Winners and losers in the Senate tax bill by Benjy Sarlin and Ben Popken DEC 8, as per NBC,
minor Edits by B joe Rosa, CPA 12/10/17
A week ago, the Senate passed its tax bill, which featured large permanent cuts for corporations
along with temporary tax breaks for individuals and private businesses. But the bill also
contained significant last-minute changes, and experts are still working out its implications as the
House and Senate prepare to negotiate a final deal. We talked to tax experts and looked at the
latest independent analyses to game out some of the early winners and losers.
WINNERS The rich (loser Sponsored)
Despite the president's repeated claims to the contrary, the biggest gains in the tax bill go to
wealthy individuals, heirs and business owners.
The Senate bill raises the threshold on the estate tax, which currently only applies to the top 0.2
percent of inheritances, and raises the income threshold on the top tax rate, which is also
lowered from 39.6 percent to 38.5 percent. The rich are more likely to benefit from changes to
pass-through income as well.
Senate passes Republican tax plan 2:19
Overall, 62.2 percent of the Senate's tax benefits would go to the top 20 percent of households
in 2019, according to an analysis by the nonpartisan Tax Policy Center, with 15.3 percent going
to the top 1 percent. The share going to the top 1 percent would rise over time to 62.1 percent in
2027 as inflation reduces some middle-class benefits and temporary changes expire, although
supporters claim they would be renewed.
Corporations The crown jewel of the Senate bill, just like the House bill, is a major reduction in
the top corporate tax rate from 35 percent to 20 percent. Senate Republican leaders faced
pressure to retreat from the 20 percent number in the run-up to final passage in order to
preserve or add tax benefits elsewhere. The White House has since signaled it might be open to
a higher 22 percent rate, but conservative anti-tax groups are pushing lawmakers hard to stick to
There are also potentially big benefits for companies with international holdings. Many
corporations defer bringing profits from abroad back into the United States, since they avoid
paying taxes on them until they do. The bill switches to a new territorial tax system in which the
companies would have to pay taxes on foreign earnings, but at a much lower rate of 14.49
percent on liquid assets and 7.49 percent on revenue that's been reinvested.
That could be a boon for a company like Apple, which has major assets parked abroad. Richard
Harvey, a tax professor at Villanova University who has testified before the Senate on Apple's tax
affairs, estimates the tech giant would save $47 billion in taxes versus the cost of repatriating
profits under current law. The estimate was first published in the Financial Times.
Other multinational corporations that stand to gain from the foreign tax changes under Harvey's
calculations, which are based on company financial statements, include Pfizer, with $36 billion in
potential savings; Microsoft, with $28 billion; and Google, with $15 billion.
"There's also provisions to make it more difficult to shift income overseas…but the U.S.
multinationals are still excited about the reduced corporate tax rate coupled with a territorial
system," Harvey said in an interview. "The benefits significantly outweigh the others."
One potential downside for corporations in the Senate bill is that it both maintains the corporate
AMT… at the new corporate tax rate of 20 percent. The alternative minimum tax limits deductions
and credits, and could affect tech companies in particular, since they make extensive use of the
research and development credit. But the AMT provision appears to be an oversight caused by
the Senate's last-minute drafting process and it's likely to be changed in any final bill.
Pass-through businesses The bill creates a new 23 percent deduction for pass-through income,
which affects many businesses ranging from small retail stores to large real estate companies
like those owned by President Donald Trump. The deduction was expanded at the last minute
under pressure from Republicans like Sen. Ron Johnson, R-Wisc., who initially withheld support
for the bill.
Biggest winners would be the wealthiest recipients. But the new deduction could also be a boon
for independent contractors, S corporations, and LLC's that pull in under $500,000 for joint filers
and $250,000 for single filers and would face looser restrictions on who can take the deduction.
This new pass-through deduction would also create a gigantic incentive for business and
employees to reclassify their income to qualify for the benefit, which could lead to major legal
battles over eligibility long into the future. That cuts against Republican promises to make filing
"It would be trench warfare, and with every taxpayer," said Daniel Hemel, a professor at the
University of Chicago. "If you can get into independent contractor status, then that's great. Your
tax life will become more complicated, but your bill will go down."
LOSERS Middle and low-income households
Loser is a relative term here. Almost all households would see a tax cut immediately if the Senate
tax bill passed. Only 7 % see an increase in 2019 - Per the Tax Policy Center analysis.
