The outlook for Republicans to deliver a U.S. tax overhaul by the end of the year brightened Tuesday after President Donald Trump addressed GOP Senate holdouts in a closed-door, lunchtime session.
The GOP meeting was “somewhat of a lovefest,” Trump said later Tuesday, as he prepared to meet with Majority Leader Mitch McConnell and House Speaker Paul Ryan at the White House. “They want to see it happen.”
The Senate Budget Committee voted to send the tax bill to the Senate floor for a vote as early as Thursday. The panel’s approval came on a party line vote of 12-11 after GOP Senators Ron Johnson of Wisconsin and Bob Corker of Tennessee put aside objections related to business taxes and deficit impacts.
Corker, who wants to include a trigger provision in the bill that would raise taxes in case of large revenue shortfalls, said he thinks tax writers have agreed to his demand.
After the vote, Trump told reporters there would be adjustments to the legislation. The bill is “going to have lots of adjustments before it ends, but the end result will be very, very massive,” he said.
The House passed its own tax-cut measure last month, and Senate Republicans can afford to lose no more than two votes among their ranks to pass the measure without Democratic help this week. So smoothing out senators’ objections has been critically important.
During his Tuesday meeting, Trump told Republicans he’s open to the kind of trigger that Corker and others have suggested.
"He didn’t throw cold water on it. He just simply said, look, let’s put it together, and whatever it takes to put together our team," said Senator Mike Rounds of South Dakota.
Some Republicans signaled opposition to a trigger, including Senator John Kennedy of Louisiana. “I am not going to vote to implement automatic tax increases on the American people,” he said. “If I do that, consider me drunk.”
‘Very Respectful’
Trump also addressed Johnson’s concerns that the bill doesn’t provide enough of a tax break for partnerships, limited liability companies and other “pass-through” businesses, leaving them at a disadvantage with corporate competitors, Rounds said.
Trump “answered Ron’s questions” about the pass-through issue “and he was very respectful to him and to others,” Rounds said.
In addition, Trump endorsed legislation by Republican Lamar Alexander and Democrat Patty Murray to stabilize the Obamacare marketplaces and approve payments to insurance companies who take a sicker group of patients, Rounds said.
That position may help win the votes of Republicans Susan Collins of Maine and Lisa Murkowski of Alaska, who voiced concerns about repealing the Obamacare individual mandate in the tax bill. Collins said she’s pleased that Trump also endorsed her push to create an exemption for state and local tax deductions like in the House bill.
‘Feeling Better’
She still has other demands—such as maintaining the top tax rate of 39.6 percent on people earning $1 million or more—but said party leaders were “eager” to win her vote on the legislation.
Murkowski sounded warm to the legislation on Tuesday.
“I’m feeling better today and I’m optimistic about the bill,” she said.
Details have yet to be hammered out on the fiscal trigger, potential pass-through changes and other tweaks—and those could be key to determining whether Johnson, Corker and others with debt concerns such Jeff Flake of Arizona and James Lankford of Oklahoma end up supporting the final bill.
Smoothing out the various senators’ desires is a tricky task; Republicans cannot add more than $1.5 trillion to the deficit in the first 10 years under their budget parameters, and must eliminate all deficits after a decade to pass the legislation with as few as 50 votes.
Bill’s Details
The Senate bill would cut the corporate tax rate to 20 percent from 35 percent in 2019 and reduce individual rates and double the standard deduction until 2026—adding $1.4 trillion to the federal deficit over a decade. The legislation also would open the Arctic National Wildlife Reserve to oil drilling.
Johnson has pushed to change the way pass-through businesses would be treated by increasing a proposed 17.4 percent deduction for pass-through business income to at least 20 percent. Johnson says he’d pay for the heftier tax break by eliminating the corporate deduction for state and local taxes.
Johnson said he voted to approve the measure during the budget panel’s meeting “based on the progress” in recent days. “I’m getting commitments we are going to get this fixed,” he said.
Under the budget process Republicans are using to pass the tax bill without Democratic votes, the Budget Committee was tasked with combining the Finance Committee’s tax measure with the Alaska drilling proposal from the Energy and Natural Resources Committee.
The legislation faces an open amendment process on the Senate floor that may spell substantial changes before a final vote that’s expected Thursday.
Marijuana Businesses
Senator Cory Gardner, a Colorado Republican, said he plans an amendment to make marijuana businesses eligible for tax breaks.
If the bill passes the Senate, Republicans plan to convene a conference committee next week to reconcile the House and Senate versions.
While the overall architecture of the two bills is similar, there are significant differences. The House would repeal the individual deduction for medical expenses and limit the home mortgage-interest deduction to future loans under $500,000—provisions that aren’t in the Senate bill. The House would keep individuals’ state and local property tax deduction and cap it at $10,000. The Senate bill would eliminate all deductions for state and local taxes.
For pass-through businesses, the House proposes a 25 percent top rate and a complex formula for separating individual and business income. The Senate would allow pass-through owners to take a 17.4 percent deduction on their pass-through income, which would then be taxed at individual tax rates that top out at 38.5 percent.
The Senate bill would keep seven individual tax brackets, similar to current law, while the House bill would have four brackets. Most individual tax breaks provided in the Senate bill would expire to avoid creating a long-term deficit increase, while corporate reductions would be permanent.
—With assistance from Laura Davison, Steven T. Dennis and Laura Litvan
