Student loan deductions are still in the Republican tax bill. So is the carried interest loophole hedge funds love.
The House and Senate are set to vote today on the Tax Cuts and Jobs Act, a tax reform bill that includes a massive, permanent corporate tax cut, temporary cuts for individuals, primarily benefiting the wealthiest Americans, and a repeal of the Obamacare individual mandate.
But the final version of the legislation omits some of the unpopular — and controversial — provisions that appeared in the House GOP’s first pass at the bill .
House Republicans’ initial version slashed deductions for medical expenses and student loans, erased another deduction for educators who buy their own school supplies, and weakened rules that prohibited religious organizations from endorsing political candidates, among other changes. While the dollar amounts involved were often relatively small, the changes provoked a big backlash.
But several of the most dramatic provisions didn’t survive in the final product following House and Senate negotiations — meaning parts of the new tax code look a lot like the old one.
The final version of the tax bill scraps a feature currently in the tax code meant to encourage employers to directly subsidize their workers’ daily commutes, whether by car, subway, bus, or bike. Right now, companies can provide parking or transit passes worth up to $255 a month to employees to help them pay for commuting expenses and deduct that from their corporate taxes. (The amount was supposed to increase to $260 in 2018.)
The House tax bill kept the deduction in, but the Senate got rid of it, and the Senate version won out. Companies can still provide the benefit to employees, but they won’t get a deduction for it, the argument being the tax bill already lowers corporate taxes enough. Employees who pay for their own transportation costs can still use pre-tax income, but transit agencies are still worried the decision will cut into ridership because employers will stop offering the benefit.
The House bill originally slashed a slew of tax benefits for students pursuing higher-ed, including the student-loan interest deduction, an exclusion for graduate tuition waivers, and the Lifetime Learning Credit, which lets taxpayers deduct some of the cost of tuition and fees for enrolling at a university.
The new version of the bill preserves these and other benefits for students and their families who shoulder the costs of higher education, says Steven Bloom of the American Council on Education.
A tax credit of up to $7,500 for electric car buyers made it into the final version of the tax bill. The House version had sought to kill the Obama-era provision. The credit starts to phase out after a manufacturer sells 200,000 plug-in cars.
The credit is considered important in driving the adoption of electric vehicles that, while more environmentally friendly, are more costly. This is a win for companies such as Tesla, General Motors, and Nissan.
Say goodbye to your company snack bar. Maybe.
The Republican bill stops companies from fully deducting the cost of free snacks for employees, the Wall Street Journal points out. Instead, they would be taxed like restaurant meals for employees, which are only 50 percent deductible. And after 2025, costs wouldn’t be deductible at all.
The House bill eliminated a small, but very popular, $250 tax deduction to help ease some of the costs for teachers who pay out-of-pocket for classroom school supplies. The Senate version of the bill would have actually doubled the credit — to $500. Sen. Susan Collins (R-ME) advocated for the increase; she helped make the deduction permanent in 2015.
The expanded benefit proposed by the Senate didn’t prevail — but neither did the House version. Lawmakers decided to split the difference and keep the current law. Teachers don’t lose, but they also don’t win: that $250 deduction remains.
The House tax bill included an addition to its provision on 529 plans, which allow families to save money for college tax-free. The 529 plans are tweaked under the new tax overhaul, letting families also withdraw limited funds from those accounts for private or home-school expenses for K-12 — a measure pushed by school-choice advocates.
But the House bill added some pointed language, which basically said that an “unborn child” could be a designated beneficiary of such accounts. The pro-life language was inserted into a tax provision that lets parents set aside some money for education, tax-free. ( Under current law, parents can open a 529 account and switch it to the beneficiary at a later date.)
Here’s how the House put it:
The Senate did attempt to include similar wording, but it lawmakers removed it last minute, as it also reportedly ran afoul of the Byrd rule, which limited the bill to issues related to taxes and spending in order to pass the Senate with a simple majority vote.
And many critics had already pointed out the language had nothing at all to do with taxes in the first place — but instead represented a political statement. “It’s just another way to sneak into law conferring status on the unborn,” to build a case for arguing that a fetus should have the same rights as a child, Bonnie Stabile, a policy ethics expert with George Mason University, explained to Vox’s Tara Golshan .
House Republicans wanted to substantially weaken the Johnson Amendment in their original tax bill, which would have effectively ended the prohibition on tax-exempt and religious organizations from endorsing or supporting candidates. This is a pet issue for the religious right, and a big talking point for Trump, who promised to get rid of the rule.
Democrats had threatened to challenge any changes to the Johnson Amendment as a violation of the Byrd rule, and the language didn’t end up in the Senate version, and ultimately didn’t end up in the final tax overhaul bill. But, as Vox’s Tara Isabella Burton and Alissa Wilkinson note, the Johnson Amendment is rarely enforced, and “its removal from the tax bill seems to be a symbolic, rather than practical, victory for Democrats.”
President Donald Trump on the campaign trail said hedge funders and private equity were “getting away with murder” by way of the carried interest tax break. But if he signs the Republican tax bill into law, he’ll be letting that slide.
Typically, private equity and hedge funds have a 2-and-20 fee structure, where managers earn a 2 percent management fee and a 20 percent on whatever profits their funds generate each year. Under the current tax code, that 20 percent in profits (the carried interest) is treated as a long-term capital gain and taxed at a 23.8 percent tax rate, well below the 39.6 percent top rate for ordinary income.
The so-called carried interest loophole has been fiercely criticized by Democrats. During the 2016 campaign, Trump indicated he would close it in a 2015 interview with CBS’s Face the Nation, saying fund managers were “paper-pushers” who were “getting away with murder.”
Gary Cohn, Trump’s top economic adviser, in September said Trump “remains committed to ending the carried interest deduction.”
But it’s still in there, just with one change: Whereas before managers were required to hold assets for one year to take advantage of the preferential tax rate, they now have to wait three.
“Because, OF COURSE this survived,” wrote Chris Krueger, an analyst at the investment research firm Cowen Washington Research Group, in a Monday note.
The House bill initially eliminated a provision that allows taxpayers with high medical expenses to deduct those costs.