But the gains would be muted for the lower half of the income ladder — the bottom 20 percent of
households would receive an average cut of just $40 in 2019. And they're dwarfed by the
benefits for the richest households and corporations.
The effective tax rates would also increase over time if its benefits expire on schedule
and the bill's switch to less generous inflation measures eat into gains. By 2027, 47.5 percent of
all households would pay more in taxes than under current law, including 62.2 percent of
taxpayers in the middle 20 percent of earners.
"Overall the vast majority of taxpayers will get a tax cut for a period of time," Harvey said. "Then
the tax cut will disappear, the pass-through (cut) will disappear, and the corporate tax cuts will
Many lower-income households don't pay income tax already, meaning they would only benefit
from tax breaks that are refundable against their payroll taxes. These are not a significant
feature of the Senate tax bill. Sens. Marco Rubio, R-Fla., and Mike Lee, R-Utah, pushed to cut
the corporate tax rate to 20.94 percent instead of 20 percent in order to make a greater portion
of the bill's child tax credits refundable, but their amendment failed.
The lone GOP defection on the tax bill, Sen. Bob Corker, R-Tenn., came over deficit concerns.
While the White House and top GOP leaders claim the bill will produce enough growth to pay for
itself, nonpartisan analyses inside and outside of government say it will add hundreds of billions
of dollars in debt.
Congress' own Joint Committee on Taxation predicts it will add about $1 trillion to deficits over
the next decade, even factoring in economic effects. That number could be understating the
cost, since Republicans also say they plan to renew measures that expire under the bill,
reducing its cost on paper. Some Republican senators pushed to include measures that would
claw back some of the bill's benefits if the deficit grew more than expected, but discovered that
Senate rules prevented them from including them.
Like the House bill, the Senate tax bill helps pay for its cuts by limiting the deduction for state and
local taxes to $10,000 of property taxes. Most Americans will take the standard deduction, which
is increased under the tax bill to $12,000 for single filers and $24,000 for joint filers, so they
won't notice the difference. But the most affected group are upper-middle class and high-income
professionals in places with higher taxes and higher cost of living, which disproportionately
includes residents in blue states like New York, New Jersey and California.
Unions and social services
Related to the state and local tax deduction change, public service unions could lose out as the
bill reduces incentives for state and local governments to spend. This could also affect lower-
income residents in high-tax states even if they don't pay more in taxes, since it could put
pressure on state governments to cut spending on social services.
The bill eliminates the individual mandate, which requires Americans who go without insurance to
pay a penalty. The Congressional Budget Office estimates that the move would save $338
billion, which is used in the bill to finance its corporate and individual cuts. But that's because the
CBO also predicts 13 million fewer people would have insurance after 10 years, and many of
them would leave benefits from health care subsidies or Medicaid on the table. In addition, the
move would raise premiums by 10 percent on individual plans.
A key GOP vote, Sen. Susan Collins, R-Maine, backed the measure under the condition that the
Senate also pass a bipartisan bill to help stabilize insurance markets. But the House & the White
House have so far shown no interest in the measure, putting her vote on a final bill in doubt, and
experts are skeptical it would counteract the disruption caused by the mandate changes.
Make these 5 moves now before new tax law kicks in
Big tax changes are coming your way in 2018, and this is your last chance to lower your tax bill
or boost your refund come April.
Here are five moves to consider now to make sure you're taking advantage of tax breaks
that may be changing or disappearing.
Published 8:44 AM ET Thu, 21 Dec 2017 Updated 54 Mins Ago CNBC.com
(Update: Since publication of this story, the IRS has released guidance related to the
prepayment of 2018 state and local property taxes. The agency said people can only deduct
prepaid property taxes that have already been assessed; prepayments of anticipated taxes will
not be deductible.)
Year-end tax moves may be even more vital this year.
Passage of the GOP tax overhaul will mean big changes for taxpayers in 2018.
About 49 million taxpayers, or 28 percent, itemize their expenses for deductions, according to the
Urban-Brookings Tax Policy Center. The tax legislation almost doubles the standard deduction.
That change and the disappearance of several key itemized deductions mean it's likely even
fewer taxpayers will itemize.
"There is some level of simplification. But the downside is that there are certain things you are
not going to be able to do anymore." -Tim Steffen, Baird Private Wealth Management
(Under the new legislation, an individual would need total itemized deductions to exceed
$12,000, the tax bill's new standard deduction for individual taxpayers, up from the current
$6,350. Married couples would need itemized deductions exceeding the new standard deduction
of $24,000, up from a current $12,700.)
