The House tax-writing committee is entering its second day of work Tuesday to hammer out the details of the Republican tax cut plan. Here are the latest developments, updated throughout the day:

House Amendment Guts Offshore Tax Provision (10:10 p.m.)

House Republican tax writers effectively gutted a proposal to tax U.S. companies’ payments to related foreign affiliates, part of a package of late changes on Monday that punched a $74 billion revenue hole in their tax-overhaul plan, according to a preliminary estimate from Congress’s Joint Committee on Taxation.

The change leaves House Ways and Means Chairman Kevin Brady searching for new ways to offset the bill’s tax cuts in order to keep the legislation in line with Congress’s 2018 budget resolution and avoid the threat of a Democratic filibuster in the Senate that could kill it.

The panel voted late Monday to approve a group of changes that Brady said “better tailors” provisions aimed at preventing companies from shifting their earnings offshore to avoid U.S. taxes. As a result, the revenue from a proposed 20 percent excise tax on certain corporate payments to related offshore affiliates dropped to about $6.5 billion from $154.5 billion earlier, the JCT found.

The excise tax proposal had stirred concern among various tax experts. One called it “the atomic bomb in the draft.”

By changing that provision and others, the committee increased the 10-year deficit that the tax bill would produce by $160.7 billion, to $1.57 trillion. Congress has approved a 2018 budget resolution that capped any deficit spending at $1.5 trillion. The JCT document surfaced Tuesday evening.

Meanwhile, after fiery clashes on the first day of its tax bill markup, the Ways and Means Committee ended a relatively quiet Tuesday with Republicans voting down a swath of Democratic-led amendments designed to box them in politically.

The proposed amendments included calling for limiting the debt increase under the tax bill after the second year, restoring the state and local tax deduction, and ending the SALT deduction for businesses (Democrats argued that if individuals can use it, it’s unfair to allow businesses to). Other proposals sought to raise the corporate tax rate enough to achieve revenue-neutrality under the bill, preserve the Work Opportunity Tax Credit for employers who hire veterans and restore the adoption tax credit.

—Lynnley Browning, Erik Wasson and Sahil Kapur

Senate Is Said to Mull Full Repeal of SALT Break (7:09 p.m.)

Senate Republicans are considering fully repealing individual federal tax deductions for state and local taxes—including property taxes, according to two people familiar with their discussions. The people asked not to be named because the Senate’s tax-writing discussions haven’t been made public.

Although the situation is fluid and the Senate bill is subject to change, senators are also discussing preserving the estate tax—at least in some form, the people said. Both measures would conflict with legislation under consideration by the House Ways and Means Committee, raising questions about GOP leaders’ ability to muster majority support in both chambers.

Representative Peter Roskam, the Illinois Republican who chairs the House tax policy subcommittee, said Tuesday that House members would fight the Senate bill if it ends SALT entirely.

Both the SALT and estate tax proposals that senators are discussing would be aimed at trimming the cost of the GOP tax package to help it comply with Senate budget rules. In the House, tax writers propose to preserve the existing tax break for state and local property taxes, but cap it at $10,000. The House bill would eliminate the estate tax—which levies a 40 percent rate on married couples’ estates worth more than $10.98 million—after 2023.

GOP House members in high-tax states, including New York and New Jersey, have expressed concern that repealing the break entirely would subject some people in their districts to higher taxes.

Senate Finance Chairman Orrin Hatch declined to say whether his bill will end the SALT provision entirely, calling it a “hot issue.”

“We’ll just have to see,” he said Tuesday. “I’ll do the best I can.”

The Senate Finance Committee plans to release a tax bill as early as Thursday. The House Ways and Means Committee is working on its bill and hopes to hold a vote Thursday.

—Lynnley Browning and Sahil Kapur

Trump Calls from Seoul to Pitch Tax Plan (6:05 p.m.)

President Donald Trump surprised a group of Senate Democrats by calling, amid his trip to Asia, into a meeting they were having with White House advisers to make a personal pitch for the tax-cut plan being worked on by Republicans.

Responding to Democratic complaints that the current version of the tax legislation favors the wealthy, Trump told the lawmakers “the rich will be hurt” in the bill, said Jon Tester of Montana, who was among about a dozen Democrats in the meeting.

The meeting with White House economic adviser Gary Cohn and Marc Short, the administration’s chief liaison with Congress, was arranged by West Virginia Senator Joe Manchin. He’s being wooed by Republicans as a possible “yes” vote because of his status as a Democrat up for reelection next year in a state that Trump won by a wide margin.

Trump dialed into Cohn’s cell phone from Seoul, where it was the early morning. He addressed the gathering by speaker.

“He thanked us for being there and hoped that we can find a path and we can all work together,” Manchin said. Trump said he “would like to get a bipartisan deal done,” but Manchin said he told the president that House Republicans weren’t acting like they’re interested in Democratic input.

