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House Votes to Go to Conference on Tax Reform Bills

Posted on December 5, 2017 by David van den Berg, Asha Glover

The House voted 222 to 192 on December 4 to form a conference committee to resolve differences between the House and Senate tax reform bills.

The vote was generally along party lines, with seven Republican defections and 19 House members not voting. A motion to instruct conferees, which was introduced by House Ways and Means Committee ranking minority member Richard E. Neal, D-Mass., was shot down that same evening on a vote of 186 to 223.

Following the vote, House Republicans and Democrats named their delegates to the conference. House Republicans named Ways and Means Committee Chair Kevin Brady of Texas as the conference chair, while fellow committee members Reps. Devin Nunes of California, Diane Black of Tennessee, and Kristi L. Noem also were named conferees. Four other conferees rounded out the GOP’s list: Reps. Rob Bishop of Utah, Don Young of Alaska, Greg Walden of Oregon, and John Shimkus of Illinois.

The Democrats named three congressmen from the Ways and Means Committee: Neal, Sander M. Levin of Michigan, and Lloyd Doggett of Texas. Other conferees include Reps. Raúl M. Grijalva of Arizona and Kathy Castor of Florida.

On the day before the vote, GOP senators expressed confidence about the prospects of the legislation clearing a conference committee. 

“There’s going to be a conference committee,” said Sen. John Barrasso, R-Wyo., in an interview on Fox News Sunday. “Members from the House and the Senate will get together to look for the best solutions. But we’re not that far apart.”

During an interview on ABC’s This Week, Senate Majority Leader Mitch McConnell, R-Ky., said he is “very optimistic” about the conferees from both chambers reaching an accord.

Senate Republican Whip John Cornyn of Texas noted that it’s going to take the Senate “a couple of days” to appoint their conferees due to Senate procedures.

However, Sen. Mark R. Warner, D-Va., contended on CNN’s State of the Union that there is still a chance the legislation will die. And Sen. Angus S. King Jr., I-Maine, said on CBS’s Face the Nation that he’s not sure there will even be a conference committee formed. “I give it 50/50 there will be no conference,” he said. “Because I don't think that either side, either the House or Senate, wants to bring this back to the floor. The House just may take the Senate bill and send it to the president.”

The Gap to Be Bridged 

If the measure does go to conference, lawmakers serving on it will have considerable differences to resolve between the bills.

The bills call for different treatment of passthrough entities. The House-passed Tax Cuts and Jobs Act (H.R. 1) would subject qualified business income to a top rate of 25 percent. In the House bill, income derived from active business activity would be considered as 30 percent business income and could be taxed at the 25 percent rate, while the remaining 70 percent would be treated as compensation. 

The Senate plan initially called for a 17.4 percent deduction on domestic qualified business income for passthrough entities, but that deduction was increased to 23 percent before passage on the Senate floor early December 2. Observers told Tax Analysts before the change that the Senate’s plan could be easier to administer. 

Additionally, the Senate bill repeals the Affordable Care Act’s individual healthcare mandate, which the House measure doesn’t address. The different treatment of the ACA’s individual mandate creates the largest revenue difference between the bills, at $318 billion. The bills are $151 billion apart on their different treatment of the estate tax. The revenue gap caused by the difference in the timing of the corporate rate cuts is $127 billion. 

Another difference is that the Senate bill has seven individual brackets, while the House bill has four. The House bill boosts the estate tax exemption to $10 million, indexed for inflation, and repeals the tax entirely after six years, while the Senate’s proposal simply doubles the exemption.

The House bill also repeals both the individual and corporate alternative minimum taxes, while the Senate plan retains both and boosts the individual AMT exemptions. Another distinction is that the House bill immediately cuts the corporate income tax rate to 20 percent, while the Senate delays the reduction for a year.

House Ways and Means ranking minority member Richard E. Neal, D-Mass., said Democrats want the House tax conferees to maintain the state and local tax (SALT) deduction and the ACA’s individual mandate. Both bills would eliminate the SALT deduction except for up to $10,000 in property taxes. 

GOP Defends Tax Reform Bill

Office of Management and Budget Director Mick Mulvaney on CBS This Morning December 4 defended Republicans’ tax reform bill, saying that the White House has two main principles it wants reflected in the tax reform bill: It will bring down corporate rates and it will benefit ordinary Americans by taxing them less and making the tax code simpler for them.

Mulvaney said the bill would increase revenue and that “one of the ways we hope to reduce the deficit over the long term is by having this tax bill pass."

The day before, he also defended changes to how carried interest is treated in Republicans' tax reform bills, saying on Face the Nation that the three-year holding period for assets to receive carried interest treatment adequately addresses the issue. “I think that does discourage some of the abuse, the short-term churning and so forth,” he said.  

Mulvaney also defended the Senate’s decision to make the individual tax cuts included in its version of the bill expire after five years. “The Bush tax cuts were the same way, and most of them didn't expire. We said before, we'll say again: If it's good policy, it will be permanent. If it's bad policy, it will be temporary,” he said.

Speaking on the same show, Senate Majority Leader Mitch McConnell, R-Ky., pushed back against the notion that the tax reform bill was unpopular. “We'll see how unpopular it is when people start noticing they’re paying less in taxes, the economy’s growing, there are more jobs and opportunity,” McConnell said.

Government Funding Battle 

Lawmakers intending to push tax reform across the finish line before the end of the year face considerable pressure. As if that weren’t enough, they have to tackle another issue first: the federal government will run out of money December 8 absent congressional action.

The House Rules Committee plans to meet December 5 on a continuing resolution to extend funding through December 22. 

Senate Minority Leader Charles E. Schumer, D-N.Y., said in a December 4 statement that he and House Minority Leader Nancy Pelosi, D-Calif., have accepted an invitation from President Trump to meet December 7 and discuss long-term funding legislation.

Schumer said he and Pelosi hope Trump will be open to an agreement to keep the government operating and that a budget agreement that equally increases military and domestic spending is needed. He listed a whole host of priorities, including the opioid crisis, disaster relief, and “a bipartisan deal to pass the DREAM act along with tough border security measures.

“There is a bipartisan path forward on all of these items,” he said. 

Mulvaney said December 3 on Face the Nation that he doesn’t believe there will be a government shutdown despite Democrats’ concerns over a lack of a legislative fix on the Deferred Action for Childhood Arrivals (DACA) policy after the Trump administration decided to phase it out after a six-month grace period. 

Mulvaney also said a group of lawmakers from some of the states affected by Hurricanes Harvey, Irma, and Maria in Texas and Louisiana, Florida, and Puerto Rico, respectively, may also want to shut down the government until they get the aid they want, but he said, “We need to get beyond that. I think that we will. I don’t think you'll see a government shutdown.”

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