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Bill's winners seem clear, but losers are largely unknown.

Bloomberg, Content provider

November 1, 2017

7 Min Read
U.S. Rep. Kevin Brady (R-TX) holds up a tax filing "postcard" as Speaker of the House Rep. Paul Ryan (R-WI) looks on during a press event on tax reform.Alex Wong/GettyImages

by Sahil Kapur

House tax writers pushed back the reveal of their highly guarded, long awaited tax bill by a day, a sign that disputes among Republican lawmakers are threatening their effort to pass comprehensive legislation by Thanksgiving.

If the bill is released Thursday, one day later than planned, GOP leaders will have just 10 official legislative days before the holiday to do nothing short of rewiring the U.S. economic engine. To succeed, they must gain the support of a caucus that’s grumbling about being left in the dark, avoid lobbyists’ attempts to sidetrack the bill and win House passage on the sort of timetable that’s usually reserved for emergency legislation. 

For Republicans, who failed to deliver on promises to repeal and replace Obamacare earlier this year, it may already be an emergency. A chaotic, confusing day of meetings and conflicting statements on Tuesday reflected both hope and anxiety, and raised questions about the prospects for swift passage. 

Internal GOP strife and frustration led to the delay, according to a former House aide who’s familiar with the deliberations. Pushing back the rollout -- even just a day -- makes it more likely Republicans will end up passing simple tax cuts instead of a tax code revamp, said the former aide who asked not to be named because the discussions were private. 

House leaders and White House officials sought to downplay the delay, saying speedy passage is still possible. But once a bill drops, the task may become vastly more difficult.

“All hell’s going to break loose,” said Senator John Kennedy, a Louisiana Republican. “This is going to have plenty of cheesecake. But it’s going to have plenty of spinach. This is broadening base and lowering rates.”

Should lawmakers settle for simple cuts to individual and corporate rates -- measures that would almost certainly have to be temporary under congressional budget rules -- they’ll fall short of what GOP leaders and the Trump administration have promised: a once-in-a-generation permanent overhaul of the U.S. tax code, similar to what happened in 1986 under former President Ronald Reagan. 

Still, House Ways and Means Chairman Kevin Brady said he was pleased with the progress committee members had made, and his panel remained on schedule to take action and approve a bill beginning next week.

SALT Issues

GOP lawmakers and tax lobbyists remained confused late Tuesday about key portions of the bill that were the subject of 11th hour negotiations. Among the uncertainties were the status of changes to tax-deferred retirement savings accounts, the state and local deduction for individuals, the fate of the estate tax and the schedule for cutting the corporate tax rate from 35% to 20%. 

Representatives of conservative interest groups left a meeting with House Speaker Paul Ryan on Tuesday afternoon offering conflicting views on how quickly the 20% corporate rate would be achieved. 

Even an announcement of the bill’s release was muddled; the White House released a statement saying the delay was no big deal before Brady announced the delay. Brady, a Texas Republican, said tax writers would work through the night Tuesday.

Over the weekend, Brady had bowed to Republican members from high-tax states including New York and New Jersey and agreed to preserve a federal tax break for state and local property-tax payments. But some Republicans -- including Representative Elise Stefanik of New York, Representative Frank LoBiondo of New Jersey and Representative Leonard Lance of New Jersey -- said Tuesday evening they weren’t yet satisfied.

Retaining the property tax deduction is “moving in the right direction but there are still issues that need to be addressed," Stefanik said.

Representative Peter King of New York questioned “how serious” party leaders were in winning over lawmakers in high-tax states with a broad compromise on SALT. Asked if he felt reassured by what he had heard, he replied, “Not really.” 

One of the decisions House writers are said to have finally made -- to keep the top individual income tax rate at 39.6% for those with adjusted gross incomes of about $1 million -- could be met with resistance from conservative Republicans who want to cut rates for all taxpayers.

‘Bigger Picture’

Some of the winners of the eventual bill seem clear -- corporations would get a tax cut, and many partnerships and closely-held businesses would pay a reduced rate of 25%. But the losers are largely still unknown -- the “special interests” whose tax deductions, credits and other breaks would be reduced or eliminated. Such changes are crucial to limiting the bill’s deficit impact to just $1.5 trillion over 10 years, the amount required by the GOP budget.

Once the losers are revealed, their lobbyists and allies will mount an intense campaign to protect them.

“That means some people are going to be unhappy. Some interest groups are going to be unhappy,” Kennedy said. “But they’ve got to look at the bigger picture.”

If the legislative calendar and looming lobbying resistance weren’t tough enough, there’s another source of anxiety for House leaders: The Senate plans to operate on a separate track with its own tax bill -- a prospect that could gum up House efforts.

Top House leaders have privately expressed concerns that some House members won’t want to vote for politically difficult measures that the Senate’s bill lacks, said two people familiar with the matter. And conversely, one of the people, a senior GOP aide, said that if House Republicans see provisions in the Senate bill they like, they may demand their inclusion in the House version.

Two Bills

“I think we’ll probably be on somewhat parallel tracks. If we waited for the House to get all the way through with it we’d probably have a hard time” getting it enacted in 2017, Senate Republican Conference Chair John Thune told reporters Tuesday. 

“By the time we start marking up, hopefully they’ll be on the floor,” he said. “We realize there are going to be, perhaps, differences between the two bills. Our members might like things in the House bill and theirs might like things in the Senate bill. But that’s the process.” 

Senator Finance Chair Orrin Hatch intends to release his legislation “in the coming weeks,” said spokeswoman Julie Lawless. “Details will be released when finalized.” 

Other questions remain unanswered about the contents of the House bill, even for GOP lawmakers. Brady said Tuesday that he hadn’t finalized where the individual income tax brackets would be set or how much the Child Tax Credit would be raised. 

Adding to the onslaught will be Democrats, who are gearing up to blast the Republican bill as a tax hike on the middle class, based partly on the GOP call for ending an expensive deduction for state taxes on income and sales, a move that’d mostly hit high-tax states that lean Democratic.

The House Republicans’ bill will “essentially be initiating open warfare on the middle class,” said Senate Minority Leader Chuck Schumer, a New York Democrat. “Their tax plan double-taxes middle class Americans to help pay for tax cuts for the rich.”

Work Holidays

Speaker Paul Ryan, who’s dead set on shepherding a tax rewrite through Congress, met with Trump on Tuesday afternoon. The two Republicans “agreed on the urgency of helping the middle class by enacting historic tax reform by the end of the year,” said Doug Andres, Ryan’s spokesman.

While many obstacles remain, nobody doubts the determination of most Republicans to pass a tax bill this year -- especially after failing to repeal Obamacare, or build a wall on the Mexican border, or advance an infrastructure package. 

“If we need to, we’ll work through Thanksgiving. We’re going to get this done,” Kennedy said. “This business of, well we ran out of time? That dog doesn’t hunt anymore. We’ll work nights. We’ll work weekends. We’ll work holidays.” 

To contact the reporter on this story: Sahil Kapur in Washington at [email protected]

To contact the editors responsible for this story: Alexis Leondis at [email protected]

John Voskuhl

© 2017 Bloomberg L.P

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