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House Passes Tax Cuts and Jobs Act

Posted on November 17, 2017 by Asha Glover, David van den Berg, Zoe Sagalow

The House on November 16 passed its Tax Cuts and Jobs Act, which includes a reduction in the corporate tax rate to 20 percent, the creation of new lower rates for passthrough businesses, and consolidation of the current seven individual income tax brackets into four.

The House passed the bill (H.R. 1) on a mostly party-line 227-205 vote.

“This country used to be the standard-bearer worldwide for competitive tax systems. Not anymore,” House Ways and Means Committee Chair Kevin Brady, R-Texas, said in his closing remarks on the House floor. “With this historic bill, we will provide real simplicity for every taxpayer. We will deliver real fairness to every hardworking American.”

The bill also would repeal the estate tax for tax years after 2023 while maintaining the basis step-up at death; impose a three-year holding period requirement for gains on a carried interest in an investment or real estate business; and limit the state and local tax deduction by allowing individuals to deduct only up to $10,000 in state and local property taxes.

The latter provision cost House Republicans some votes, as 12 GOP representatives from high-tax states California, New Jersey, and New York voted against the bill. A 13th Republican, Rep. Walter B. Jones of North Carolina, voted against the bill for increasing the national debt. 

“I didn't come to Washington to raise taxes on my constituents and I do not plan to start today,” Rep. Darrell E. Issa, R-Calif., said in a statement. “It's disappointing that the bill approved today will not provide the same tax relief to Californians as it does to the rest of the nation.”

Rep. Peter T. King, R-N.Y., speaking at a briefing with fellow New York Republican Reps. Daniel M. Donovan Jr., John J. Faso, and Lee M. Zeldin, said they are united in their opposition to the bill because of the SALT deduction provision and because it “severely cuts into the property tax deduction.”

House Democrats criticized the bill for its changes to the SALT deduction and for its elimination of tax credits and deductions that they say benefit middle-income Americans, and they argued that the tax bill would increase the deficit. House Minority Leader Nancy Pelosi, D-Calif., speaking on the House floor, called on Republicans to “go back to the drawing board” and work with Democrats on a bipartisan bill.

Pelosi also criticized the Senate’s bill for proposing to repeal the SALT deduction completely, saying at a press briefing that adopting the Senate bill would lead to a greater negative response from House lawmakers. She also called out the California lawmakers willing to vote for the House bill.

“I don’t know what it takes to penetrate the brains of the California Republicans, because they don’t understand that . . . their constituents will be impacted . . . in some cases [by] up to $10,000,” Pelosi said.

Brady suggested that the SALT deduction could still undergo changes. “We continue to work with our high-tax state lawmakers to see how we can continue to find tax relief for those areas as well,” Brady told reporters after the vote. “I pledge that we’ll continue to work together on that.”

Confident About a Conference

The bill’s passage came as the Senate Finance Committee continued marking up its own tax reform bill. That bill includes major differences from the House’s legislation, such as a provision to repeal the Affordable Care Act’s individual healthcare mandate, the retention of seven individual income tax brackets, and the creation of a deduction for passthroughs.

If the Senate passes its bill, lawmakers will likely have to reconcile differences between the two bills during a conference committee.

Ways and Means member Peter J. Roskam, R-Ill., said that he believes a conference committee will be “easier than most people think” and that differences between the bills are not “irreconcilable.”

“They’re not differences in terms of vision or worldview,” Roskam said.

Senate Finance Committee member Claire McCaskill, D-Mo., suggested November 15 that Republicans intended to conduct a closed-door conference on the tax bill the week of November 20, and then bring the product of that conference to the Senate floor, but some House Republicans were supportive of an open conference process.

House Freedom Caucus Chair Mark Meadows, R-N.C., told reporters he is “all for transparency” and that he is “very supportive” of an open conference committee.

Ways and Means member Carlos Curbelo, R-Fla, said he doubts a tax bill could advance without a conference committee. “Unless there’s some major changes to the Senate legislation before they pass it, I don’t think a conference would be avoidable,” he said.

Should the Senate approve a bill with the SALT deduction fully repealed, Curbelo said, “We will not accept that.”

There are some deal breakers for the Freedom Caucus in the current Senate bill, Meadows told reporters. The one-year delay in implementation of the 20 percent corporate rate is “obviously an issue,” Meadows said, adding that the 25 percent passthrough rate is also a priority. “It’s mostly my constituency — small businesses make up the vast majority of it — so getting that right is as critical, if not more critical, than getting the C corp corporate rate right,” he said.

Ways and Means member Jason Smith, R-Mo., told Tax Analysts that he believes a conference will make the tax bill better. “There’s things in the House bill that are just phenomenal; there are things in the Senate bill that are pretty good,” he said.

Speaking at the Tax Foundation’s annual dinner, Vice President Mike Pence promised that Republicans would repeal the ACA’s individual mandate as part of tax reform. Pence restated GOP plans to lower tax rates for corporate and small business, expand economic growth, and raise wages. Tax cuts will lead to economic growth that helps American families suffering from natural disasters, Pence promised.

Improvements for Puerto Rico

Another area that could see a change during conference is disaster relief for Puerto Rico. House Speaker Paul D. Ryan, R-Wis., and Puerto Rico Resident Commissioner Jenniffer González-Colón said in a joint statement after the bill’s passage that lawmakers intend to “make improvements to our tax reform legislation as it relates to Puerto Rico when we go to conference.”

“We are always looking for more ways to help the island,” they wrote. “One of those ways is through additional tax incentives so that our fellow U.S. citizens in Puerto Rico can have all the possible resources to rebuild their lives and their economy.”

President Trump signed the Disaster Tax Relief and Airport and Airway Extension Act of 2017 (H.R. 3823), on September 28. The measure extended disaster-related tax relief to U.S. possessions, including Puerto Rico and the U.S. Virgin Islands.

Follow Asha Glover (@AshaSGlover), David van den Berg (@TAtaxDavidVDB), and Zoe Sagalow (@thesagaofzoe) on Twitter for real-time updates.