[Editor's Note: This article was updated at 12:47 am on December 20, 2017, to reflect Senate passage of the bill.]
The House will have to vote on the conference report to the Tax Cuts and Jobs Act (H.R. 1) a second time, after its first successful passage on a 227-203 vote was mooted December 19 because parliamentary rules in the Senate forced Republicans to strike three provisions from the bill. The Senate early December 20 passed the legislation on a 51-48 vote, sending it back to the House without those three provisions.
The Senate parliamentarian ruled that three provisions, including the bill’s title, violate the Senate’s Byrd rule, which among other things prohibits the tax overhaul package from losing revenue outside the budget window. The other two provisions allow the use of section 529 savings accounts for home-schooling expenses and set standards for determining whether private universities’ endowments will face an excise tax, according to Sens. Ron Wyden, D-Ore., and Bernie Sanders, I-Vt., ranking minority members of the Senate Finance and Budget committees, respectively.
A motion to waive a budget point of order against those three provisions fell on a 51-48 vote. Sixty votes were required to retain the provisions.
Before that vote, Wyden criticized “the pure partisanship and the recklessness of the process that went into drafting” the GOP tax legislation. He said December 19 on the Senate floor that “passing this bill guarantees years and years of instability in our tax code and painful, drawn out battles over tax policy here in the Congress.”
Wyden and Sanders had been successful in preventing the removal of the Johnson amendment that prohibits churches from engaging in political activity, a provision that escaped inclusion in the House and Senate Republicans’ final compromise tax package.
The office of House Majority Leader Kevin McCarthy, R-Calif., announced December 19 it expected the House to pass the tax bill again the morning of December 20, this time without the three offending provisions to ensure both chambers pass the same legislation.
White House press secretary Sarah Sanders confirmed December 19 that Trump intends to sign the tax bill because it meets all his requirements, but deflected questions about how much it would benefit him personally. During the press conference, Sanders maintained that the president would “likely take a big hit” on the personal side, but acknowledged that “he could benefit” from business tax changes.
Asked why Trump didn’t insist on repealing the carried interest loophole, Sanders responded that the administration’s focus all along has been on helping middle-income Americans, and reiterated that the bill meets that benchmark.
During the first House vote on the conference report, 12 non-taxwriting House Republicans voted against the conference report. Nine are from New Jersey or New York, including House Appropriations Committee Chair Rodney P. Frelinghuysen of New Jersey, and two are from California. Two Democrats didn’t vote, and none voted in favor of the conference report.
The $1.46 trillion GOP tax bill, which cuts corporate tax rates to 21 percent from 35 percent and zeroes out the tax penalty for the Affordable Care Act’s individual mandate, has been the subject of intense negotiation among Republicans over the last month.
“This is one of the most important pieces of legislation that Congress has passed in decades to help the American worker, to help grow the American economy,” House Speaker Paul D. Ryan, R-Wis., said at a press briefing after the House vote.
House Minority Whip Steny Hoyer, D-Md., blasted the tax legislation in floor remarks before the vote.
“It is a tax giveaway to those who don’t need our help, paid for by those who do,” he said. “This is reckless and dangerous deficit spending at its worst.”
JCT Models Distributional Changes
The Joint Committee on Taxation estimates that those in the income range from $20,000 to $30,000 would see the greatest change in taxes in 2019 — a decrease of 13.5 percent — according to a December 18 analysis of the distributional effects of the conference report. That income group would pay an average tax rate of 3.4 percent compared with 3.9 percent under current law.
But starting in 2021, the next year that the JCT modeled, the $20,000 to $30,000 income group would see the greatest increase in taxes from present law. That group’s increase would be 26.6 percent in 2027, when they would pay an average tax rate of 5.1 percent as opposed to 4.1 percent under current law.
Those making $200,000 to $1 million would see a decrease of about 9 percent in taxes in 2019 and a decrease of nearly 1 percent in 2027. In 2019 the $200,000 to $500,000 income group would pay 23.9 percent compared with 26.4 percent under current law, while the $500,000 to $1,000,000 group would pay 27.8 percent, a reduction of 3.1 percent from the current rate. In 2027 the former group would pay 26.4 percent compared with 26.6 percent under current law, and the latter group would pay 30.5 percent compared with 30.8 percent under current law.
Challenges Facing the IRS
Once Trump signs the tax overhaul package into law, the IRS will have to implement it. Ways and Means Oversight Subcommittee Chair Vern Buchanan, R-Fla., told Tax Analysts that Treasury is working with the IRS to ensure it has sufficient resources to implement the measure, and that lawmakers will, too.
“They’re going to need — I’ve heard — about $500 million,” Buchanan said. “We’re working with them to make sure they’ve got what they need.”
Sarah Sanders said the IRS is already “fully prepared to take action immediately” to implement the tax bill. Speaking shortly after the House vote, she added that the White House has confirmed with the IRS that withholding tables will be adjusted to the new tax regime by early February.
Ways and Means member Lloyd Doggett, D-Texas, however, contended the IRS is not adequately staffed and resourced to implement the bill.
“Given the way this bill has been written, with so little participation not just from Democrats but from any tax experts, there are just so many provisions that have to be evaluated in terms of their effect and their interplay with other sections of the code,” Doggett told Tax Analysts. “So I think it’s [a] big job for the IRS, a big job for tax advisers across the country, and a real job creator for tax attorneys and CPAs.”
Observers’ concerns about the tax bill have included the creation of international tax rulesthat are more complicated than current law and the base erosion conflict with WTO rules and income tax treaties. And a group of practitioners and tax professors released a studyDecember 7 that said lowering the corporate rate to 20 percent could cause taxpayers to use the corporate form as a tax-sheltered vehicle if antiabuse provisions are not included. The corporate rate was increased to 21 percent in the conference report.
More Legislation Ahead
Trump signing the Tax Cuts and Jobs Act into law won’t likely be the end of tax legislation in Congress.
House Ways and Means Committee Chair Kevin Brady, R-Texas, who also chaired the tax conference committee, told reporters December 18 he expects more tax reform measures, adding that provisions taken out of the Tax Cuts and Jobs Act could return in future legislation.
Brady is also expecting a technical corrections bill to the tax overhaul package, but Democrats have said they’re in no mood to participate.
Jonathan Curry and Zoe Sagalow contributed to this article.
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