In a highly consequential act, the Senate early Saturday (December 2, 2017) morning passed its version of a Tax Code overhaul. The bill significantly reduces corporate tax rates, temporarily reduces individual tax brackets, and partially offsets the cost of rate reductions by scaling back or eliminating many tax deductions. According to the Joint Committee on Taxation, the package will reduce revenues by $1.41 trillion over the next 10 years. The bill largely maintains today’s incentive structure for retirement savings but has consequential issues for higher education.
The Senate’s action follows the House’s approval of its own tax-reform package on November 2. For tax reform to become law, either the House must pass the Senate’s bill or the two chambers must iron out a compromise that then must pass both chambers. We expect this to happen within a matter of weeks – whereupon the bill will be presented to President Trump for his signature.
With this action, both the House and the Senate have passed their own versions of legislation that would overhaul the Tax Code for the first time since 1986. The proposed bills would have dramatic implications for American families, employers, and businesses. The House bill also contains a number of provisions that could impact the higher-education and nonprofit sectors.
- The bill makes no significant changes to retirement savings. Early calls to require contributions on an after-tax (Roth) basis did not materialize. And the final bill eliminates a provision in Committee-passed legislation to coordinate 403(b) and 457(b) contribution limits.
- The bill would maintain the tax-free treatment of municipal bonds, but interest on private-activity bonds will become taxable going forward.
- An amendment allows families to use 529 savings plans, originally intended for college savings, for K-12 education, including private school and home-schooling up to $10,000 per year.
- Several provisions in the Senate-passed bill will impose taxes on nonprofits, including the largest private university endowments.