Tax Re­form Will Die In Se­nate

The Bond Buyer - - Front Page - By Brian tu­multy

WASH­ING­TON – The Se­nate won’t vote any­time this year on the Tax Re­form 2.0 leg­is­la­tion that House Repub­li­cans are hop­ing to pass this month be­cause Se­nate Repub­li­cans know it has no chance of pas­sage in their cham­ber.

The pro­posed leg­is­la­tion would make per­ma­nent the $10,000 cap on the fed­eral de­duc­tion for state and lo­cal taxes.

The Govern­ment Fi­nance Of­fi­cer As­so­ci­a­tion op­poses a per­ma­nent ex­ten­sion. Emily Brock, di­rec­tor of the fed­eral li­ai­son of­fice of GFOA, de­scribed the pro­posal as a “short-sighted mis­take” that would “un­duly bur­den state and lo­cal govern­ment” in their abil­ity to fi­nance in­fra­struc­ture and pub­lic safety.

Pas­sage in the Se­nate would re­quire a 60-vote su­per­ma­jor­ity be­cause the leg­is­la­tion would add to the al­ready bur­geon­ing fed­eral deficit. Repub­li­cans hold only a 51-49 ma­jor­ity in the Se­nate and none of the Democrats are ex­pected to sup­port the leg­is­la­tion.

“Mak­ing th­ese pro­vi­sions per­ma­nent would cost roughly $650 bil­lion over 2019 to 2028, ac­cord­ing to the Joint Tax Com­mit­tee,” Robert Green­stein, pres­i­dent of the lib­eral-lean­ing Cen­ter on Bud­get and Pol­icy Pri­or­i­ties, said in a press state­ment. “Large as it is, this es­ti­mate sig­nif­i­cantly un­der­states the long-term cost be­cause the bill largely af­fects only the fi­nal three years of the 2019-2028 ‘bud­get win­dow.’”

Green­stein’s or­ga­ni­za­tion es­ti­mates the 10year cost would be $2.9 tril­lion in ad­di­tional deficits from 2026-2035.

Repub­li­cans on the House Ways and Means Com­mit­tee plan to vote Thurs­day for leg­is­la­tion that would make per­ma­nent all the lower in­di­vid­ual tax rates and higher in­come thresh­olds that were part of the Tax Cuts and Jobs Act and are sched­uled to ex­pire in De­cem­ber 2025.

The Pro­tect­ing Fam­ily and Small Busi­ness Tax Cuts Act of 2018 (H.R. 6760) also would per­ma­nently raise the thresh­old for the al­ter­na­tive min­i­mum tax to $109,400 for cou­ples and $70,300 for sin­gles with a phase-out of $1 mil­lion for cou­ples and $500,000 for sin­gles.

Higher AMT thresh­olds will have some im­pact on the mu­nic­i­pal bond mar­ket, mak­ing pri­vate ac­tiv­ity bonds at­trac­tive to more in­vestors. The tax pro­vi­sions en­acted in De­cem­ber that hit the mu­nic­i­pal mar­ket the hard­est were the halt to ad­vance re­fund­ings af­ter 2017, which took away a big chunk of the mar­ket and hurt is­suers, and the re­duc­tion of the cor­po­rate tax rate to 21%, which made mu­nis less at­trac­tive to banks and other in­vestors.

Two other re­lated bills to be con­sid­ered Thurs­day by the com­mit­tee would pro­vide in­cen­tives for fam­ily sav­ings and busi­ness in­no­va­tion.

“There is no chance that the Se­nate this year will pass -- or even de­bate -- a bill to make the TCJA’s in­di­vid­ual tax cuts per­ma­nent,” Howard Gleck­man, a res­i­dent fel­low at the Tax Pol­icy Cen­ter, said Tues­day. “But House GOP lead­ers did not in­tro­duce this bill to make a new law. It is merely a mes­sage bill for the Novem­ber elec­tions.”

Repub­li­cans are hop­ing that an election mes­sage on mak­ing the tax cuts per­ma­nent will help them re­tain their ma­jori­ties in the House and Se­nate.

No Demo­crat in ei­ther the House or the Se­nate voted for the tax re­form leg­is­la­tion last De­cem­ber.

A spokesman for Se­nate Repub­li­can Ma­jor­ity Leader Mitch McCon­nell, R-Ky., said Tues­day that the sen­a­tor’s po­si­tion hasn’t changed from pre­vi­ous state­ments in which he’s pointed out that mak­ing the tax leg­is­la­tion per­ma­nent re­quires Demo­cratic sup­port.

“It would take 60 votes to make them per­ma­nent be­cause, as you know, we use bud­get rec­on­cil­i­a­tion be­cause we have no Demo­cratic sup­port,” McCon­nell said at a Politico break­fast in June. “If the Democrats are now on board for mak­ing every­thing per­ma­nent and I knew we had 60 votes, then I’d go to it.”

Bud­get rec­on­cil­i­a­tion was the par­lia­men­tary pro­ce­dure used in the Se­nate to pass tax re­form in late 2017. It re­quires pas­sage of a bud­get res­o­lu­tion in the House and in the Se­nate that al­lows pas­sage of a bill that would in­crease the deficit. ◽

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