The Senate tax reform bill outlined Thursday veers sharply from the House and the White House on several major provisions, including its delay in implementing a lower corporate tax rate until 2019, a signal of the hard bargaining ahead on a key piece of President Donald Trump’s agenda.
The Senate plan would also set a top individual tax rate of 38.5 percent and keep deductions for people with high medical bills and for student loan interest, according to a summary. It would completely eliminate a federal deduction for state and local taxes, keep the cap on the mortgage interest deduction at $1 million and increase the exemption for the estate tax instead of eliminating it as the House would.
Meanwhile, House Ways and Means Chairman Kevin Brady released a new round of changes to that chamber’s plan. Among the most far-reaching is a rock-bottom tax rate for small businesses, designed to overcome strong opposition from the small business lobby to the original House plan. The committee then voted 24-16 to send the bill to the full House.
Both chambers plan to pass their bills in coming weeks and then iron out differences, in hopes of getting a unified plan to President Donald Trump’s desk by the end of the year. It is the GOP’s top priority going into the 2018 election after other major parts of their agenda, notably repealing Obamacare, stalled.
Reconciling the House and Senate plans and getting sign-off from Trump is likely to be daunting. The change in the corporate tax cut from the House bill, which would institute a 20 percent corporate rate in 2018, is likely to anger Trump and the White House, which wants the change to happen as soon as possible.
The effort to reduce the corporate rate is the centerpiece of the GOP plan to lower tax rates and spur faster economic growth. But the Senate is trying to limit the revenue impact to allow a bill to pass with just 51 votes and avoid a possible Democratic filibuster.
In another break with Trump, neither the Senate bill or the House bill include a repeal of the Obamacare individual mandate to have health coverage. But Senate Republicans are still considering a repeal to help pay the cost of making some tax cuts permanent.
GOP leaders are talking with rank-and-file members to assess whether they have the necessary 50 votes to scrap the least popular part of Obamacare.
Trump has pushed for repealing the mandate, along with conservative senators. But many lawmakers said reopening the health care debate would just make passing the tax bill harder.
“I’d sure like to do that,” said Sen. Roger Wicker (R-Miss.) “I think we’re counting votes. It sure gives us a lot more flexibility.”
Another major split is likely to develop over the federal deduction people can take for the state and local taxes they pay. To appease Republicans from high-tax areas in blue states, the House preserved a deduction for property taxes, capping it at $10,000. The Senate would end the deduction entirely to fund other rate cuts. Top House Republicans have said they’re skeptical that a tax bill that eliminates the entire state and local deduction can pass the House.
As the first details were trickling out about the Senate plan, Brady unveiled a new round of changes to the House GOP’s plan to rewrite the tax code.
The 29-page amendment offers a new, super-low 9 percent tax rate to small businesses, an apparent effort to appeal to the influential NFIB which has been unhappy with Brady’s plans to tax so-called pass-throughs. The tax would apply to businesses’ first $75,000 of income.
The new plan also keeps a tax break for adopting children, a provision that had been on the chopping block to the consternation of many Republicans. The Senate also kept that break.
Other House provisions would expand a tax on private university endowments, alter a plan addressing to combat international tax avoidance, impose a surtax on life insurance companies and increase a one-time tax on companies’ overseas earnings — to 14 percent from 12 percent on liquid assets, and to 7 percent from 5 on illiquid assets like property.
It would also impose a new requirement on those claiming a tax break for having children, stipulating taxpayers must provide a Social Security number for the child in order to claim the entire credit.
The revisions are aimed at bringing the plan back into compliance with the party’s budget, which allows them to cut taxes by no more than $1.5 trillion, as well as address complaints from Brady’s fellow Republicans. They are $146 billion over budget, according to Ed Lorenzen, a budget expert at the Committee for a Responsible Federal Budget.
Another provision would allow organizations such as charities and churches to engage in political speech without risking their tax-exempt status.
Overall, the Senate plan is less sweeping than the House’s.
The Senate keeps the current seven individual tax brackets, though those brackets are generally equal to or lower than current law. The top individual rate would fall from 39.6 percent to 38.5 percent.
Pass-through businesses would get a deduction that Senate Finance Committee aides said would put their top rate in the low 30s, from a potential high of 39.6 percent now.
Aides said that the committee was still working to make its bill compliant with the chamber’s budget rules, which don’t allow the tax bill to add to deficits outside the 10-year budget window. That’s crucial to unlocking a procedure that the Senate can use to get around a Democratic filibuster of their plan.
Still, the Senate would also keep several of the individual tax breaks whose proposed elimination has proved controversial in the House, including the deductions for adoption, medical expenses and student loan interest. The Senate preserves the current $1 million cap for the mortgage interest deductions as well, which the House proposes to slice in half.
Keeping the mortgage cap where it is costs between $40 billion and $45 billion in lost revenue over a decade, but it’s based on geography, said Sen. Tim Scott (R-S.C.).
“If you think about the average cost of a home nationwide, $500,000 in the most expensive markets is inadequate from my perspective,” he said.
The Senate stops short of repealing the estate tax, which the House proposes to do after a six-year delay. The Senate would rather double the exemption for the estate tax, allowing a married couple to shield up to $22 million from the tax.
On the international side, Senate Republicans joined the House in proposing a shift to a “territorial” system that largely shields offshore corporate income from U.S. taxation. But they did not include a foreign excise tax that has stirred controversy in the House. Instead, they propose a complex plan of their own to keep corporations from gaming the territorial tax system.
Senate Republicans had mixed reactions to several of the bill’s provisions.
Some GOP members have been adamant that there be no delay in the corporate cut.
“There’s no need for that, that is nothing but a gimmick here in Washington, there’s no need for that. We need to get this change in and get it in as soon as possible,” David Perdue of Georgia said on Wednesday.
Others were more flexible.
“I have less consternation about [the delayed corporate rate cut] than I do if there are some phase-outs,” said Jeff Flake of Arizona. “Phase-outs are typically more gimmicky. This isn’t going to affect the [budget] score or balloon the deficit. It’s acknowledging that we can’t afford it all and so we’ll delay it.”
Coming out of the briefing, John McCain of Arizona, one of the GOP members whose vote is being closely watched, said he was “favorably inclined” toward the bill based on Finance Chairman Orrin Hatch (R-Utah) taking it through regular order in committee, which was a concern he often raised on the Obamacare repeal that he ultimately opposed.
Ben White, Josh Dawsey, Colin Wilhelm, Seung Min Kim, Elana Schor and Jennifer Haberkorn contributed to this report.
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