Senate Republicans have released a plan for revamping the nation’s tax system that preserves some valuable deductions and exemptions for college students and student loan borrowers targeted for elimination by the House.
The Senate’s tax plan would allow student loan borrowers to continue to deduct up to $2,500 in student loan interest from their taxable income, and also permit universities keep providing tax-free tuition discounts or waivers to graduate assistants, university employees and their families.
But which tax plan would be better a better deal for you — the House or Senate version — may depend on what state you live in.
The Senate’s tax plan would end the practice of allowing you to deduct many state and local taxes on your federal return, which could be bad news for residents of states where taxes are high, like California, New York and Illinois.
A summary of the tax plan was provided to Republican senators by the Senate Finance Committee Thursday morning. In the absence of actual legislation, reporters spent the rest of the day piecing together the details (Update: A summary of the bill and estimated impact on revenue have been posted on the Senate Finance Committee’s website in advance of a Nov. 13 hearing).
- The Senate’s approach to state and local taxes could cause problems for House Republicans in high-tax states, where voters would be unhappy if they ended up paying as much or more in federal taxes as they do today.
- Like the House, the Senate would simplify the process of filing taxes — and reduce the overall tax bills of many families — by doubling the standard deduction claimed by taxpayers who don’t itemize their returns.
- The Senate plan would allow student loan borrowers to continue to deducting some of the interest they pay on their student loans. The student loan interest deduction is an “above-the-line deduction” that can be claimed even if you’re claiming the standard deduction. While the House has proposed limiting a similar deduction for mortgages to the interest payments on the first $500,000 of your home loan, the Senate bill would keep the current $1 million limit in place.
- Because Republicans have a more narrow majority in the Senate than in the House, it’s likely that any bill that manages to win approval in both chambers will more closely resemble the Senate version.
- The Senate will not require the IRS to consider tuition discounts and waivers provided to graduate teaching assistants and researchers as taxable income. The House’s plan to tax those benefits generated protests from grad students this week.
- The Senate plan preserves the federal income tax exemption on private activity bonds, which finance not only projects like affordable housing, schools, and hospitals, but many nonprofit and state-based student lending programs. Lenders have objected to the House’s proposal to eliminate this tax perk for investors, saying it helps them provides loans with reduced rates and fees that have saved student loan borrowers $815 million to date.
- The Senate plan to pay for some of the deductions it’s restoring by delaying by one year the House’s proposal to cut the coporate tax rate from 35 percent to 20 percent. Delaying implentation until 2019 would, The Hill reports, “be a disappointment to President Trump and House Republicans who say it is important to lower the corporate rate immediately to create jobs and help U.S. companies.”
- “Reconciling the House and Senate plans and getting sign-off from Trump is likely to be daunting. The change in the corporate tax cut from the House bill, which would institute a 20 percent corporate rate in 2018, is likely to anger Trump and the White House, which wants the change to happen as soon as possible.”