By Richard Rubin
WASHINGTON -- Republicans are powering tax overhaul plans
through Congress with remarkable speed, having departed town for a
Thanksgiving recess after important victories in the Senate and
House.
In late October, they had no public bill text for their rewrite
of business and individual taxes and were mired in messy debates
about limiting tax benefits for 401(k) plans. Now they have a House
vote with a comfortable margin, a Senate plan that moved through
committee and fresh momentum to finish before Christmas.
Republicans' pedal-to-the-metal pace is driven in part by
political necessity. They are looking for an economic policy
victory after having failed to overturn the Affordable Care Act as
previously promised. Primary election campaigns will crank up soon
after the new year starts and midterm elections aren't far off.
With this week's legislative wins they stand a chance to finish a
tax rewrite before a new senator is seated from Alabama to succeed
Luther Strange, who took the seat vacated by Attorney General Jeff
Sessions.
There are still roadblocks, especially in the Senate, where
concerns about business taxes, health care and deficits could slow
them down or even derail the effort. They don't have 50 votes
locked down yet. But close watchers of the legislation caution
against underestimating Republicans' motivation to finish the tax
bill very soon.
"There's a chance that it happens even more quickly than people
think," said Rohit Kumar, a former Senate GOP aide now at PwC
LLP.
To get this far, Republicans have been flexible, setting aside
their ideal proposals in favor of what is doable. The Senate plan,
in particular, pushed aside several planks of the framework that
party leaders wrote in late September. Unlike the framework, the
Senate plan has seven individual tax brackets instead of four, a
32% top rate on businesses that don't pay the corporate tax instead
of 25% and a doubled estate tax exemption instead of full
repeal.
Republicans have benefited from their decision to move along the
spectrum from "tax reform" toward "tax cuts" and create a net tax
reduction of nearly $1.5 trillion. That cushion means that most
households would get tax cuts, at least in the early years of the
plan.
Even with that leeway, Republicans committed themselves to
removing tax breaks and there are trillions of dollars of tax
increases embedded in the bills. Some of those higher taxes are
canceled out by the tax cuts, but the proposal still creates
multitudes of winners and losers.
House members voted to raise taxes on 1 of every 12 households,
a number that would rise to 1 in 5 by 2027. They voted to repeal or
limit tax provisions that once seemed untouchable, like the
deduction for medical expenses often used by nursing home
residents, the capital-gains break for home sales, and the
deduction for casualty and theft losses used by people whose homes
are destroyed in fires and disasters.
The Senate proposal would repeal the individual mandate to have
health insurance, set individual tax cuts to expire after 2025 and
make a corporate tax rate cut permanent. Some of those decisions
were driven by the budgetary procedures Republicans are using. As a
result, in the Senate bill, there would be tax increases for all
income groups below $75,000 in 2027, though Republicans say future
Congresses would prevent that from happening.
To Democrats and their allies, the tax bill's speed is a
maddening mess that is likely to lead to errors and unintended
loopholes.
But they also see the GOP policies fitting more perfectly in
their TV ads and sound bites than they had ever imagined.
"I never would have thought that they would do something so
brazen and politically explosive as raising taxes on all
individuals and undermining the health-care system to pay for
corporate tax cuts," said Seth Hanlon, a senior fellow at the
Center for American Progress, a Democratic-aligned policy group.
"It's the most toxic, radioactive thing I can think of."
Democrats complain, accurately, that the specific language of
the tax bills hasn't been vetted through public hearings or through
outside tax lawyers spending months finding potential problems.
Republicans respond, also accurately, that they have held dozens
of hearings about their ideas over the past few years.
Although these particular bills are moving quickly, Republican
leaders have been preparing rank-and-file members for tax votes for
years, said Sage Eastman, a former Ways and Means Committee
aide.
"A lot of these politically tough provisions have been out there
now for years," he said. "So we've gotten used to saying this is
what it takes to get lower rates. Folks have been desensitized to
the individual [pieces] and taught to look at it as a holistic
document."
Republicans are, at least for now, moving more efficiently than
they did on health care earlier this year, which saw several false
starts and eventually fell apart.
"Repealing entitlements is something Republicans spend a lot of
time talking about but they don't have a lot history doing," Mr.
Kumar said. "This is more of their happy place."
The remaining trouble spots are clear in the Senate, where
Republicans can lose only two votes if Democrats hold together in
opposition, as seems likely.
Sen. Ron Johnson (R., Wis.) says he opposes the current bill
because it does too little for pass through businesses such as
limited liability companies and partnerships. He says he wants to
work toward a solution. Sens. Susan Collins (R., Maine) and Lisa
Murkowski (R., Alaska) have sounded wary about including the
individual mandate repeal, which is projected to increase health
insurance premiums.
Sens. Jeff Flake (R., Ariz) and Bob Corker (R., Tenn.) have
expressed concerns about the budget deficits caused by the tax
bill.
Republican senators said late Thursday as the Finance Committee
finished its work that they were continuing to address pass-through
business issues.
"We still have quite a bit of work to do," said Sen. John Cornyn
(R., Texas), the second-ranking Republican in the Senate.
Lawmakers left Washington and won't be back until Nov. 27.
Expect a sprint to the finish that will last for roughly four
weeks.
"This could all still crumble and come to nothing. But even the
most hardened tax reform skeptic at this point has to acknowledge
that this could happen," said John Gimigliano of KPMG LLP. "They
really want to pass something."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
November 17, 2017 17:46 ET (22:46 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.