These unruly GOP tax factions will put Senate’s plan in question

Senate Majority Leader Mitch McConnell is about to face a legacy-defining test of whether he can keep his unruly caucus in line to deliver President Donald Trump’s coveted goal of “massive tax cuts” in 2017.

He needs 50 of 52 members, and they have a variety of competing demands. Some want to limit new deficits, while others want the deepest tax cut possible; some prioritize family tax breaks while others want to give businesses a boost; some have parochial concerns while others tend to be notoriously difficult to win on major pieces of legislation.

Senate Majority Whip John Cornyn says he wants a floor vote the week of Nov. 27. That’s two weeks away. Here are the factions McConnell and his team have to navigate:

Senate Majority Leader Mitch McConnell
Senate Majority Leader Mitch McConnell, a Republican from Kentucky, speaks during a news conference after a GOP luncheon meeting at the U.S. Capitol in Washington, D.C., U.S., on Tuesday, June 27, 2017. Senate leaders put off a vote on RepublicansÕ health-care bill until after the July 4 recess amid growing opposition from GOP members to the plan drafted in secret by McConnell. Photographer: Andrew Harrer/Bloomberg

The Fiscal Skeptics

The tax plan going before the Senate Finance Committee Monday would increase the federal deficit by about $1.5 trillion over the next decade—before accounting for any economic growth that it might spur. That complicates the plan’s prospects among some Republicans.

Tennessee’s Bob Corker, Arizona’s Jeff Flake and Oklahoma’s James Lankford have all warned against fiscal recklessness in the bill.

Corker says he doesn’t want a “penny” in new deficits or he’ll vote against the bill. Lankford says it should be revenue-neutral in the first decade and beyond. Both say they’re willing to assume “reasonable” economic growth that would cushion the deficit impact.

After the Senate plan’s rollout Thursday, Flake fired a warning shot: “I remain concerned over how the current tax reform proposals will grow the already staggering national debt,” he said.

Corker and Flake plan to retire next year, freeing them from political pressure to support their party or please GOP donors.

The Senate plan will change, but for now, one analysis says it would increase the deficit. On Friday, a conservative-leaning policy group, the Washington-based Tax Foundation, projected that plan would boost the deficit $516 billion over a decade, even after assuming economic growth.

The Businessmen

Georgia’s David Perdue is the former CEO of both Reebok and Dollar General. South Dakota’s Mike Rounds is a former partner for an insurance and real estate firm. For both, the business side of the tax plan is paramount.

If any new revenue measures went after businesses to boost offsets, that could be a problem for them.

So far, Congress’s proposal to cut the corporate tax rate to 20 percent from 35 percent has gotten the most attention among business provisions. The House bill would deliver that cut next year, but the Senate plan would delay it until 2019. That won’t sit well with Perdue, who has said that “delays on tax would damage our economy.”

“We need to have a sense of urgency like never before in order get this done this year,” he has said of tax cuts.

Rounds said last month that he wants an “equitable” 25 percent tax rate for partnerships, limited liability companies and other so-called pass-through businesses—a provision that doesn’t include income limits on which firms get the low rate.

But the Senate plan would go a different route, providing a 17.4 percent deduction for such businesses’ non-wage income. That break would not be available to many types of service businesses—except for those whose taxable income falls below $150,000 for joint filers or $75,000 for all others.

The Cut, Cut, Cut Corps

President Donald Trump is reported to have suggested that the name of the tax legislation should be the “Cut, Cut, Cut” Bill. He might find common cause with Pennsylvania’s Pat Toomey, Texas’s Ted Cruz and Kentucky’s Rand Paul.

All three senators have emphasized that they want the steepest and longest-lasting tax cut possible. Deficits are of less concern to them; they believe Congress should focus on boosting the economy and deal with deficits by cutting spending.

Toomey downplayed the tax plan’s estimated $1.5 trillion cost, saying Sunday on NBC’s “Meet the Press” that the legislation would lead to “greater economic growth, a larger economy, and therefore, more revenue to the federal government.”

Paul, a libertarian purist who’s not fond of compromise, has called for a tax bill in which “everyone gets a tax cut”—ideally “at least 15% for every taxpayer.” McConnell and other GOP leaders have already said they can’t meet that standard, acknowledging that under a broad overhaul there will be outliers who see a tax hike.

Cruz last month urged his party to be “unapologetic” for tax cuts, arguing on CNBC that “we should be going much bigger and bolder” than the $1.5 trillion limit.

The Family Guys

Utah’s Mike Lee and Florida’s Marco Rubio insist their main tax priority is to double the Child Tax Credit from $1,000 to $2,000. The Senate plan would raise it to $1,650. Both senators say that’s not enough.

“While we are glad to see an increase to the child tax credit, like the House bill, it is simply not enough for working families,” they said in a joint statement. The two senators also want to apply the credit against payroll taxes as well as income taxes.

Simply raising it to $1,650 costs $582 billion over 10 years, according to Congress’s Joint Committee on Taxation. Going higher would only worsen the red ink, unless tax writers find other offsetting revenue.

Would Lee and Rubio scuttle a tax bill if they don’t get their way? That’s unclear, but they have staked out a position, and any retreat would come with some political cost.

“The Senate is not going to pass a bill that isn’t clearly pro-family,” the pair said in their statement.

The Moderates

Maine’s Susan Collins and Alaska’s Lisa Murkowski showed they’re not afraid to deal Trump or Republican leaders a devastating defeat this year when they cast pivotal votes to block an Obamacare repeal bill.

Collins has made a few tax-related demands that have already been met—including no repeal of the estate tax and no increase in the lowest individual income tax rate of 10 percent. But she also said people making over $1 million shouldn’t get a tax cut, and the Senate proposal would cut the top rate modestly to 38.5 percent from 39.6 percent.

Murkowski has said little about the tax effort so far, and she tends to be cryptic about her intentions on major legislation before casting her vote. Republican leaders gave her an enticement in the budget vehicle for the tax debate: a fast-track vote to permit oil drilling in Alaska’s Arctic National Wildlife Refuge.

The Wildcards

Senator John McCain of Arizona showed his vote can’t be taken for granted with a momentous thumbs-down on the Senate floor that killed Obamacare repeal in July. He has a mixed record on taxes, having voted against Republican tax-cut efforts in 2001 and 2003, citing deficit concerns. McCain, 81 and battling brain cancer, has demanded a bipartisan process through regular order on a tax overhaul.

He tweeted Thursday that he’s “pleased” with the tax effort so far. “I’ve long believed we need to fix our burdensome tax system & am reviewing the Senate bill to ensure it benefits the people of #Arizona,” he wrote.

A different kind of maverick is giving Republican leaders heartburn lately, and he’s not even a senator—at least not yet.

Roy Moore, the GOP nominee for a Dec. 12 special election Alabama, is fending off allegations that he had sexual contact with a 14-year-old girl almost four decades ago. The former judge has denied those allegations, and others that he pursued dates with three other teenagers when he was in his 30s.

Recent polls show Moore slipping in the race against Democrat Doug Jones. A loss would cut the GOP’s margin for error in half—to just one senator.

One way to avoid that problem: Get both the House and Senate to hammer out compromise legislation before Moore—or his Democratic opponent—is sworn in.

Bloomberg News
Tax reform Tax cuts Corporate taxes Estate taxes Tax breaks Tax deductions Mitch McConnell Donald Trump
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