Senate Republicans have released a very different plan for major tax reform compared with the House’s efforts last week.

As analysts pore over the static financial implications for different model families, economists should primarily judge the bills on whether they improve economic efficiency and growth.

That means a “thumbs up” to lower marginal rates, but also to the elimination of deductions and exemptions, measures which reduce the complexity of the code.

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The Good

On the positive front, the Senate bill maintains the biggest pro-growth provisions from the House bill, including the large cut of the corporate rate from 35 percent to 20 percent and immediate expensing of investment for at least five years.

There’s lots of good evidence this will raise capital investment, increase productivity and boost wages for Americans. The Senate would delay the permanent corporate rate cut to 2019.

Though conservative groups have complained about this, economically, it might even enhance investment in 2018 more than an immediate cut, when combined with immediate expensing.

As the Tax Foundation’s Scott Greenberg has said, that’s because “companies would be able to deduct the cost investments against a high rate, and be taxed on the profits at a lower rate.” Of course, delaying the cut also makes the bill more likely to comply with budget reconciliation rules because the revenue implications would be smaller over 10 years.

The Senate Bill also cuts taxes for non-corporate businesses in a more elegant way than the House.

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Whereas the House would institute a new business income tax rate of 25 percent but combine it with complex anti-abuse rules, including different rules for passive and active business owners, and formulae for how much income can be attributed as business income for the latter, the Senate would simply add a 17.4-percent deduction for pass-through business income.

Although this itself is also open to abuse, the deduction would give most pass-through businesses a tax cut without reams of extra rules.

On income taxes, the Senate bill cuts most people’s marginal income tax rates, without introducing a new family credit, as with the House. Whereas House Republicans appear reticent to grant income tax rate cuts to the very rich, the Senate has recognized that the highest marginal rates tend to be the most damaging.

They eliminate the proposed “bubble rate” which would have raised marginal rates for those earning between $1 million and $1.2 million to 45.6 percent, and even cut the top marginal income tax rate from 39.6 percent to 38.4 percent.

In terms of base broadening, the Senate has been bolder than the House on the state and local income tax too. They eliminate the deduction entirely, which would raise approximately $1.7 trillion in additional revenue over 10 years, easing the budget pressure to deliver the rest of the package. The House bill, by contrast, allows people to deduct up to $10,000 in state property taxes.

The Bad

Sadly, the Senate’s boldness on the state and local deduction is mirrored by its timidity on other deductions and the estate tax.

Rather than eliminating the estate tax entirely (as the House bill proposes from 2025), the Senate bill would just double the exemption to $11 million per person.

More disappointingly, the Senate would leave the mortgage interest deduction completely intact (the House would halve the limit to $500,000), even though it is widely acknowledged by economists to lead to overinvestment in housing relative to other economic activity.

The Senate would also maintain a host of other smaller, politically contentious deductions for mortgage interest on second homes, student loans and medical expenses, leaving a less-broad income tax base with more distortions.

More surprisingly, the Senate bill goes against the framework agreed by congressional Republicans at the start of the tax reform process. It maintains seven federal income tax brackets (10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent, 38.5 percent vs. today’s 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent, 39.6 percent).

The House bill would have reduced the number to four: 12 percent, 25 percent, 35 percent and 39.6 percent. More tax brackets makes tax planning more complex and costly on the margin, though in the days of TurboTax it is unclear that these effects are large.

Perhaps more worryingly, it looks as if the Senate plan greatly expands the number of people in the 35-percent tax band.

Overall

The Senate Bill looks better than the House Bill on the business side overall, keeping the permanent corporate rate cut and introducing a simpler tax cut for pass-through businesses. But the income tax reform is a bizarre mix of boldness and timidity.

Hopefully, reconciling with the House will see full repeal of the state and local deduction maintained, but the House’s reduced number of brackets and mortgage interest deduction restriction restored.

Ryan Bourne occupies the R. Evan Scharf Chair for the Public Understanding of Economics at the Cato Institute.