Changes may cost tax bill GOP votes
Senate revisions made in hopes of appealing to middle class come with expiration date.
WASHINGTON — A gambit by Senate Republicans to make a large corporate tax cut permanent by having benefits for individuals expire at the end of 2025 created new problems for the legislation Wednesday, as lawmakers were still grappling with the controversial decision to add the repeal of a key Obamacare provision.
The decision by Republican leaders to double down on risky maneuvers to overcome budgetary hurdles with their tax overhaul threatened to put the entire effort in jeopardy.
Sen. Ron Johnson ( RWis.) declared he would not support the bill because it treated large corporations differently than many small businesses, which pay taxes through the individual code.
“If they can pass it without me, let them,” Johnson told the Wall Street Journal. “I’m not going to vote for this tax package.” He later said he hoped “to address the disparity so [ he] can support the final version.”
Sen. Susan Collins ( RMaine) raised concerns about the bill’s repeal of the individual mandate under the Affordable Care Act that requires all Americans to have health insurance.
“It greatly complicates our efforts, to combine tax reform and changes in the ACA,” said Collins, who was among three Republican senators who voted this year against the party’s attempts to repeal the entire act, known as Obamacare.
On top of that, Republican deficit hawks were withholding support until they could be convinced that the economic growth assumptions were realistic and the tax cuts would not add more than $ 1.5 trillion to the deficit over the next decade.
“I’m not a yes, not a no,” said Sen. Bob Corker ( RTenn.). “I’m in a watch- andsee ... trying to ensure we’re not going to do anything to exacerbate our deficit issues.”
Senate Republican leaders made the major changes to the bill late Tuesday night as they raced to try to pass a tax overhaul by year’s end.
The move to effectively repeal, starting in 2019, Obamacare’s individual mandate would save an estimated $ 318 billion over 10 years. Senate leaders propose using the savings to make the tax plan more attractive to the middle class, at least initially.
The bill would lower certain individual tax brackets from the 22.5%, 25% and 32.5% proposed last week, to 22%, 24% and 32%.
The revised plan also would increase the child tax credit from $ 1,000 to $ 2,000. The original Senate plan proposed raising it to $ 1,650.
“Ultimately, I’m more than willing to defend the decision to end the individual mandate taxes,” Senate Finance Committee Chairman Orrin G. Hatch ( RUtah), who drafted the revisions, said Wednesday at a hearing. “It’s the right thing to do. Far more people will be better off as a result.”
Those changes, and reforms to help lower costs for “pass- through” businesses that pay taxes through the individual code, would expire in eight years to avoid adding to the deficit.
The National Federation of Independent Business said it supported the revised Senate bill, but spokesman Jack Mozloom said the group was not happy that those provisions expire in 2025. He said the group was optimistic that those cuts would be extended later.
“If the tax reform has the effect that everyone expects, which is to lift the economy and ignite growth, it’s going to be awfully hard eight years from now to let that expire,” he said.
The revisions sparked outrage from Democrats. “This bill seems to get worse by the hour,” Sen. Ron Wyden ( D- Ore.) said at Wednesday’s hearing.
“For multinational corporations, their handouts are set in stone, written in ink, locked in place with the key thrown away. But not for the middle class,” he said. Wyden noted that the individual tax cuts don’t even last a full decade.
He also pointed out that the Congressional Budget Office has forecast that repealing Obamacare’s individual mandate would cause an average increase in premiums of about 10% a year.
“For middle- class families, premium increases are the same thing as tax increases,” Wyden said.
All the changes related to individual tax cuts would disappear after 2025, including the proposed doubling of the standard deduction.
But that also means the deduction for state and local taxes, which the original Senate bill eliminated permanently, would return in 2026. State tax deductions, including for property taxes, are mostly used in California, New York and other high- tax states that are Democratic strongholds.
To ease Republicans’ concerns in some of those states, the House bill eliminates the deduction for state and local income and sales taxes, but keeps it for property taxes up to $ 10,000.
Although the state and local deduction would not be permanently eliminated by the revised Senate bill, that might not satisfy House Republicans, who worked hard to compromise to keep the property tax deduction.
House Ways and Means Committee Chairman Kevin Brady ( R- Texas) has vowed to preserve the property tax deal as the two bills are merged into one.
“Not ‘ try,’ ” Brady said in an interview Wednesday. “I made a commitment that the f inal bill will include the property tax [ provision] as the House has it.”
President Trump is to meet Thursday with House Republicans as they prepare to vote on their bill, which has stark differences from the Senate’s.
Expiration of the individual tax breaks in the Senate bill was done to allow Republicans in that chamber to address the complicated math they face. Because the Senate is planning to use a special budget reconciliation process to pass the tax bill, the proposal must not increase the deficit after 10 years, according to an arcane Senate regulation known as the Byrd rule.
The changes mean the bill would add $ 1.4 trillion to the deficit over 10 years, down from $ 1.5 trillion in the original bill and below the threshold needed to pass the legislation on a simple majority vote in the Senate.
But more important, revenues turn positive in 2027, adding $ 30 billion to the Treasury, according to an analysis by the congressional Joint Committee on Taxation, and allowing the bill to conform with the Byrd rule.
Expiration of the individual tax cuts bolstered criticism that the GOP overhaul favors corporations over middle- class Americans.
“Republicans have put themselves between a rock and a hard place: dramatic tax increases on the middle class or a huge hole in the deficit,” said Senate Minority Leader Charles E. Schumer ( D- N. Y.). “Our Republican colleagues, particularly the deficit hawks, can’t have it both ways.”
The structure of the bill remains the same — lowering rates but eliminating many deductions. Senate Republicans hoped that by lowering rates on filers in the mid- range tax brackets, it would make up for the loss of those deductions.
House Republicans, though, preferred their approach. “There’s common agreement between the Senate and the House to get tax reform to the president’s desk, and the complete elimination of state and local tax deduction does not allow that to happen,” said Rep. Tom Reed ( R- N. Y.), a Trump ally who helped broker the property tax deal. “There needs to be a compromise.”