It’s make-or-break week for Trump’s tax cut
Analysis: Senate Republican leaders face a time crunch with the floor vote on bill expected as soon as Thursday.
The US$1.4 trillion item on President Donald Trump’s wish list — a package of tax cuts for businesses and individuals that he has said he wants to sign before year’s end — is headed into the legislative equivalent of a Black Friday scrum next week.
Senate Republican leaders plan a make-or-break floor vote on their bill as soon as Thursday — a dramatic moment that will come only after a marathon debate that could go all night. Democrats are expected to try to delay or derail the measure, and the GOP must hold together at least 50 votes from its thin, 52-vote majority in order to prevail.
Their chances improved this week when Republican Sen. Lisa Murkowski of Alaska said she’ll support repealing the “individual mandate” imposed by Obamacare — a provision that Senate tax writers are counting on to help finance the tax cuts. Murkowski had earlier signalled some reservations about the provision; and her support was widely viewed as a positive sign for the tax bill’s chances.
If the bill clears the Senate, lawmakers in both chambers would have to hammer out a compromise between their differing bills, a process that presents potential pitfalls of its own. For now, though, much of the Senate’s attention will focus on its legislation’s price tag.
Three GOP senators — Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma — have cited concerns about how the measure would affect federal deficits. Independent studies of the legislation have found that — contrary to its backers’ arguments — its tax cuts won’t stimulate enough growth to pay for themselves. Both the Senate bill, and one that cleared the House earlier this month, would reduce federal revenue over a decade by roughly US$1.4 trillion, according to the Joint Committee on Taxation.
On Wednesday, a report from the Penn Wharton Budget Model at the University of Pennsylvania said the bill would reduce federal revenue in each year from 2028 to 2033. That finding would mean it doesn’t comply with a key budget rule that Senate Republican leaders want to use to pass their bill with a simple majority. In essence, that rule holds that any bill approved via that fast-track process can’t add to the deficit outside a 10-year budget window. The JCT has already found that the Senate bill would generate a surplus in its 10th year because it has set several tax breaks for businesses and individuals to expire.
But JCT hasn’t weighed in publicly on the revenue effects in subsequent years. Senate GOP leaders have expressed confidence that their proposal will satisfy the rule.
Another potential stumbling block stems from the fact that Congress is trying to act on complex tax legislation under a tight, self-imposed timeline in order to deliver on promises from Trump, House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell.
For example, Republican Sen. Ron Johnson of Wisconsin has said he can’t support the current Senate bill because it would give corporations a tax advantage — a large rate cut to 20 per cent from 35 per cent — that other, closely held businesses wouldn’t get.
His concern centres on the Senate’s plan for large partnerships, limited liability companies, sole proprietorships and other socalled “pass-through” businesses. Under current law, these businesses simply pass their earnings to their owners, who pay income taxes at their individual rates — currently, as high as 39.6 per cent, depending on how much they earn.
The Senate bill would provide pass-throughs with a 17.4 per cent deduction for income — effectively giving the highest-earners a top tax rate that’s more than 10 percentage points above the proposed corporate tax rate. The House bill would allow owners to pay a 25-per-cent rate on 30 per cent of their business’s earnings — or calculate their amounts based on their income from capital assets.
Reconciling those differences — and addressing Johnson’s concern — may be a complicated process. “That’s part of the equation that could change the most over the next few weeks,” Isaac Boltansky, senior vice-president and policy analyst at Compass Point Research and Trading LLC, told Bloomberg Tax. “No one is planning around it yet. There is uncertainty across the board.”
Meanwhile, the Obamacare issue looms in the background — threatening at least one GOP sena- tor’s vote. Susan Collins of Maine said earlier this week that tax bill “needs work.”
The 2010 Affordable Care Act — also known as Obamacare — had a provision requiring individuals to buy health insurance or pay a federal penalty. Removing that penalty in 2019, as the Senate tax bill proposes to do, would generate an estimated US$318 billion in savings by 2027, according to the Congressional Budget Office. The savings would stem from eliminating the need for federal subsidies.
Because many of the newly uninsured would be younger, healthier people, insurance premiums would rise 10 per cent in most years, the non-partisan fiscal scorekeeper found.