's desk by Christmas. The Alliance's advocacy strategy for the next few weeks is to remain in close contact with members of the House Ways and Means Committee and Senate Finance Committee as we monitor the hearings and negotiations on both tax reform measures. At this point we are not planning to engage in further co-sponsorship recruitment efforts for the House (HCR 10) and Senate (SCR 7) versions of our "Fraternal Resolutions" until we know more about where tax reform is headed and what will be in the final version of the bill. Don't hesitate to contact me if you have any questions or need more information on either the House or Senate bill, or the Alliance's advocacy strategies. Look to the Alliance for future updates on this issue as developments occur.