For taxpayers taking the standard deduction, "there is some level of simplification," said Tim
Steffen, director of advanced planning at Baird Private Wealth Management. "But the downside
is that there are certain things you are not going to be able to do anymore."
To that end, here are five tax strategies to consider now, for the final days of 2017:
1) Get ahead on tax obligations
The break for state and local taxes is substantially curtailed under the tax legisation. Beginning
in 2018, taxpayers can claim a federal deduction of up to $10,000, total, for a combination of
state and local income taxes, sales taxes and property taxes.
"For those that live in states with high state income taxes, that's a big hit," said Jill Fopiano, CEO
of O'Brien Wealth Partners in Boston.
The final version of the tax overhaul specifically prohibits taxpayers from taking a deduction in
2017 for prepayment of 2018 state and local income taxes.
But if you pay quarterly estimated taxes, you can make your fourth-quarter payments by Dec. 31
(instead of the Jan. 16, 2018, deadline) and include those taxes paid as part of your 2017
deductions, said Howard Samuels, a certified public accountant at Samuels & Associates in
Florham Park, New Jersey.
You may also be able to prepay your property taxes for 2018. Check with your local property tax
collector's office to see what your municipality will allow. (The IRS released guidance on the issue
Wednesday, saying that people can only deduct prepaid state and local property taxes if they
were assessed in 2017. Prepayments of anticipated property taxes will not be deductible.)
"Some counties and municipalities will accept those tax payments earlier and others won't," said
Tax Foundation economist Nicole Kaeding.
2) Boost charitable donations
The deduction for charitable contributions is unchanged in the tax overhaul. But you'll still need
to itemize to claim it, and that's a much higher bar with the nearly doubled standard deduction.
Consider accelerating your donations to get the current tax benefit or using a donor-advised
fund, John Voltaggio, managing director at Northern Trust, told CNBC earlier this year. A donor-
advised fund allows you to make a charitable contribution and receive an immediate tax break for
the full donation, and then recommend grants from the fund to your favorite charities over time.
Retirees age 70½ or older might also consider transferring money from their IRA to a qualifying
charity. Such qualified charitable distributions can be a tax-efficient way of meeting your required
3) Grab disappearing deductions
The tax overhaul does away with a long list of deductions and credits that filersmay miss,
including tax breaks for tax prep, unreimbursed employee expenses and job hunting expenses.
(Under current tax law, the total of these expenses must exceed 2 percent of your adjusted gross
income to be deductible. And those expenses are not deductible for the alternative minimum tax.)
Some experts say a plan to eliminate the alternative minimum tax may be worse than just keeping
You can't accelerate all deductions, but you can take advantage of the break by paying for as
many of those expenses as possible before the end of the year. For instance, prepay the
anticipated 2018 fees for your tax preparer, if possible, and renew professional memberships
that qualify as an unreimbursed employee expense.
4) Rethink a Roth conversion
If you converted funds in a pretax IRA to a post-tax Roth IRA sometime in 2017, now is the time
to make sure you're satisfied with that decision.
Existing tax rules give retirement savers who make such a transaction time to change their mind
and reverse course. (There are plenty of reasons you might, including a drop in the account's
value or an inability to pay the tax bill.)
Ordinarily, you'd have until Oct. 15 of the year following the IRA conversion to undo it. But under
the tax reform bill, there are no take-backs. Now, you only have until the end of this year to undo
5) Defer income
The final tax reform bill still calls for seven tax brackets, but there are changes to the rates are
well as the income levels associated with each bracket.
Taxpayers may find themselves in a lower bracket come next year. For example, a married
couple with a combined income of $80,000 will be in a 22 percent tax bracket next year,
compared with 25 percent (the 2018 bracket under current tax law, indexed for inflation).
Find your new tax brackets under the final GOP tax plan.
If you can control your income, particularly if you have commission-based earnings or are self-
employed, it may pay to defer those earnings to 2018. The same goes for business owners, who
also may have a lower impact on their business income next year, Steffen said.
"At multiple levels, the tax rate is going to fall," he said. "If you can, maybe defer income into next
On the other hand, if you are expecting to make more income and land in a higher tax bracket
starting in 2018, accelerate your pay for this year. Ask for payments for work done in 2017 to be
paid by Dec. 31.
–CNBC's Personal Finance team contributed to this report.