Republicans racing to enact their tax cuts by Christmas are down to the final details as they try to merge competing plans passed by the House and Senate in the last month. But those finishing touches are forcing the party to make some tricky decisions.
Will negotiators soften the more unpopular edges of the bills to provide more benefits to individuals and the middle class, or will they yield to conservative demands that the $1.4 trillion plan prioritize corporations in the name of economic growth?
The House and Senate tax bills contained some important differences that Republicans are now trying to reconcile. The House version, for example, collapsed the seven individual income-tax brackets into four, while the Senate kept the current structure while modestly reducing the rates. Unlike House lawmakers, GOP senators eliminated the Affordable Care Act’s individual mandate, but they ignored the lower chamber’s attempt to cap or scrap popular deductions for mortgage interest, medical expenses, student loans, and tuition for graduate students. The House repealed the estate tax; the Senate merely trimmed it back a bit. To save on cost, the Senate instead did something the House did not: It set nearly all of the individual income tax cuts to expire after six years while making permanent the huge cut to the corporate rate, to 20 percent from 35 percent.
The GOP’s slimmer majority in the Senate and the chamber’s stricter budget rules gives its version the upper hand in the negotiations. But the party’s bigger challenge now is to figure out how to pay for the late changes that GOP lawmakers on both ends of the Capitol want to see made. In the House, Californians are pushing to salvage more of the state-and-local tax deduction in the final bill. Both versions would bar individuals from writing off their income taxes while allowing them to deduct up to $10,000 in property taxes from their federal bill. Republicans also want to eliminate an alternative minimum tax for corporations that made it into the Senate proposal shortly before it passed.
But if those provisions are sweetened, others must be toughened to fit within the Senate’s $1.5 trillion deficit limit. Under one option reported by multiple outlets on Tuesday, Republicans would set the corporate tax rate at 21 percent instead of 20 percent while making a deeper cut to the top individual income rate, to 37 percent from its current 39.6 percent. They would also split the difference between the House and Senate proposals by capping the mortgage-interest tax deduction at $750,000. (The House reduced it to $500,000 while the Senate kept it unchanged at $1 million.)
Those changes carry their own risks, however. Reducing the top income rate would be a gift to Democrats who have argued the GOP tax plan is a boon to the wealthy, while conservative activists are adamant that Republicans draw a line on the corporate rate at 20 percent. They worry that any breach of that threshold would represent a slippery slope for what they consider the central feature of the tax bill. “Twenty percent was a compromise. We wanted it to be at 15 percent,” warned Grover Norquist, president of Americans for Tax Reform, who was referring to the figure originally demanded by President Trump. “Moving to 21 percent or 22 percent is the beginning of the long march back to 35 percent.”
Where Republicans are in virtually unanimous agreement is the need to move quickly. Party leaders want to reach a deal in the next couple of days so the House and Senate can each vote on the final bill next week, meeting President Trump’s self-imposed Christmas deadline for signing it into law. “We all are still in intense discussions with our colleagues on the House side,” Senate Majority Leader Mitch McConnell told reporters on Tuesday. “We hope to wrap it up pretty soon.” Another senior Republican, Senator John Cornyn of Texas, reportedly said the two sides could reach a deal later on Tuesday, although the text would probably not be ready until the end of the week.
In rushing to get the bill to Trump’s desk, Republicans have barreled past all semblance of a deliberative legislative process. In the Senate, they held a vote earlier this month just a few hours after releasing the final legislative text, which was so haphazardly written that some provisions were scribbled in by hand. Republicans have tossed aside multiple projections that their plan would increase the debt by $1 trillion and fall short of its promised economic growth. And while they are—technically—holding a formal conference meeting that includes Democrats, it is all for show: By the time the panel holds its first and only public meeting on Wednesday, Republicans might already have a deal in hand.
One factor in the year-end dash that GOP leaders are loathe to acknowledge is the Senate special election in Alabama. The winner is not expected to be seated until January, and a victory by Democrat Doug Jones would cost Republicans a potentially pivotal vote for the tax bill. (Roy Moore would be expected to vote for the plan, although given his antipathy for McConnell, it is perhaps not a sure thing.) Hence, Republicans want to finish the legislation while Luther Strange is still in the Senate.
Another area of consensus appears to be getting rid of Obamacare’s individual mandate. Republican leaders originally feared mixing the politics of health care with taxes, but they were able to persuade skeptics like Lisa Murkowski of Alaska and Susan Collins of Maine to get on board, and the provision has yet to generate a backlash among moderate House Republicans. Collins’ vote on the final bill might be in jeopardy, however, if the party does not keep its promise to pass separate pieces of health-care legislation that, she argues, would mitigate the effect of eliminating the mandate.
Yet Republicans have one vote to spare in the Senate after winning the support of everyone except for Bob Corker of Tennessee on the original tax bill. So if the GOP meets its goal to vote on the final legislation next week, Trump can sign his tax cuts into law by Christmas—with or without the support of the moderate from Maine.