Eight Sleeper “Pay-Fors” in the House Tax Bill

As mentioned in the NSAlert on November 3, the budget rules under which the tax reform bill will be considered require no more than $1.5 trillion in net revenue losses from the bill over the ten year period following enactment. Since AMT repeal, corporate and individual tax cuts, and other provisions would reduce revenues far more than $1.5 trillion, Republicans turned to some unexpected places to drum up the money needed to pay for tax cuts without adding too much to the deficit. Some of these unexpected revenue sources in the House bill include:

  • The bill would impose a 1.4 percent excise tax on investment income for certain private colleges. The levy applies to colleges that enroll more than 500 students and have assets worth more than $100,000 per student. It would apply to fewer than 150 colleges, according to analysis from the Chronicle of Higher Education. Still, the provision would bring in about $3 billion over a decade.
  • The bill proposes ending the Hope Scholarship Tax Credit, worth up to $1,500, and the Lifetime Learning Credit. It retains the American Opportunity Tax Credit. In total those changes would generate $17.3 billion over a decade, according to estimates from the Joint Committee on Taxation.
  • Nearly $48 billion would come from changes such as ending deductions for student loan interest and repealing employer-provided tuition reimbursement.
  • The bill would cut what is known as the orphan drug credit, a tax break to incentivize drugmakers to develop medicine that affects a small segment of the population. The provision would raise $54 billion.
  • The tax bill includes 11 insurance-related revenue raising provisions, including modifying how life insurance companies calculate their reserves and altering discount rules for property and casualty insurers. The provision would raise $50.8 billion.
  • The bill would raise $33.5 billion by repealing the provision whereby individuals can currently deduct up to 50 percent of meal and entertainment-related expenses if they can establish the cost was directly related to their business.
  • The bill proposes repealing the deduction for employer-provided gyms, a change worth $2 billion.
  • Ending a deduction for employer-provided qualified parking and transportation would bring in $10.8 billion.
  • No deduction would be allowed for entertainment, amusement, recreation, or membership dues, a change worth $21 billion. “It is difficult for the IRS to determine whether entertainment expenses are directly related to a trade or business, creating uncertainty for taxpayers as well as the potential for significant abuse,” the committee said in the bill summary.
  • The bill would raise $30.5 billion by restricting the use of tax-free like-kind exchanges to real-estate transactions. Like-kind exchanges, under tax code Section 1031, have been in the tax code since the 1920s.
  • The bill ends a deduction for moving expenses worth $10.6 billion in revenue. Under current law, individuals can deduct moving expenses tied to starting a new job, even if they don’t itemize their deductions.
  • The bill raises $7.7 billion by repealing an exclusion for moving expense reimbursement. Currently, qualified moving expense reimbursements provided by an employer can be excluded from the employee’s income.
  • Alimony payments are generally an above-the-line deduction under current law. Alimony payments would no longer be deductible for the payor or included in the payee’s income. The provision, which raises $8.3 billion, applies to any divorce or separation starting after 2017.
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