Politico

What's next on tax reform

Written by Lisa

Republicans are confident they can quickly overcome the differences between the House and Senate tax bills and send President Donald Trump a plan he can sign into law by year’s end.

In their efforts to enact the biggest changes to the tax code since the historic 1986 Reagan-era reforms, the two chambers have passed bills that diverge on key issues like amending the popular mortgage-interest deduction, taxing small businesses and keeping the hated alternative minimum tax, which Republicans have long promised to kill. But don’t expect a drawn-out fight over the details.

After the Senate approved its sweeping $1.5 trillion legislation early Saturday, Speaker Paul Ryan said he would appoint official negotiators on Monday to a conference committee that will meld the measure with the one the House passed in November. Though some Senate Republicans would like the House to simply pass their plan without any changes, a spokesman for Majority Leader Mitch McConnell said he will name his own conferees next week.

The two sides agree on many key elements of an overhaul, including its overall size and emphasis on cutting corporate taxes. And none of the issues where the two plans diverge have drawn such strong opposition that they can’t be finessed, congressional leaders say. Too much is at stake.

“I think everybody in our conference believes this is an imperative for the economy and also the politics, I think, would not be good were we to fail,” said Sen.John Cornyn, the chamber’s deputy leader.

Congress is under pressure to act quickly, with Republican leaders racing to complete action before the winner of Alabama’s special Senate election can be seated later this month. Lawmakers fear that both Republican Roy Moore and Democrat Doug Jones will oppose their plans.

The agreement on many of the big-ticket items is largely due to the work of the so-called Big 6, a group of Republican leaders who worked this fall to get the two sides on the same page. Both chambers want to slash the corporate tax rate to 20 percent, from the current 35 percent, while expanding a popular child tax credit and capping a long-standing deduction for corporate interest expenses. Republicans also agreed not to cut taxes by more than $1.5 trillion.

Still, the conference committee will have to work hard. They’ll have to find agreement amid fierce lobbying from special interest groups determined to squeeze in last-minute changes. And the Senate’s close 51-49 vote on Saturday morning underscores Republicans’ thin margin for error.

And there are some significant differences to resolve. The House, for example, wants to slash the mortgage interest deduction in half, and eliminate it entirely for second homes. The Senate would only end it for home equity loans.

In a surprise move, Senate Republicans decided at the last-minute to abandon plans to repeal the AMT — a key part of GOP promises to radically simplify the code — and that’s sure to be unpopular with House Republicans.

The House wants to cut some $65 billion out of education-related tax breaks, which the Senate leaves them mostly untouched. The Senate wants to double one break, for teachers’ expenses, that the House would kill altogether. Senate Republicans have seven individual income tax brackets in their plan; the House has four. House Republicans want to end the estate tax while the Senate would only temporarily ease it.

While Republicans largely support repealing the Affordable Care Act’s mandate to have health insurance — included in the Senate draft — some in the House want to use the $318 billion that’s projected to raise to finance other changes in the health law.

On the business side of the code, the bills have radically different approaches towards taxing so-called pass-throughs, a hot-button issue that roiled the Senate this week. “Pass-throughs” are unincorporated businesses.

While both sides want to pare a break for corporate interest expenses, the Senate would take nearly twice as much — $300 billion over the next decade — out of that break as the House.

And the two chambers have different visions for taxing multinational corporations — though that’s barely been publicly debated by lawmakers.

“It’s always tough to work with the Senate, no matter what the topic is,” said Rep. Pat Tiberi (R-Ohio), who sits on the tax-writing Ways and Means committee. “What’s the old saying? Democrats are the other party, but the enemy is the Senate.”

Still, Senate Republicans moved closer to their House colleagues in some areas during this week’s deliberations.

Most notably, after House Republicans warned a Senate bid to end a long-standing deduction for state and local taxes was a nonstarter with their colleagues, the Senate adopted a House plan to limit the break to $10,000 in property taxes.

Likewise, the Senate largely adopted Friday the House position on imposing a one-time tax on corporations’ overseas earnings.

Veterans of past tax-policy fights are stunned by the speed with which this Congress has been able to act. The final Senate vote came less than a month after the proposal was introduced; the House completed formal consideration of its plan, from start to finish, in exactly two weeks.

And, after their embarrassing Obamacare-repeal debacle, Republicans acknowledge they are ready to compromise.

“Had we had a list of success, I would say it would be a difficult process,” said Rep. Mark Walker (R-N.C.), who leads the Republican Study Committee, a group of often balky conservatives. “But because there is a sense of urgency both in the House and the Senate and within the administration, I think people are going to say: “You know what? We’re going to have to fix things, but we’ve got to get this done.”

With reporting by Aaron Lorenzo

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