House and Senate conferees to the Tax Cuts and Jobs Act (H.R. 1) are scheduled to hold their first open conference committee December 13, and many key questions remain to be answered as the tax reform effort appears to be entering the home stretch.
From the timing of a conference committee agreement to which provisions will be changed to ensure smooth passage, here are four things to watch for as negotiations kick off.
Artificial Deadline Looms
“We are committed to delivering the Tax Cuts and Jobs Act to the president’s desk this year,” House Ways and Means Committee Chair Kevin Brady, R-Texas, said December 8 in announcing the first open conference meeting.
With both chambers of Congress planning to adjourn for the year on December 22, Republicans have just two weeks to reconcile the differences between the Houseand Senate versions of the bill and pass that agreement through both chambers. At the same time, lawmakers will be negotiating a separate funding bill in a race to keep the government open beyond December 22, when the funding expires under a continuing resolution that passed both chambers December 7 and was signed into law by President Trump on December 8.
But much of the heavy lifting could be done before the conference committee formally convenes December 13. Gary Cohn, director of the National Economic Council, told CNBC on December 8 that the conference committee will be “spending the weekend working on taxes, and I think we’ll see an enormous amount of progress over the weekend.”
Cohn’s remarks appeared to add legitimacy to concerns raised by Democrats that GOP leaders would work out major differences in tax policy out of the public eye.
In a letter sent the same day, Senate Democratic conferees asked that the committee hold at least three public conference meetings. They also requested that all members of the conference be allowed to offer amendments and secure roll call votes on all amendments during the public meetings, and that a roll call vote be held on final approval of the conference report.
That process would likely extend conference negotiations longer than Republicans want. Some have said they’d like the bill to be brought to the House floor during the week of December 11; while House Majority Leader Kevin McCarthy, R-Calif., said December 7 that’s unlikely to happen, he added that he could bring the bill up for a floor vote as soon as the conference committee completes its work.
A House staffer previously told Tax Analysts that a conference report could surface early that week and be considered first by the Senate to ensure it complies with reconciliation rules. The House could then vote on the bill as passed by the Senate as early as the end of the week, the staffer said.
Corporate Rate, Other Big Questions Unresolved
The conferees must resolve several differences between the measures, including on key issues like how low to set the corporate tax rate, the fate of the corporate alternative minimum tax, the treatment of passthrough businesses, which base erosion and other international provisions to accept, and whether to repeal the Affordable Care Act’s individual mandate. (Side-by-side comparison of the GOP tax plans.)
The corporate tax rate — and how to use the additional revenue from a potential increase in the rate — could be the most fraught issue facing conferees.
The possibility of raising the corporate tax rate above 20 percent to offset the costs of other changes that lawmakers would like to see to the bill was first broached by Trump just after Senate passed its bill. Since then, many lawmakers and White House officials have weighed in on the possibility of a 22 percent rate.
One Republican tax lobbyist told Tax Analysts that there is a very real chance the corporate tax rate will move to 22 percent. However, that decision is tricky, and in either case some senators will be angry, the lobbyist said.
“It’ll be like putting snakes in a wheelbarrow,” the lobbyist said.
In recent days, lawmakers have suggested several uses for the additional revenue a higher corporate tax rate would yield, including a more generous state and local tax deduction, retention of the medical expense deduction, and expansion of the child tax credit.
Sen. Marco Rubio, R-Fla. — who along with Sen. Mike Lee, R-Utah proposed raising the corporate rate to 22 percent as a way to pay for making their proposed expanded child credit refundable — tweeted December 8 that if the conference report “weakens” the child credit or reduces the corporate rate without making the credit refundable, there will “be problems.”
Retaining Republican Votes
How those issues are resolved will determine whether the bill still pulls in enough Republican support to pass without Democratic votes, especially in the Senate. Sen. Bob Corker, R-Tenn., was the only Senate Republican to vote against the bill December 2, and leaders can only afford to lose one more Republican vote and still ensure passage in the upper chamber.
While Rubio has emphasized the importance of the child credit in the conference report, he has not explicitly threatened to withdraw his support for the bill. But other Republican senators might be inclined to vote against it if the conference report doesn’t meet their expectations. Sens. Jeff Flake, R-Ariz., and Ron Johnson, R-Wis., are among those who negotiated late alterations to the Senate bill in exchange for their vote and who might be unhappy if those changes aren’t retained.
But the tax bill’s most tenuous Senate supporter may be Sen. Susan M. Collins, R-Maine. Collins told WABI-TV, the CBS affiliate in Bangor, on December 7 that she would consider voting against the conference committee report if the changes she negotiated to the bill are not kept. She noted that she would wait to see the conference committee’s product before making up her mind.
In the House, the tax bill lost votes from several Republicans in high-tax states over changes to the state and local tax deduction. Both the House and Senate bills would allow the deduction only for property taxes, and then only up to $10,000. Some Republican lawmakers are pushing to expand the deduction, but it’s unclear whether the bill would lose more votes in the House if those expansions aren’t made.
The Byrd Rule Rules
Whatever changes are ultimately made in conference will need to comply with the Senate’s Byrd rule, which prohibits reconciliation legislation from increasing the deficit beyond the budget window. That rule contributed to several phaseouts and expiration dates being added to the Senate bill, mostly on the individual side, while various other provisions included in the bill fell victim to the rule and were pulled before its passage.
Overall, conferees will be required to keep the 10-year cost of their report below $1.5 trillion — the amount allowed under reconciliation instructions provided in the fiscal 2018 budget resolution.
And Democrats have already said they intend to hold conferees accountable on the cost of the bill. In their December 8 letter, the Senate Democrats requested a complete analysis of the bill from the Congressional Budget Office and the Joint Committee on Taxation before the conference report is finalized, including an analysis of the legislation’s impact on the healthcare system.
“We know that many of us disagree about the merits of policies that would lead to tax increases on the middle class, tax breaks for large corporations and the very wealthy, and the destruction of the pristine Arctic National Wildlife Refuge,” the senators wrote. “But we should all agree that changes of this scale should be done the right way, with a full opportunity for open, public dialogue, and complete information from non-partisan analysts about the bill’s effects.”
David van den Berg contributed to this article.
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