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Finance Debates Modified Tax Bill as GOP Senator Signals Opposition

Posted on November 16, 2017 by Stephen K. Cooper, Dylan F. Moroses

The Senate Finance Committee turned its attention to the newly modified version of its Tax Cuts and Jobs Act during the third day of its markup November 15, but the changes to the measure were not enough to pull in the support of one GOP senator who announced his opposition to the bill.

Finance Committee Chair Orrin G. Hatch, R-Utah, unveiled his updated chair’s mark late November 14 that would eliminate the penalty under the Affordable Care Act's individual healthcare mandate and set an expiration date on almost all the individual tax provisions while making the 20 percent corporate tax rate permanent, among other changes. The modifications, described by the Joint Committee on Taxation (JCX-56-17), were largely intended to address senators’ concerns about the bill as originally introduced while also bringing it into compliance with the Senate’s Byrd rule, which prohibits reconciliation legislation from adding to the deficit beyond the 10-year budget window.

Hatch and other committee Republicans characterized the modifications as important but not “sea changes.” But committee Democrats, led by ranking minority member Ron Wyden, D-Ore., charged that Hatch had changed the tax bill into a healthcare measure that would result in cuts to Medicaid spending and leave millions uninsured.

Democrats pointed to the latest JCT estimate (JCX-57-17) of the Senate tax bill in arguing that eliminating the individual mandate penalty would generate $318 billion and that those revenues would be used to permanently lower corporate rates while individual rate cuts would expire in 2025, thereby setting up a fiscal cliff of tax cuts addressed by a future Congress.

Finance member Patrick J. Toomey, R-Pa., said he “would probably support” a free-standing amendment to waive a budget point of order and make the individual side of the bill permanent, and he suggested the idea to Wyden.

Wyden said he would offer such an amendment, though it was unclear if it would include additional stipulations. At press time, the committee had begun taking up other amendments to the bill, but Hatch said the Wyden amendment would be offered on the Senate floor, not in the Finance Committee.

Hatch said he expected the committee to wrap up its work on November 16, but that amendments from Democrats could push the markup to November 17.

Sen. Claire McCaskill, D-Mo., suggested that Senate Republicans intend to conduct a closed-door conference with their House counterparts on the tax bill the week of November 20. The result of that conference would then be voted on by the full Senate rather than Hatch’s modified chair’s mark, she said. The House is expected to vote on its tax bill November 16.

Other individual changes in the modified mark include a doubling of the available child tax credit to $2,000 and a reduction in the rates for three of the individual income tax brackets. Those rates would drop from 32.5 percent to 32 percent; from 25 percent to 24 percent; and from 22.5 percent to 22 percent.

Johnson's Opposition

The modified chair’s mark also would change provisions related to the taxation of passthrough businesses. The cap on the exemption for the W-2 wage limitation would be raised to $500,000 for married couple ($250,000 for individuals), and the 17.4 percent deduction would be available to service passthroughs for taxpayers at those levels.

Those changes were enough to win the support of the National Federation of Independent Business, but not enough for Sen. Ron Johnson, R-Wis., who announced his opposition to the bill in a November 15 statement.

Johnson complained that under the Senate bill, corporations would see bigger benefits than would smaller passthrough entities. “These businesses truly are the engines of innovation and job creation throughout our economy, and they should not be left behind,” Johnson said. “[I] look forward to working with my colleagues to address the disparity so I can support the final version.”

Other business-related changes in the chair’s mark include allowing qualified films, television programming, and live theatrical productions to qualify for the temporary 100 percent bonus depreciation under section 168(k). To qualify, the initial release of the film, initial broadcast of the television program, or first live performance must fall between September 27, 2017, and January 1, 2023.

There are also two changes to the net operating loss limitation from the initial bill. First, the chair’s mark would add a later, lower limitation of 80 percent of taxable income for tax years beginning in 2024 and later. The initial bill would have capped the NOL deduction at 90 percent of taxable income for tax years beginning after December 31, 2017. The chair’s mark would not change the repeal of NOL carrybacks.

However, the chair’s mark would fully exclude property and casualty insurers from the NOL limitations in the Senate bill. Thus, only those taxpayers would still be allowed deductions up to the full amount of their taxable income in any year and to carry deductions back up to two years, and would be limited to carrying deductions forward up to 20 years.

Mandate Objections

Much of the committee’s debate centered on Republicans’ rebuttal of Democrats’ assertions regarding individual mandate repeal.

Finance committee member Bill Cassidy, R-La., argued that the individual mandate falls mostly on taxpayers with incomes of $50,000 or less and had no impact on increasing insurance coverage for that group of Americans. Senate Majority Whip John Cornyn, R-Texas, said that eliminating the mandate would provide a tax cut for Americans earning less than $25,000, who could use the money to go on vacation or take their families out to dinner.

“Just to maintain some perspective, nothing in our bill would keep eligible individuals from receiving premium tax credits to pay for coverage,” Hatch said in his opening statement, adding that taxpayers would still be eligible for Medicaid or employer-sponsored insurance.

Other senators also expressed concern about the impact of eliminating the mandate.

“I think it gravely complicates our efforts, to combine tax reform and changes in the ACA, particularly taking an isolated provision of the ACA,” Sen. Susan Collins, R-Maine, told reporters, noting she still had not decided whether she will support the tax bill.

Suspending Pay-Go Rules

Democrats, relying on a recent letter from Congressional Budget Office Director Keith Hall, have charged that if Congress does not waive the statutory “pay as you go” rules after passing a $1.5 trillion tax cut, the resulting budget sequestration for fiscal 2018 would cut Medicare payments to doctors by roughly $25 billion and eliminate funding for all other nonexempt programs.

“If there is a deficit, and there very well could be, Congress will have to work its will,” Hatch said in response to questions from Sen. Sherrod Brown, D-Ohio, about whether the GOP tax bill will result in a future Congress making cuts in federal spending on domestic priorities.

Sen. Chris Van Hollen, D-Md., sent a letter to House Freedom Caucus Chair Mark Meadows, R-N.C., asking if his group would set aside their commitment to “tackling the deficit or if they plan to use statutory pay-go to attack programs for middle-class families.”

Nathan J. Richman contributed to this article.

Follow Stephen K. Cooper (@ScoopOnTaxes) and Dylan F. Moroses (@DMoroses3244) on Twitter for real-time updates.