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Tax Reform Is on Deck, But State Deduction Issues Persist

Posted on October 27, 2017 by Stephen K. Cooper, David van den Berg

House GOP taxwriters will unveil their long-awaited comprehensive tax reform bill November 1, House Ways and Means Committee Chair Kevin Brady, R-Texas, announced after the House voted October 26 to approve the Senate’s fiscal 2018 budget resolution.

The budget, which passed on a 216-212 vote over the objections of all House Democrats and 20 Republicans, includes reconciliation instructions that will allow  Senate Republicans to approve tax reform without any Democratic votes.

Detailed tax reform legislation, including summaries of GOP proposals, will be introduced November 1 and marked up by the House Ways and Means Committee on November 6, Brady told reporters. The full House would then vote on the legislation just before the chamber’s weeklong Thanksgiving recess.

The markup is expected to last several days, with the bulk of the proceedings occurring during working hours, said Brady, who added that the markup’s format will be determined with the help of the committee’s ranking minority member, Rep. Richard E. Neal, D-Mass. “I want to make sure that our Democrat members have ample time to offer their ideas and make their case,” Brady said.

The Joint Committee on Taxation will provide a revenue score for the legislation as the markup begins, while a dynamic score will be completed after the committee approves the bill, Brady said. Some Committee Democrats have suggested that Republican lawmakers are rushing tax reform for fear of public opposition to their proposals.

Brady said he met with President Trump on October 25 to discuss ways to strengthen retirement savings and increase limits on 401(k) retirement plans. “We are of one mind: We want to make it easier for people to save and save more,” Brady said. If he and Trump cannot find ways to help Americans save more than $200 per month, then 401(k) plans will remain unchanged, he added.

House Speaker Paul D. Ryan, R-Wis., hailed the budget’s passage. “This budget that we just passed in the House today brings us one step closer to historic tax reform,” he said. “Too long the American people have been living under a broken system where they see too little of their own hard-earned dollars.”

The budget resolution did not win unanimous approval from Ways and Means Republicans. Reps. Sam Johnson, R-Texas, and Adrian Smith, R-Neb., did not vote, and Rep. Lynn Jenkins, R-Kan., voted against the budget.

A spokesman for Jenkins said the lawmaker’s no vote was based solely on the lack of spending reforms in the resolution, which would allow tax reform to increase the deficit by $1.5 trillion. “She is exceedingly frustrated we have chosen to push fiscal reforms to another day,” the spokesman said.

No Deal on State and Local Tax Deduction

Some New York House Republicans, not including Rep. Chris Collins and Ways and Means member Tom Reed, voted against the budget resolution, largely because the coming tax reform legislation still includes repeal of the deduction for state and local taxes.

Brady said he and Ryan have promised to modify the proposal to protect residents of New York and other high-tax states from tax increases. He said the lawmakers who voted in favor of the budget have not lost leverage in discussions on the deduction and that talks continue with Senate taxwriters.

Since state and local taxes are so “out of the norm” in large, high-tax states, Brady said he is looking at specific districts and may write tax proposals that recognize the individual circumstances of those areas.

Rep. Thomas MacArthur, R-N.J., said he voted against the budget because there still was no deal on the state and local tax deduction. “We’re seven or eight innings into this and we don’t have a deal yet,” he said. “Twenty people voted no, and dozens of others voted yes [while] holding their nose. Leadership, I think, knows clearly that if we don’t get this resolved we can’t move forward on tax reform.”

He said about 22 Republicans from so-called donor states think it’s unfair that they pay taxes on money they send to Washington to support other states. “I think some fix will be attempted in the initial bill that gets proposed,” MacArthur said, noting that New Jersey sends $31 billion more in revenue to the federal government than it receives in return.

Democrats Ready to Fight GOP Tax Cuts

House Democrats from New York bashed Republicans for passing a budget that assumes the elimination of the state and local tax deduction during a press call moderated by Ways and Means member Joseph Crowley, D-N.Y.

Rep. Sean Patrick Maloney, D-N.Y., told reporters that if the deduction is eliminated, property values in his district will fall by at least 10 percent. Fellow New York Democrat Rep. Jerry Nadler said during the press call that his state’s residents would see their taxes rise by about $5,400 on average without the deduction.

Democrats on the call also pointed out that several New York Republicans during the vote on the budget waited to ensure it would pass before casting their no votes.

In a press conference after the vote, House Minority Leader Nancy Pelosi, D-Calif., called the budget “a rip-off, a shakedown, a looting” of middle-income taxpayers.

“Hopefully, when this tax bill comes up the public will be aware of what to look for in it, know how they pay the price for this big transfer of wealth, where the wealth is sucked up from the middle class to high-income [individuals], the 1 percent, as well as the wealthy corporations in our country,” Pelosi said.

Pelosi also criticized Republican lawmakers who voted for a budget that includes repeal of the state and local deduction, saying that property values will decline without the deduction.

“I think that a part of what these members walked the plank for is something they're going to have to answer for back home,” Pelosi said. “I think that the ability to have leverage would have been [for Republicans] to defeat this, and then go to their speaker and say, ‘We want something different,’” she said, adding that their votes for the budget have now “given leverage to the exploiters.”

Senate Finance Committee ranking minority member Ron Wyden, D-Ore., said he plans to give speeches on the GOP tax reform plan’s flaws in hopes that the American public will reject the effort. He said no markup has been scheduled for the Finance Committee.

“When the American people get the facts about this, they don’t like it,” Wyden said. “When the facts get out, they’re going to be with us.”

Finance Republicans Discussing Bill

Senate Finance Committee Chair Orrin G. Hatch, R-Utah, welcomed the House budget vote, though he indicated that his focus has been elsewhere. “I haven’t really fully examined” the vote, Hatch said after he met with his committee’s Republican members to talk through some tax reform elements. “It propels this whole exercise forward, so I’m happy” with the House’s action, Hatch told Tax Analysts. “But I need to study it.”

Hatch said his committee’s Republican members are in the process of finalizing tax reform legislation. “We covered quite a bit of the whole situation,” including corporate and individual provisions, he said. “We’ve covered a lot of material. The question is, can we move forward?”

The Finance Committee is putting a bill together piece by piece, committee member Chuck Grassley, R-Iowa, told Tax Analysts, adding that he has received a broad overview of the committee’s week-by-week timeline for advancing tax reform. “I think the whole idea is that we would have [a] markup before Thanksgiving,” Grassley said, adding that there’s “probably a more definitive date” and that “it’s probably going to take a good week to get it done."

Dylan F. Moroses and Luca Gattoni-Celli contributed to this article.

Follow Stephen K. Cooper (@ScoopOnTaxes) and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.