As Republicans iron out their tax bill, expect a sweeter deal for corporations
Congressional Republicans have some ironing out to do.
In the final step for the GOP tax bill, lawmakers from the House and Senate will come together in a version of a conference committee to smooth out the differences between their respective tax bills in order to get something on the president’s desk by the end of the year.
At its core, the unified Republican vision for the tax bill is a proposal that gives corporations a massive tax break, and caps and ends various individual deductions in exchange.
But there are still major differences in the tax proposals passed by the House and Senate. As Dylan Scott and I explained, Republicans still don’t agree on how permanent this tax overhaul would be. The House bill makes its changes to the individual tax code permanent, but the Senate bill would allow many major provisions to expire after 2025 in order to comply with a Senate rule that limits how much this bill can increase the federal deficit.
The Senate bill also repeals the Affordable Care Act’s individual mandate, which the House does not, and addresses taxes for pass-through businesses, like LLCs and partnerships, differently. Plus, in a last-minute deficit management push, the Senate bill decided to keep a corporate tax that has industries fuming, and will likely be reconciled in this process.
On top of all this, many House Republicans from Democrat-led states took difficult votes approving the House’s tax bill after being given assurances that the proposal would become better for them in the Senate and after. But the House and Senate bills actually match on the provisions that would most impact these lawmakers. Conversations with lobbyists close to the debate indicate that blue-state Republicans’ concerns are not the highest priority for top Republican negotiators, but they do hold enough votes to stall the tax bill.
What a handful of Republicans — known as the conference committee — decide in the next few weeks will likely become the nation’s tax law. The question is whose interests will be put first.
This is the final step to passing the GOP tax bill
Despite months of negotiations between top House and Senate members and members of Trump’s administration — a working group dubbed the “Big Six” — Republicans in the House and Senate came out with two drastically different bills.
So now begins a formal process, a conference committee, in which each chamber nominates members to be its negotiators to put together a hybrid of the two tax bills.
Usually these are bipartisan groups with members from both chambers, which comes with some rules: They’re not supposed to “change a provision on which both houses agree, nor may they add anything that is not in one version or the other,” according to the Congressional Research Service. But this complicating factor often gets overlooked, and there’s already a strong indication that Republicans are open to dropping in completely new provisions.
House Speaker Paul Ryan has nominated Republican members to this committee: Reps. Kevin Brady (TX), who chairs the tax-writing Ways and Means Committee, committee members Devin Nunes (CA), Peter Roskam (IL), Diane Black (TN), Kristi Noem (SD), Rob Bishop (UT), who chairs the Natural Resources Committee, Don Young (AK), Greg Walden (OR), who chairs the Energy and Commerce Committee, and John Shimkus (IL). These are members who either helped write the House tax bill or are lawmakers with an interest in the tax bill’s Arctic drilling provision and health care cut.
Senate Majority Leader Mitch McConnell’s nominees fit a similar mold: Sens. Orrin Hatch (UT), the Senate Finance Committee Chair, Senate Budget Committee Chair Mike Enzi (WY), Senate Energy, Natural Resources Committee Chair Lisa Murkowski (AK), Majority Whip John Cornyn (Texas), John Thune (SD), and tax bill-writers Rob Portman (OH), Tim Scott (SC) and Pat Toomey (PA).
House Minority Leader Nancy Pelosi has also nominated her members — Reps. Richard Neal (MA), Sander Levin (MI), Lloyd Doggett (TX), Raúl Grijalva (AZ), and Kathy Castor (FL), who will have a seat at the table but do not represent a big enough contingent to influence the actual bill.
The final product is called a conference report, which is passed by the majority of the members in the conference committee and then sent to the full House and Senate floors. Both the House and the Senate have to pass the conference report outright for it to be sent to the president’s desk.
There are expectations of a sweeter deal for corporations
In the final hours of the Senate’s tax bill negotiations, a tax on corporations, which Republicans had previously been adamant about repealing, was put back into the bill to make the deficit math work.
Under Senate rules, Republicans cannot pass a bill that increases the federal deficit by more than $1.5 trillion over 10 years, and at all past that budget window. Initial last-minute estimates from the Joint Committee on Taxation, which calculates the impact of the bill, said keeping the corporate alternative minimum tax would bring in $40 billion in revenue, which Republicans used to pay for cuts elsewhere. But since, there have been reports that the corporate AMT is actually a much bigger revenue source.
The last-minute change to keep the corporate AMT irked major industries and sparked a major lobbying blowback from the business community, as the Wall Street Journal reported. Lobbyists are now under the impression that lawmakers will work to remove the corporate AMT to appease business interests. But it’s a change that will cost them money in a bill that has almost no wiggle room.
An idea floated in the final hours of the Senate’s negotiations to address deficit concerns was to cut the corporate tax rate by slightly less. Right now both the House and Senate tax bills give corporations a massive tax break, from 35 percent to 20 percent.
Despite opposing any changes to the 20 percent corporate rate throughout this process, President Trump has said he would be open to a slightly less dramatic, if still substantial, corporate tax cut after the Senate tax bill. But there’s been a lot of reluctance to change that 20 percent number across the board. It’s a red line for House conservatives, and Senate Majority Leader Mitch McConnell told reporters Tuesday that he didn’t think it would be a prudent move.
The GOP is also expected to revisit the international tax provisions in the legislation, to prevent companies from shifting money overseas and avoiding US taxes, and the limits on how much interest businesses can deduct from their taxes.
Blue-state Republicans want a better deal. It’s not clear they’ll get one.
When House Republicans passed their massive tax overhaul last Thursday afternoon, 13 Republicans broke ranks: Five New Yorkers, four New Jerseyans, three Californians, and one deficit hawk North Carolinian voted against the plan.
The defections stemmed from a provision that would repeal the state and local tax deduction — something that that overwhelmingly disadvantages high-tax states like California, New York, and New Jersey, which are paying for dramatic cuts to corporate tax rates. The House’s bill caps the mortgage interest deduction for homes costing more than $500,000 and repeals and caps state and local income and property tax deduction, respectively, which many people in blue states rely on. The Senate’s bill keeps the mortgage interest deduction for homes up to $1 million but has the same SALT provisions as the House bill, repealing the income tax deduction and capping the property deduction at $10,000.
This has already angered blue-state Republicans in the House, whose constituents live with high local and state taxes and rely on those deductions. For example, 46 percent of Rep. Mimi Walters’s (R-CA) district takes the state and local tax deduction, according the Tax Policy Center.
The majority of the California Republican delegation, including Walters, voted for the tax bill with the hope that the Senate would fix their problems.
“It’s not the final outcome on it. We still have a ways to go,” Rep. Doug LaMalfa (R-CA) told the LA Times at the time. “The all-important final vote on the conference bill will be where the rubber meets the road.”
But the Senate didn’t make things much better for Californians. Now there are talks of bringing back the income deduction — which impacts Californians more than other blue states because of the state’s relatively lower property taxes and high income taxes. Again, this will cost a lot of money, as partially repealing SALT was a major way Republicans paid for their tax plan.
And because the House and Senate are largely in consensus over SALT, it’s unlikely Republican leaders want to seriously open up those provisions for negotiations again. But if all the New York, New Jersey, and California Republicans band together, there would be enough of them to stall the bill over these policy areas.
Republicans in the House can only afford to lose about two dozen votes, and blue-state Republicans roughly make up a big enough contingent. But as we’ve seen before, the political pressures of voting for this tax bill appear to be much stronger than with past legislation.
Dylan Scott contributed reporting to this piece.