House moves closer to tax overhaul
Senate-backed budget plan OK’d by narrow margin
The House voted Thursday to adopt a Senate-passed Republican budget plan, clearing the way for a sweeping overhaul of the tax code for individuals and businesses that could add as much as
$1.5 trillion to the national debt. The budget measure, approved by a narrow margin of 216 to 212, differs sharply from one the House approved Oct. 5. Back then, House Republicans mandated that any tax cuts from lowering tax rates must be offset by closing loopholes or cutting spending.
But after the Senate last week approved a plan that would allow tax changes that add as much as
$1.5 trillion to the debt, the House went along, with many members saying they needed to deliver a major legislative “win” going into the 2018 midterm elections.
“This was an enormous step in the direction towards getting comprehensive tax reform and tax cuts for middle-class families over the line, into law, done,” said House Speaker Paul Ryan, R-Wis.
Still, 20 Republicans voted against it Thursday, along with every Democrat in the House.
A key provision of the budget is “reconciliation” language that prevents Democrats in the Senate from using a filibuster against a tax bill, which would require 60 votes to overcome. Instead, Republicans, who hold 52 Senate seats, will need only 50 votes and the support of Vice President Pence to pass the tax bill.
But the tax bill has still not been released, and differences on many details remain, meaning final passage remains uncertain.
Supporters say they believe tax cuts will spur economic growth that will offset some of the lost revenue from lower rates. But Sen. Bob Corker, R-Tenn., has said he would not support a plan that significantly increased the debt, and he believes Congress needs to do the hard work of ending deductions and loopholes to pay for lower rates.
Democrats have also used early analyses showing the bulk of the benefits from the tax plan going to those at the top of the income scale to try to turn public opinion against it. Republicans have countered that the final plan would benefit the middle class, though officials have struggled to actually define that term.
A tax framework released in September called for shrinking the number of income tax brackets from seven to three, nearly doubling the standard deduction while eliminating personal exemptions, increasing the child tax credit, and ending most itemized deductions, except those for mortgage interest and charitable contributions. The plan would eliminate the estate tax, which is only charged on estates worth more than $5 million, and the Alternative Minimum Tax, overwhelmingly paid by the wealthy.
Republicans have rejected rhetoric that characterized the plan as a giveaway to the rich, saying the final details would show how families across the country would benefit.
Corporations would see the top tax rate drop from 35% to 20%, and “pass-through” businesses, whose owners report their income on personal returns rather than corporate returns, would get a new maximum 25% rate.
But major questions remain unanswered, including the income levels that would qualify for the new tax brackets of 12%, 25% and 35% and exactly what deductions would survive.
Rep. Kevin Brady, R-Texas, chairman of the Ways and Means Committee, said a tax bill would be released Nov. 1, and the committee would begin to consider it Nov. 6, raising the possibility of a House vote before Thanksgiving.
“We are ready to deliver tax relief that improves the lives of middle-income Americans and struggling families who have been left behind in our slow-growing economy,” he said.
Battles are expected over how to write restrictions that prevent wealthy people from classifying their income as being from their own business and therefore getting the top rate of 25% instead of the 35% for individuals.
Ryan also said last week that the House plan would include a fourth rate higher than 35% to ensure the wealthiest paid their fair share, though he did not say what that rate would be or what income levels it would affect.
Lawmakers from high-tax states such as New York, New Jersey and California have been battling to preserve the deduction for state and local taxes. But eliminating it, as the September framework envisioned, would provide an estimated $1.3 trillion over 10 years that could offset lowering rates.
Of the 20 Republican votes against the budget, 11 were from New York and New Jersey.
Asked whether a tax code that eliminated the deduction was a death warrant for Republicans from those states, Rep. Tom MacArthur, R-N.J., said that was a “legitimate risk.”
“If you want nobody but Democrats to represent these states, then make it impossible for a Republican to win. But again, my focus is not on that; it’s on my constituents and making sure they get a fair deal here,” said MacArthur, who voted for the budget Oct. 5 but against it Thursday and has been meeting regularly with leaders to try to protect the deduction.
But conservative groups have been working to build public support for the tax bill, with some even funding television ads in districts such as MacArthur’s.
“The GOP framework was right to call for the elimination of the state and local tax deduction,” said Michael Needham, chief executive of Heritage Action. “SALT is bad policy, and Congress should not allow low-tax states to subsidize reckless, big-government tax-and-spend policies in liberal states.”
New Jersey and New York lawmakers have repeatedly challenged that point by pointing to studies that show their states get less back from every dollar they pay to Washington than nearly every other state.
To emphasize the issue, New Jersey Reps. Josh Gottheimer, a Democrat, and Leonard Lance, a Republican, held a joint news conference to announce what they call the “anti-moocher bill,” which would provide tax credits for people whose states get less funding from the government than their states pay in aggregate.
“Why should Alabama get our federal tax dollars and get a free ride when New Jersey’s left holding the bag with higher property taxes?” Gottheimer said.
Brady told reporters Wednesday that he believes a deal could be reached to protect some of the deduction for property taxes, but he did not mention the deduction for state income taxes.
Corporations would see the top tax rate drop from 35% to 20%.