Now it’s the House’s problem

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Different observers have used different metaphors to describe where the tax reform process stands – at the starting line or in the homestretch have both been used – but it’s universally agreed that the Senate’s passage of a budget resolution last week was a giant step forward.

The next step will be in the House, where the Ways and Means committee is conducting a “walk-through” of the resolution, and the Rules Committee has scheduled hearings beginning Oct. 24, 2017.

A letter signed by 22 pro-tax reform groups urges the House to forego the normal conference procedure to expedite action on the Senate resolution.

“The quickest and highest-probability path to achieving this goal [passing fundamental tax reform] would be to bypass the conference process and move directly to a House vote on the Senate-passed budget resolution,” the groups state. “Doing so will give members of the House and Senate a head-start on negotiating the specifics of tax reform legislation.”

In fact, last-minute adjustments to the resolution could make this possible, according to Roger Harris, president of Padgett Business Services. “There’s talk in Washington that going directly to a House vote without going through the conference process would save 12 working days,” he said. “And in Washington, 12 working days spans a good percentage of the time that is left to get it done this year.”

“While the House bill is revenue-neutral, the Senate resolution allows a trillion-and-a-half dollars for tax reform over the 10-year window of reconciliation,” he said. However, there are two additional issues being addressed, which may become sticking points, he indicated. The first is an additional bracket, with no rate cut, for those earning more than $1 million a year. And the second is the elimination of the state and local tax deduction.

“The elimination of the state and local deduction is a big revenue-raiser, but if the bill needs votes here and there, we could see some modification,” he said. “In the past, supporters of a bill could use ‘rifle shot’ procedures to target a senator or House member with something they wanted in exchange for their vote. They might offer a courthouse or a bridge, or a special deduction for a local industry. But there’s an earmark moratorium in play now, so we won’t see that process. It may be better ethically but practically, it’s harder to deliver legislation without that possibility.”

The House is expected to vote on the Senate resolution later this week, with a marked-up bill soon to follow. And that’s when the framework takes shape and the blanks begin to be filled in.

“Once details emerge, the special interests will begin to squawk,” predicted Harris. Every deduction that is affected will have its own set of supporters. There are so many details yet to be decided on, such as the range in the tax brackets, a compromise on the state and local tax deduction, stepped-up basis, and taxation of pass-through entities,” he said.

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Tax reform Tax deductions Tax rates State taxes