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Stage Set for Final Tax Bill Despite Threats of Dissent

Posted on December 15, 2017 by David van den Berg, Dylan F. Moroses

Congressional negotiators are narrowing the list of outstanding issues to be resolved on a tax reform package, but some senators are wavering as new details about the package leak out.

Lawmakers appear to have satisfied House Republicans worried about the treatment of state and local taxes, agreeing to retain the current ability to deduct property taxes and either income or sales taxes, though the value of the deduction would be capped at $10,000, according to House Ways and Means Committee Chair Kevin Brady, R-Texas. (Side-by-side comparison of the GOP tax plans.) 

Rep. Thomas MacArthur, R-N.J., called the flexible SALT deduction a “great” solution, explaining how it will help constituents who rent in his district retain the ability to write off some local taxes.

“This really came out of California feeling they have lower property taxes and higher income taxes, so they just wanted more flexibility. We just couldn’t pay for it in the House bill,” MacArthur told Tax Analysts.

Brady also confirmed to reporters December 14 that the final language would reduce the current top individual tax rate from 39.6 percent to 37 percent — a move that also helped soothe concerns about the treatment of state and local taxes as well as address complaints that the bill didn’t do enough to cut taxes for businesses operating as passthroughs.

Sen. Ron Johnson, R-Wis., who had advocated for a more generous passthrough deduction, told reporters he can live with negotiators' decision to dial back the deduction from the Senate-passed level of 23 percent to 20 percent because of the cut in the top individual rate.

But other Republican lawmakers balked at the changes being made and insisted that their priorities be included in the bill as well.

Sen. Marco Rubio, R-Fla., emerged from the Republicans’ policy luncheon December 14 saying he will vote no on the tax bill unless changes are made to make the child tax credit more generous. Rubio, who had been rebuffed by Senate leaders when he suggested raising the corporate tax rate to pay for an increase in the credit, was angered that negotiators agreed to raise the corporate rate to 21 percent to help offset tax cuts that would largely benefit companies and high-income individuals.

Senate Majority Whip John Cornyn, R-Texas, told reporters he’s confident Rubio will ultimately support the bill. “I just checked and apparently we are still working with him and expect to satisfy his concerns,” Cornyn said.

A tougher challenge will be winning over Sen. Bob Corker, R-Tenn. Corker warned again December 14 that he may vote against the bill over concerns about its impact on the budget deficit.

Corker told reporters that he “will have another look at [the tax bill] and find what I think is best" for the country, adding, “I'll make the decision as if I'm the deciding vote.”

“I think there are still things going back and forth,” Corker said, adding that he is trying to balance concerns about the federal deficit with his belief that reforming the corporate tax code would be good for the economy.

Another potential Senate swing voter, Sen. Susan M. Collins, R-Maine, remained noncommittal about her support of the tax bill for now. She told reporters she would wait to review the conference committee’s bill over the weekend before making a decision.

Higher Repatriation Rate?

Further complicating the discussion is that any changes to make tax breaks more generous also need to be offset with tax increases in other areas.

Johnson said a change that he expects to see in the bill is an increase in the one-time tax on corporate income earned overseas. He said he expects the repatriation rate set in the House and Senate legislation to increase to 15 percent for cash and 8 percent for illiquid assets.

The Senate-passed version of the Tax Cuts and Jobs Act had set the rates at 14.5 and 7.5 percent, respectively, while the House had set the rate at 14 percent and 7 percent.

News reports said another potential change that may be needed to save money under the bill is to move up the expiration date of tax cuts on the individual side from 2025 to 2024.

Brady didn’t respond to questions about that possibility, saying only that those details would be in the conference report set for release in the afternoon of December 15.

Senate Finance Committee member John Thune, R-S.D., said he was unaware of any effort to change the bill’s expiration dates. “I’ve been in, I think, every meeting and I haven’t heard that,” Thune told reporters.

Timing Questions

As negotiations wind down, lawmakers have turned their attention to scheduling issues for the floor votes in the House and Senate.

Votes are still expected to occur first in the Senate on December 19 because parliamentary rules may require that changes be made before a bill is sent to the House, Cornyn said.

House Speaker Paul Ryan, R-Wis., said that plan could change because Sens. John McCain, R-Ariz., and Thad Cochran, R-Miss., have both missed Senate votes this week due to illnesses. Ryan said the House is flexible and could vote first if McCain and Cochran need additional time.

Cornyn downplayed any concerns that Republicans could fall short on votes because of either illnesses or dissensions. “We wouldn’t be having the vote if we didn’t have the votes,” Cornyn said.

Stephen K. Cooper and Jonathan Curry contributed to this article.

Follow Dylan F. Moroses (@DMoroses3244) and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.