Sherrod Brown of Ohio promoted his proposal to expand the Earned Income Tax Credit and the child tax credit, as well as a plan to give more tax advantages to companies that pay their workers well and don’t move jobs overseas. He said the president told him he liked both ideas.

“I don’t know if McConnell is not hearing what the president is saying or if McConnell is not paying attention,” Brown said, referring to Senate Majority Leader Mitch McConnell.

—Laura Litvan and Erik Wasson

Reed Calls Democrats Hypocrites for SALT Support (2:15 p.m.)

Representative Peter Roskam, head of the House Ways and Means tax policy subcommittee, said an amendment that would have preserved the deduction for state and local taxes and pared a proposed cut to the corporate tax rate to pay for the change was defeated by voice vote. Republicans want to take the corporate rate to 20 percent, down from 35 percent.

Representative Bill Pascrell, a Democrat from New Jersey, introduced the amendment, saying the GOP plan to eliminate most of the so-called SALT deductions would “crush” taxpayers in his state. He urged the committee—where two dozen members were absent as the hearing dragged into the lunch hour—to consider his amendment.

Representative Tom Reed, a New York Republican, defended the compromise worked out between leadership and representatives from high-tax states to preserve property tax deductions up to $10,000.

“When we had the property tax compromise, that took care of a lot of the folks on the lower end of the spectrum,” Reed said. He called out Democrats as hypocrites for supporting a tax break that primarily benefits upper earners.

“I think that compromise goes a long way to protect those middle-class hardworking families,” Reed said.

Roskam said his constituents in Illinois “are interested in tax relief.” While repealing state and local income and sales tax deductions wouldn’t be a good deal for them on its own, “all in, if we evaluate this, this is a winner for the sixth district of Illinois.”

“What happens if the Senate doesn’t agree to this?” Roskam said of the compromise retaining property tax deductions. “We will fight the Senate.”

Meanwhile, Representative Darrell Issa, a California Republican, said he was opposing the tax bill because of its treatment of state and local tax deductions. Issa said he would continue to review the bill as the committee makes changes.

—Anna Edgerton, Sahil Kapur and Erik Wasson

Cruz Pushes for Repeal of Obamacare Mandate (1:10 p.m.)

Senator Ted Cruz, a Texas Republican, is continuing to push for including the repeal of Obamacare’s individual mandate in a tax bill. GOP lawmakers need “to do more” than what’s been proposed so far, Cruz said at a news conference where Treasury Secretary Steven Mnuchin and Senate Republicans discussed tax efforts.

“A major tax cut is absolutely critical, and I believe we will get it done,” Cruz said. He’s pushed back on the idea of revenue neutral changes.

Some Republicans still hope to add in a provision to repeal the mandate under Obamacare for individuals to buy health insurance. Doing so is estimated to raise $416 billion over a decade, which could be used to offset tax-rate cuts. President Donald Trump has posted Twitter messages supporting the move. House Freedom Caucus chairman Mark Meadows said late Monday that among conservatives, “the overwhelming support is to include the individual mandate in that.”

Still, House Ways and Means Committee Chairman Kevin Brady said in a statement Monday night that he and others are “working on common-sense temporary and targeted relief” from taxes imposed by Obamacare, but suggested the House will act on them separately “before the end of the year.”

Senate Finance Chairman Orrin Hatch said on Tuesday afternoon that his committee was still on track to release a tax bill on Thursday.

—Laura Litvan and Ari Natter

Democrats Try to Push Republicans on Deficit: (12:37 p.m.)

The Ways and Means Committee considered an amendment by Representative Earl Blumenauer, an Oregon Democrat, that aims to limit the debt increase under the bill after two years.

Republicans defeated it on a voice vote. They dismissed it as a political maneuver designed to scuttle their efforts. “This is a revenue bill. It’s not a spending bill,” said Representative Mike Kelly, a Pennsylvania Republican. “The revenue is provided by hard-working taxpayers, not some other entity.”

Democrats condemned the tax bill as fiscally reckless. It’s projected by the nonpartisan Joint Committee on Taxation to add $1.41 trillion to the debt, prior to some tweaks offered Monday evening by Chairman Kevin Brady.

“Quite frankly some of us are getting tired of cleaning up the fiscal mess that Republican administrations leave for the next generation,” said centrist Democratic Representative Ron Kind of Wisconsin, arguing that other than the emergency stimulus package of 2009, Democrats paid for their bills.

—Sahil Kapur

Deductions for Medical Expenses under Discussion (11:35 a.m.)

House Republicans discussed the elimination of deductions for medical expenses and adoption credits during a GOP conference meeting before the Ways and Means hearing started on Tuesday morning, according to Representative Tom Cole of Oklahoma.

“They basically said they are working through problems,” Cole said.

