House Speaker Paul D. Ryan, R-Wis., suggested October 12 that the lower chamber could stay in session until Christmas Day to pass tax reform legislation, a day after Republican Chief Deputy Whip Patrick T. McHenry, R-N.C., predicted that tax reform legislation can clear Congress by Christmas Eve.
The House will stay in Washington to pass tax reform "if we have to,” Ryan said after delivering a speech at the Heritage Foundation. “I don't care. . . . We have got to get this done.” Ryan said the House would pass its tax legislation in November, but did not offer more specific timing.
In his speech, Ryan also made the case that corporate and international tax reforms are "really all about helping families and workers" and will lead to increased wages and more jobs domestically. He forecasted obstacles ahead, warning his Republican colleagues that "an army of lobbyists will come to protect special interest provisions and to derail tax reform. When it does, we must be able to count on the foot soldiers of the conservative movement to see this through."
Republicans are working behind the scenes to produce legislation, though it is unclear when it will be released. House Ways and Means Committee member Kenny Marchant, R-Texas, said the Joint Committee on Taxation will assist committee staff as it drafts tax reform legislation during a House recess the week of October 16. However, Marchant said he does not expect that a working document will be ready when lawmakers return to Washington the following week.
Ways and Means Committee member Kristi L. Noem, R-S.D., told reporters that after the revenue estimates are gathered, lawmakers will “be able to put together the bill that will move through committee.”
Ways and Means Committee Chair Kevin Brady, R-Texas, said lawmakers are working toward nailing down specifics, including establishing income levels for the 12 percent, 25 percent, and 35 percent tax brackets proposed in the unified GOP tax reform framework, and the design of the child tax credit. “We’re working toward that, and once this budget is done, boom — we’ll bring it forward,” he said.
Brady also told reporters that lawmakers are still discussing Republicans’ proposal to eliminate the state and local tax deduction, although he still believes it is “double taxation at its worst.”
“We want to make sure we lower tax burdens for Americans regardless of where they live,” Brady said. “Lawmakers from high-tax states want to make sure their families are better off under tax reform, and so do we. So part of this is understanding better what the final tax reform rates and brackets would be, how that affects your families, and also exchanging ideas on how we can make sure that those families are better off.”
“No decisions have been reached, or anywhere close to it, but we’re having a really healthy discussion on ideas, options, alternatives and, perhaps most importantly, when we all see the details of [the] overall tax plan, we’ll be able to more easily reassure Americans they’ll be better off,” Brady continued.
Democrats Fight for State and Local Taxation Deduction
House Democratic taxwriters were joined by House Minority Leader Nancy Pelosi, D-Calif., October 12 to criticize Republican plans to repeal the state and local tax deduction.
Ways and Means ranking minority member Richard E. Neal, D-Mass., told reporters that Republicans "would like to frame this deduction as a blue-state-only priority," but there are several GOP-controlled districts whose constituents benefit from claiming the state and local tax deduction.
“This is quickly becoming the border adjustment tax for them, in terms of needing revenue to justify for tax cuts that they would offer in other parts of the code,” Neal said. “The numbers are really powerful here: 30 percent of all households in America benefit from [it]. This is a middle-class benefit, and it's about to become a tax on the middle class if we're not careful offering evidence . . . that there is no need to eliminate the local and state tax deduction."
Neal added that the average state and local tax deduction is $12,000 per year, and if repealed "it would load as much as $1.3 trillion in new taxes on the back of the American family." He pointed out that $1.3 trillion is about the same as the projected revenue from the border-adjustable tax, a provision dropped from the GOP tax reform plan.
Ways and Means Tax Policy Subcommittee ranking minority member Lloyd Doggett, D-Texas, highlighted that Republicans have not scheduled a hearing on the impact that repealing the state and local deduction could have, and suggested that they may have no plans for any hearings before marking up their yet-to-be-revealed tax proposal. Doggett added that he and other Ways and Means Democrats have been calling for hearings on the rumored proposals since May.
Treasury Secretary Steven Mnuchin said October 12 that, as a former resident of New York and California, he is sensitive to concerns by Republican lawmakers in Democrat-controlled states that repealing the state and local tax deduction would disproportionately hurt taxpayers in their states. But the deduction is a “major loophole that we’re trying to close,” he said on CNBC’s Squawk Box, arguing that “we can’t have the federal government continue to subsidize the states.”
Mnuchin also dismissed the argument that taxpayers in those states collectively contribute more in federal tax revenue than they receive in federal spending, explaining that that is as “much demographics of where the wealthy people live as anything else.”
Responding to Republican claims that the state and local tax deduction subsidizes states with higher tax rates and "big government," House Ways and Means Trade Subcommittee ranking minority member Bill Pascrell Jr., D-N.J., flipped the script, using recent data to support the claim that the states that pay more in local taxes actually benefit the lower-tax states that Republicans claim are hurt by the deduction.
"Who is subsidizing whom?” Pascrell asked. “I'll have you know that New Jersey pays more than $3,717 per person to the federal government over what it gets back. And where does that money go? Mississippi gets $6,495 per person per year from the federal government, West Virginia gets $6,765 dollars per person, and Alabama gets back $6,193 per person per year. It may be so that some states are subsidizing these low-tax states who can keep their own taxes artificially low because of the subsidies of other states. American people aren't stupid. We can do math. We know the middle class throughout this country would be getting a raw deal."
Pascrell later told reporters “the math doesn’t add up,” responding to Republican arguments that eliminating the state and local tax deduction would not result in a net tax increase because of benefits like the proposed lower individual rates and increased standard deduction.
Asked if he could support capping the ability to claim the state and local tax deduction beyond a certain income threshold, Neal only said that that "is why you need hearings, so you can have those discussions." However, Neal added there may not be an opportunity to have that public forum, telling reporters that there is a strong possibility "there will be no hearings on a policy issue of this consequence."
An October 12 Tax Foundation blog post said a hypothetical income cap of $400,000 on the deduction ($800,000 for joint filers) would affect only the top 1 percent of earners, reducing their income by an average of 1.8 percent. The analysis said that on a static basis, the cap would raise $481 billion over 10 years — one-quarter of the revenue that full repeal would raise.
Senate Minority Leader Charles E. Schumer, D-N.Y., reacted to the Tax Foundation estimates by saying, "Republicans are playing with an unsolvable Rubik's Cube," that either adds a trillion dollars to the price of tax reform or increases taxes on middle-income Americans. He said they should "start from scratch" and work with Democrats on a bipartisan plan.
Stephen K. Cooper and Jonathan Curry contributed to this article.
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