Senate Republicans Go Their Own Way on Tax Reform

The GOP was supposed to be unified on taxes after internal divisions destroyed their health-care drive. But the party’s majorities in Congress now have two competing legislative proposals once again.

House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell address the press outside of the White House.
Jonathan Ernst / Reuters

Republicans promised tax reform would be different.

The party, one leader after another insisted, had learned its lesson from its failure on health care, when fundamental policy disagreements split the Capitol in two and left the Affordable Care Act in one piece. There would be no such meltdown on taxes, and to that end, top Republican officials spent months negotiating what they called a “unified framework” for legislation. “The whole point of all of this is the House, the Senate, and the White House are starting from the same page and the same outline, and tax writers are going to take it from there,” Speaker Paul Ryan said in September.

On Thursday, however, the Republican majorities in the House and Senate once again veered in separate directions on their foremost legislative priority. In the House, the Ways and Means Committee approved and sent to the floor a tax bill that immediately reduces the corporate rate to 20 percent, repeals the estate tax by 2024, collapses seven individual income brackets to four, and scales back popular tax deductions for mortgage interest and medical expenses.

Senate Republicans, meanwhile, unveiled their own tax plan, which contains key differences: It would delay changes to the corporate rate to save money, maintain the estate tax and the seven income brackets, and keep the mortgage-interest and medical-expense tax breaks where they are. But while those differences address political challenges in the House bill, the Senate plan introduces a few of its own: namely, by reducing the top marginal tax rate for the wealthiest Americans and completely eliminating the deductions for state-and-local taxes, known as SALT. That latter change could make the bill politically untenable in the House, where Republicans representing high-tax states already demanded a compromise keeping a deduction for property taxes capped at $10,000.

While downplaying the split, Ryan acknowledged the two chambers would have to iron out their differences in a conference committee—another difficult negotiation that could threaten the GOP’s self-imposed target of enacting a new tax law before the end of the year. “Yes, the Senate bill is going to be different than the House bill, because that’s the legislative process,” the speaker told reporters on Thursday.

Ryan said the House and Senate bills both stuck to the framework that party leaders and the White House agreed to in September. But that’s not entirely true. The framework calls for eliminating the estate tax—which Republicans call the “death tax”—and reducing the number of individual income brackets as a way of simplifying the code. The Senate proposal does neither.

Many of the differences in the Senate plan reflect the political dynamics within the chamber, where the GOP has only a narrow majority. As with health care, Republicans are trying to pass the tax bill with a filibuster-proof 51 votes, meaning they can lose no more than two of their members. (A loss from Roy Moore in the upcoming Alabama special election would make their effort even tougher.) Budget reconciliation rules require the bill to add no more than $1.5 trillion to the deficit in the first decade and nothing to the debt after that, forcing Republicans to make tricky decisions about which loopholes to close and which tax provisions to make temporary or permanent.

The SALT deduction is a big issue for Republicans in the House, where dozens of GOP lawmakers hail from the states that would be hit hardest: New York, New Jersey, Illinois, and California. But those states have only Democratic senators, and Republicans do not expect any of them to vote for their tax bill under any circumstances. At the same time, Senator Susan Collins of Maine has said she sees no need to repeal the estate tax, which benefits the nation’s wealthiest families more than the middle class. Others have voiced a similar concern, so that levy is kept in the Senate proposal.

The House and Senate bills both eliminate the personal exemption, nearly double the standard deduction to $12,000, and increase the $1,000 child-tax credit by $600 to $650 per kid. And for the moment, they share an important omission: Neither plan repeals the Affordable Care Act’s individual insurance mandate, despite a late push by conservatives to make it a part of tax reform. Senator Tom Cotton of Arkansas has urged party leaders to axe the mandate because it would free up more than $300 billion to pay for tax cuts while making a down payment on the party’s broken promise to repeal Obamacare. That money would come from the government no longer having to pay some enrollees’ subsidies.

But party leaders have warned from the start that adding health-care politics to the tax debate could be a toxic mix and doom the whole effort. “It would be an absolute wrong approach to take on tax reform,” said Representative Charlie Dent of Pennsylvania, a leading moderate who voted against the GOP repeal bill but has spoken more positively of the tax proposal. “It would be a mistake to do this. I’m always fearful that leadership will be muscled into an approach to placate the hardest-edged members of our conference.”

Ryan, however, said the issue was not settled. “That’s one of the many things our members are talking about,” he said. “Those kinds of conversations are ongoing.”

At first glance, the divisions among Republicans seem easier to bridge on tax reform than they were on health care. But before the House and Senate can reconcile their differences, they each need to pass their bills. The House is ahead on that score, planning a vote next week. Before adopting the measure on Thursday, the Ways and Means Committee made a number of late changes, including the restoration of the adoption tax credit—a win for conservatives.

The Senate is unlikely to vote until after Thanksgiving, and based on initial reactions on Thursday, it, too, will have to make some adjustments. Senator Marco Rubio of Florida complained that GOP tax writers had not increased the child tax credit enough for his liking. And Senator Jeff Flake of Arizona sounded cool to the entire bill based on his worry that it will add to the deficit. “I remain concerned over how the current tax-reform proposals will grow the already staggering national debt by opting for short-term fixes while ignoring long-term problems for taxpayers and the economy,” he said in a statement. “We must achieve real tax reform crafted in a fiscally responsible manner.”

Republicans have a lot to contend with these days. They were routed in state and local elections on Tuesday, their senior members are retiring seemingly by the day, and they are now at considerable risk of losing a crucial Senate seat in deep-red Alabama. But on tax reform, as on health care, the party’s challenge is straightforward: The GOP has two separate majorities that aren’t yet working off the same page.