The U.S. Capitol building is reflected in Washington, D.C.
Andrew Harrer/Bloomberg

Under current law, taxpayers can claim an adoption credit of as much as $13,750 per eligible child. And they can claim itemized deductions for out-of-pocket medical expenses for themselves, spouses or dependents, if the expenses exceed 10 percent of their adjusted gross incomes. The House bill unveiled last week calls for full repeal of the adoption credit, along with the elimination of the itemized deduction for medical expenses starting in 2018.

Modifying the repeal of the adoption credit seems to have support from some House Republicans, including Representative Tom Reed of New York, Representative Mike Kelly of Pennsylvania and Representative David Schweikert of Arizona, who’s adopted and whose daughter is adopted.

Still, Representative Tom MacArthur—the father of two adopted children—cautioned about the effects of making those changes.

“It’s great to encourage things but you have to look at the bill in its totality,” MacArthur of New Jersey said. “If you keep putting things back in, you get to the point where you can’t afford to double the standard deduction, you can’t afford to lower the rates. You can’t just look at one individual piece and say ‘I want that,’ because someone wants every piece.”

—Colleen Murphy (Bloomberg BNA), Kaustuv Basu (Bloomberg BNA) and Laura Davison (Bloomberg BNA)

Pascrell: ‘This Ain’t Moscow’ after Brady Amendment (4 a.m.)

Partisan bad blood is likely to dominate the second day of proceedings, after events late Monday further escalated tensions between Republican and Democratic lawmakers on the tax-writing committee.

House Democrats lambasted Ways and Means Chairman Kevin Brady for introducing a series of last-minute revisions to the GOP tax bill, including extending the time period for investment managers to qualify for the carried interest tax break. Democratic lawmakers complained that the provisions were adopted by the committee in a 24-16 party-line vote before anyone had time to review them.

“This is America. This ain’t Moscow!” Democrat Bill Pascrell of New Jersey said after Brady introduced the amendment.

The complaints underscore a concern echoed more privately by some Republicans, who are frustrated with GOP leaders for negotiating specifics behind closed doors, keeping details highly guarded and then acting quickly after they’re revealed.

The second day of the markup will likely include votes on multiple amendments as lawmakers begin working their way through the 429-page tax bill. Brady said there may be more revisions coming. Potential sticking points in the original legislation include provisions to repeal state and local income and sales tax deductions and to cap the mortgage interest deduction at $500,000.

“There’s a possibility there will be more amendments by me that incorporate solutions as we get to them. It depends on how the solutions are designed moving forward,” Brady said.

The Texas Republican has said there will be no amendments to the bill once it reaches the full House for a vote, giving lawmakers and lobbyists a three-day window to secure modifications they want.

The chairman’s changes late Monday, which he said were crafted in consultation with GOP members, included limiting the so-called carried-interest tax break, adding new requirements for claiming the earned income tax credit and modifying rules aimed at preventing multinational corporations from shifting their earnings overseas. He said there was no estimate yet from the Joint Committee on Taxation, the official nonpartisan scorekeeper, on the budget impact of the revisions.

Brady’s last-minute amendment was labeled by Democrats as “disgraceful” and a “mockery” of the committee. Then things got unusually personal.

“You’re determined to pass a bill because you haven’t done anything of importance all this year. You’re desperately looking for something to pass,” said Representative Sander Levin, a Michigan Democrat and former chairman of the committee.

—Sahil Kapur, Anna Edgerton and Colleen Murphy (Bloomberg BNA)

What to Watch on Tuesday:

The House markup could continue well into the evening as Republicans try to meet their target of a final committee vote by Thursday. Some Republicans still hope to add in a provision to repeal the mandate under Obamacare for individuals to buy health insurance. House Freedom Caucus chairman Mark Meadows said late Monday that among conservatives, “the overwhelming support is to include the individual mandate in that.” Senate Democrats are scheduled to meet Tuesday with White House Legislative Affairs Director Marc Short and top economic adviser Gary Cohn. Republicans on the Senate Finance Committee are trying to finalize their version of a tax bill, which they hope to unveil Thursday.

Here’s What Happened on Monday:

House Ways and Means began its marathon markup of its tax draft with Brady telling members they face “a monumental challenge” to fix a broken tax code. The panel’s top Democrat, Richard Neal, said the GOP measure “puts the wealthy and well-connected first.” There are no plans to add the repeal of the Obamacare individual mandate to the House tax bill, according to a person who is helping write the law. While the situation is still fluid, if that provision is added, it would most likely be done on the Senate side, said the person, who asked not to be named when speaking about internal discussions. Senate tax writers are planning on keeping the mortgage interest deduction limit at $1 million, unlike the House legislation released last week that set a cap of $500,000 for new home sales, according to a person familiar with the emerging Senate bill. Senator John Cornyn of Texas, the No. 2 Republican leader, said in an interview Monday the chamber’s tax-writing committee wouldn’t be using the House bill as a starting point. For a full account of the day, click here.

Bloomberg News