WASHINGTON-The House passage of a tax code rewrite Thursday was just the first in a multistep process. Many changes are expected before a bill reaches President Donald Trump's desk.
First, the Senate has to prove it can pass a tax overhaul after failing to do so on health care.
Then the two chambers will form a conference committee and reconcile a litany of differences, after which the House and Senate will have to vote on the compromise measure.
Here are 10 things to watch as the tax bill continues its journey:
1. Individual mandate
Ironically, the provision that has probably drawn the most attention in recent weeks is less about taxes than it is about health care, and that's the effective repeal of the 2010 health care law's individual mandate. Yes, it's part of the Internal Revenue Code, but GOP leaders never intended to include it or anything related to the 2010 law in the tax overhaul. However, the Senate decided to add a repeal of the individual mandate to its bill. This was not in the House bill, and it could cause some of the moderates who voted "yes" on Thursday to reconsider.
2. State and local tax deduction
Another high-profile issue has been the GOP effort to gut the state and local tax, or SALT, deduction. The Senate fully repeals the deduction, which allows taxpayers to deduct property taxes and either state income or sales taxes. The House would eliminate the deduction for state and local income or sales taxes but retain the break for property taxes with a new $10,000 cap.
A full repeal of SALT is considered fatal in the House, and anything short of the $10,000 property tax deduction might cause at least a few members to jump from "yes" to "no."
3. California surprise
After three of his California Republican colleagues voted against the tax bill, House Majority Leader Kevin McCarthy predicted some of their issues will be solved in a final bill, noting that he was working on it personally but declining to provide further details. "I think you'll see some changes affecting California and others," McCarthy said.
The main concern McClintock, Rohrabacher and Issa cited was the partial elimination of the state and local tax deduction.
4. Individual tax cuts
Where the House and Senate bills most diverge is on the structure of individual tax cuts. The House plan sets up four permanent individual income tax brackets of 12, 25, 35 and 39.6 percent. The Senate has seven brackets of 10, 12, 22, 24, 32, 35 and 38.5 percent that expire after eight years, along with other individual tax provisions.
The Senate approach goes against two main goals of the GOP tax overhaul-simplification and permanency. Senate Republicans knew they'd have to forgo the latter in some areas to meet the Byrd rule requirement-that the bill not add to the deficit outside the 10-year budget window. So sunsetting the individual tax cuts is the approach they took.
5. Small business tax relief
A wide gap also exists in the bills' treatment of small businesses whose incomes are taxed at their owners' individual rates. These so-called pass-through entities would get some relief under both chamber measures, but some lawmakers have complained that neither go far enough. The House bill reduces the tax rate on pass-through businesses to 25 percent with some limitations. It would also phase in a special 9 percent rate on the first $75,000 in net business taxable income for active owners or shareholders of pass-through entities who earn less than $150,000. Those earning above $150,000 would receive a reduced special-rate benefit, which would fully phase out at $225,000.
The Senate plan would allow owners and shareholders to claim a deduction equal to 17.4 percent of their business income. For owners or shareholders with incomes above $500,000 for joint filers and $250,000 for all other filers, the deduction would be limited to 50 percent of their W-2 income, defined as wages subject to wage withholding, elective deferrals, and deferred compensation paid by the entity.
6. Mortgage interest deduction
Some House Republicans who voted "yes" Thursday did not like that the bill curtailed the mortgage interest deduction for new home purchases to interest paid on the first $500,000 of debt. (The limit is $1 million, under current law.) The House bill also got rid of the deduction for second homes.
7. Family/child tax credit
Many senators thought the House bill did not go far enough in expanding the current $1,000 child tax credit. The House bill would have created a new family credit: $1,600 for each child and $300 for each parent and non-child dependent, with the latter credit set to expire after five years. The Senate plans proposes a credit of $2,000 for each child and $500 for each parent and non-child dependent, both of which would expire after eight years. The House family credit phases out at $230,000 for joint filers, while the Senate version phases out at $500,000.
8. Estate tax
Repealing the estate tax is a high priority for conservative Republicans. The House bill would nearly double the amount exempted from tax, from about $5.5 million currently to $10 million, for seven years but would fully repeal the estate tax thereafter. While the Senate plan would also increase the threshold for exclusion by the same amount for eight years, it would keep the tax.
9. Medical expense deduction
The House bill repeals the deduction for medical expenses, while the Senate retains it. The provision allows taxpayers to deduct out-of-pocket medical expenses if they exceed 10 percent of their adjusted gross income. Many lawmakers prefer to keep the deduction, if possible, but it remains to be seen if that would be prioritized over other items that would also cost money to retain.
10. International provisions
Both bills include complex international provisions designed to prevent multinational companies from tax avoidance by abusing the new territorial tax system the measures would create. The so-called base erosion provisions vary in each bill but both versions have been panned as inadequate. What the chambers come up with will determine whether they actually meet their stated goal of preventing companies from fleeing the U.S. and incentivizing others to return.
Another international provision that will need to be settled is the rates at which the existing offshore profits of multinational entities are taxed. These so-called deemed repatriation rates are 14 percent for cash and other liquid assets and 7 percent on illiquid assets under the House bill. Those rates are 10 percent and 5 percent, respectively, under the Senate bill.