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Brady Preps for Changes to House Tax Bill

Posted on November 6, 2017 by Dylan F. Moroses, David van den Berg

With Senate Republican taxwriters signaling concern about some provisions included in the House tax bill, House Ways and Means Committee Chair Kevin Brady, R-Texas, said November 3 that many of those items would be “fine-tuned” through the legislative process, incorporating input from the Senate and outside stakeholders.

If the Senate and House produce different tax bills, that’s ultimately “healthy” and “a part of the process,” Brady said at a public Politico interview.

“I think the Senate will take some different paths to hit that target" of the tax reform framework. "The goal is to reconcile this at the end, and their challenge of course is to move that through the Senate. . . . I also am hopeful as we mark it up through committee next week, as we see where there are areas we can improve, we throw in a lot of new stuff on the international side, on the small business passthrough side, on interest deductibility.”

The Ways and Means Committee has scheduled a markup of the Tax Cuts and Jobs Act (H.R. 1) on November 6. Brady said he expects the markup to be finished by November 9, leaving House taxwriters four days to debate the bill.

Some of the more controversial provisions, including anti-base erosion measures for transitioning to a territorial international tax system, incentives for purchasing homes, deductibility of state and local taxes, proposed guardrails for passthroughs to separate business and wage income, and the retroactivity of some policies were among the items that Brady highlighted are up for discussion.

Briefly explaining reasons behind the base erosion measures in the bill, Brady said the language was a result of having to set aside the controversial border-adjustable tax, which he described as a simpler approach, and he expects changes will be made throughout the process, including during an eventual conference between the House and Senate. "We expect a lot of input and feedback from industry on that. That’s a good thing. We need to have a level playing field. That’s one of those areas that I think we’ll continue working on through conference.”

Brady explained that the reason to reduce the cap on the deductibility of home mortgages from $1 million to $500,000 was to “drive that benefit toward the middle class.”

That half-a-million-dollar mortgage I think covers 90 percent plus of Americans. We thought fresh about every part of the tax code and how it works today, because these deductions really focus on the upper income or more,” Brady said. He added that eliminating the deductibility of home mortgage interest on second homes is another area to discuss.

Brady acknowledged that the bill contains a 6 percent surcharge or “bubble rate” on individual income between $1 million and $1.2 million. “It was done to try and drive more middle-class tax relief earlier in those rates where we really do well. So, there is a portion that has a bubble rate, but to finish the sentence: the Reagan reforms were about the rates; we’re about clearing out underneath the rates.”

Brady argued that high-income households would see relief because “much of [it] comes from their investments in passthroughs and corporations. Compensation tends to change in those households. So you’re seeing tax relief related to growth and investment, which is again what we want to reward in this.”

With several House and Senate Republicans interested in adding the repeal of the Affordable Care Act’s individual mandate to the tax bill, Brady warned about including the provision. “We’ve asked for an updated score [recently]. There are pros and cons to this; importing healthcare into a tax reform debate has consequences. Especially one where the Senate has yet to produce 50 votes on anything related to healthcare that I am aware of. No decisions have been made. We’re listening to the members and certainly the president as well,” Brady said.

Chair’s Mark Unveiled

The House Ways and Means Committee released a chair’s mark November 3 with several technical fixes to the original bill.

According to a Joint Committee on Taxation summary of the amendment, changes to the effective date for indexing some inflation-adjusted dollar amounts that use chained CPI from beginning in 2023 to 2018 were eliminated, as well as a provision preventing some multinational groups from applying for treaty benefits to deductible payments. Those changes result in the updated legislation increasing the deficit by $1.41 trillion over a decade, about $90 billion less than the budget allows and $70 billion less than the initial bill, according to a JCT estimate.

In a statement accompanying the chair’s mark, Brady said, “This substitute amendment contains technical changes and additional modifications to the introduced bill. It also makes a change to conform the bill with the budget instruction and removes a provision that would have possibly jeopardized privilege of the bill in the Senate. At the start of our markup on Monday, I will also offer an additional amendment making more substantive improvements to the bill.” 

During the Politico event Brady said that any changes beyond the chair’s mark to H.R. 1 would occur during committee markup, and no amendments would be offered when the bill reaches the House floor. “There’s nothing like changing the biggest economy on the planet, changing the tax code in front of the world, to see really bad things happen, and so, the work will be done in the committee, before we take it to the Rules Committee, and then in the conference,” Brady said.

Brady said he has been working with committee ranking minority member Richard E. Neal, D-Mass., to develop a schedule for the markup so it progresses during normal business hours across several days to give both Republicans and Democrats ample time to offer and debate amendments. 

‘Significant Differences’ in Senate

The Senate Republican tax bill will likely differ in several key ways compared to the just-released House version, Finance Committee member Patrick J. Toomey, R-Pa., told reporters on a press call November 3.

“We are . . . meeting several times a day every day to finalize the last remaining features of our bill,” Toomey said. “Many of the big headline features in the House bill will be similar in the Senate bill but there will also be quite a number of significant differences. And I’m not going to go through itemizing those yet. Many are not finalized yet.”

Senate taxwriters are “still wrestling with” how they can afford to make the proposed corporate rate reduction to 20 percent permanent, Toomey said. There are other issues to resolve too, he said.

“On the Senate side, we’re still discussing exactly the mechanism we want to use regarding passthroughs,” he said. “We do want to keep it as simple as possible but we also want it to work. We don’t want it to be abused.”

The Senate bill will share goals with the House measure like simplification for individual taxpayers and business and individual rate reductions but may implement them differently, Toomey said. He said he thinks those differences can be sorted out, but that senators won’t simply review the House measure item-by-item and make changes as needed to meet reconciliation rules.

“Instead what we’re saying is we’ve got the same macro goals. We’ve got the same big-picture objectives,” he said. “How do we achieve it in a way that is compliant with the Byrd rule in the Senate?”

Toomey said he hopes the committee will release its bill toward the end of the week of November 6, but the more important goal is to send a bill to President Trump’s desk by year’s end.

Follow Dylan Moroses (@DMoroses3244) and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.