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Senate Tax Bill Still Faces Obstacles Following Finance Passage

Posted on November 20, 2017 by David van den Berg, Zoe Sagalow

Following the Senate Finance Committee’s passage of its iteration of the Tax Cuts and Jobs Act late November 16, Republican leadership will now have to turn its attention to the full Senate and whether votes can be wrung out of some GOP senators who have already expressed reservations about the bill.

The Finance Committee passed its bill on a party-line 14-12 vote at the conclusion of a four-day markup. While Democrats offered numerous amendments to the bill, all of which were rejected, the final version added a new manager’s amendment from Finance Committee Chair Orrin G. Hatch, R-Utah, that included both technical and substantial policy changes.

“This is an initiative that focuses on building a better economy for American workers and a better future for generations to come,” Hatch said following committee passage. “With this bill, we act to strengthen the middle class, reward hard-working taxpayers, and get our economy back on track. While we’ve cleared a major hurdle tonight, there is still much work to be done and I look forward to working with my colleagues to get this across the finish line.”

Some Republicans Hesitant

Supporters of the bill may need to twist the arms of some Republican senators to get the bill across the finish line once the Senate returns the week of November 27 after a Thanksgiving recess. The bill, which can be passed on a simple majority vote under the chamber’s reconciliation rules, can lose the support of only two Republicans to ensure passage.

One Republican senator, Ron Johnson of Wisconsin, announced his opposition to the bill November 15, citing the bill’s provisions concerning passthrough businesses. In comments to reporters November 16, Johnson expanded his criticism to the passthrough provisions in the House bill as well.

At least two other senators have concerns about the inclusion in the bill of a provision zeroing out the Affordable Care Act’s individual healthcare mandate penalty.

Sen. Susan Collins, R-Maine — one of three Republican senators who voted against the upper chamber’s ACA repeal measure in July — told reporters November 15 that inclusion of that provision “gravely complicates our efforts” and that she was undecided on the tax bill.

Roll Call reported November 17 that another of those three senators, Lisa Murkowski of Alaska, suggested that before the Senate votes to eliminate the individual mandate penalty under the ACA as part of the tax bill, it should first pass bipartisan healthcare legislation introduced by Sens. Lamar Alexander, R-Tenn., and Patty Murray, D-Wash., that would salvage cost-sharing reduction (CSR) payments for insurance companies.

However, Murkowski clarified her position in a statement provided to Tax Analysts later the same day. “I have consistently said that passing Alexander-Murray is important to stabilizing the individual market, and it may be particularly so if the individual mandate is repealed as included in the draft reported by the Senate Finance Committee last night,” Murkowski said. “However, one should not assume this is a precondition for my support for the tax bill.”

The third senator, John McCain of Arizona, sounded a more optimistic note, saying in a statement that he was pleased the Finance Committee followed “regular order” in passing its bill and is hopeful the full Senate will, too. McCain didn’t address the mandate provision in his statement.

Other Hurdles Exist

The biggest challenge to resolving Republican senators’ concerns is a lack of money to do it with, a GOP tax lobbyist told Tax Analysts. Short of a new revenue source, the only ways to find money to make changes to the bill that would address their concerns are to reduce some of the tax cuts in the bill or increase some of the base-broadening provisions, the lobbyist said.

Differences between the House and Senate tax bills also will need to be bridged. While some House Republicans predicted November 16 that those differences would be resolved in a formal conference committee, the GOP lobbyist said that if Republicans can find the votes when they return after Thanksgiving, they would be wise to resolve their differences in an informal or closed-door conference — as was done with the fiscal 2018 budget resolution — instead.

A former Democratic tax staffer also told Tax Analysts that formal conference committees are rare and that the formation of one for a tax bill is less likely than House Republicans have suggested. What’s more likely, the former Democratic staffer said, is either a process by which the bills bounce between the chambers or a Senate amendment tailored to address House concerns and ease passage of the Senate bill in the lower chamber.

Having a more informal conference on the bills would save time, which could be of the essence with the outcome of the December 12 Alabama special election to replace Republican Sen. Luther Strange in doubt. If Democrats win that election, Republicans will have an even narrower margin for passing a tax bill. Many recent polls have shown Doug Jones, the Democratic candidate for the seat, leading his Republican challenger, Roy Moore.

One other obstacle could also stand in the way of Senate passage of its tax bill: the potential for a government shutdown next month. The federal government will run out of money December 8 unless Congress at least passes a continuing resolution to temporarily fund the government before then.

Hatch Manager’s Amendment

The manager’s amendment approved by the Finance Committee made several additions to the bill. Among those, it now appears to match the House-passed tax bill on carried interest by imposing a three-year holding period requirement for some partnership interests received in connection with the performance of services. It also would allow an above-the-line deduction for attorney fees and court costs associated with claims under some whistleblower programs and refine the definition of collected proceeds eligible for awards under the IRS whistleblower program. The manager’s amendment also would make the IRS Free File program permanent.

Other changes in the Hatch amendment include a clarification of the proposed 1.4 percent excise tax on endowments of private colleges and universities. Under the change, the related-party rule applies only to assets held for the educational institution and the investment income that relates to assets held for the educational institution.

The Hatch modification also would exclude accumulated deferred foreign income from real estate investment trust gross income tests; move the effective date for the net operating loss provision in the chairman’s mark to tax years beginning after December 31, 2022; provide that regulated investment companies are exempt from the first-in, first-out rule; and increase the excise tax on stock compensation in an inversion from 15 to 20 percent. The Hatch amendment also would bar the deduction of local lobbying expenses regarding legislation before local governments, including tribal governments.

Democrats at the markup again criticized committee Republicans for producing new language without a score on provisions certain to have a budgetary effect.

Dylan F. Moroses contributed to this article.

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