Senate set for clash with House on tax bill
Senate Republicans are set to unveil a tax-reform bill that differs significantly from legislation in the House, setting up a battle within the GOP as it tries to hand President Trump his first major legislative victory.
Tax-writers in the Senate are expected to eliminate the deduction for state and local taxes in their legislation, a break with House Republicans, who have proposed keeping it in place for property taxes up to $10,000.
About two dozen House Republicans from high-tax states had insisted on the $10,000 exemption in the bill, saying it was critical to ease the financial impact on their constituents.
Senate Finance Committee Chairman Orrin Hatch (R-Utah) acknowledged he’s bracing for a fight.
“There’s a lot of people who want that deduction,” Hatch said.
{mosads}Senate Republicans are also expected to increase the threshold for the popular mortgage interest deduction to $1 million, a substantial increase over the House, which lowered the cap to the first $500,000 of a mortgage
They will also change the House formula for taxing small businesses with a new “pass-through” rate of 25 percent. GOP senators say businesses with large capital expenses will see lower rates compared to the House bill, which would tax 70 percent of small-business income at the individual tax rate and 30 percent at the new pass-through rate.
“It will be a different bill,” said Sen. Deb Fischer (R-Neb.), who pressed President Trump at a lunch two weeks ago to make sure middle-class families and small businesses would see substantial tax relief.
Sen. Rob Portman (R-Ohio), a key member of the Senate Finance Committee, told Fox News on Tuesday, “I think there will be no deduction for state and local taxes.” Sen. David Perdue (R-Ga.) said that was also his expectation.
The Senate Finance Committee will share the details of the legislation with Republican senators at a special conference meeting scheduled for 11:30 a.m. Thursday.
Senate GOP aides say the proposal will be in the form of a “conceptual mark,” which will provide complete details, but no bill text.
Senate Republicans note that high-tax states such as New York, New Jersey, Illinois and California don’t have representation in their conference, making it easier for them to eliminate the state and local income tax deduction.
“Our bill obviously will have a different approach, by and large, in some cases from what the House has,” said Senate Republican Conference Chairman John Thune (S.D.).
Thune noted that “the dynamic” of state and local taxes “is different, obviously, in the Senate than in the House.”
“We want to do as many base-broadeners as we can to help offset the things we want to do on rates,” he added.
Senate Democratic Leader Charles Schumer (N.Y.) was eager Wednesday to highlight the emerging divide between House and Senate Republicans on the issue.
He noted that 49 percent of taxpayers in Rep. Barbara Comstock’s (R-Va.) district in suburban Washington, D.C., take an average deduction of $13,500 for state and local taxes. Comstock is a top Democratic target in the 2018 elections.
“Barbara Comstock, in my view, would write her own defeat if she votes for this bill,” he said.
Schumer also pointed to GOP Reps. Ed Royce (Calif.), Erik Paulsen (Minn.), Peter Roskam (Ill.) and Mimi Walters (Calif.) as other lawmakers from high-tax suburban areas whose constituents would be hit hard by ending the deduction.
Senate Republican leaders are conflicted over another major change from the House bill: the potential addition of language repealing the federal mandate requiring people to buy health insurance.
Conservatives, such as Sens. Ted Cruz (R-Texas), Rand Paul (R-Ky.) and Tom Cotton (R-Ark.), support repealing ObamaCare’s individual mandate, which would raise an estimated $300 billion-$400 billion over the next decade that could be used to further lower tax rates.
But moderate Republicans aren’t thrilled with the idea, because it could cause insurance premiums to rise and millions to lose coverage, according to the Congressional Budget Office.
“It complicates the efforts to get a tax-reform package through the Senate,” warned Sen. Susan Collins (R-Maine), a key moderate.
Republican senators said Wednesday afternoon that GOP leaders were whipping members on the question of whether to add the mandate provision.
By eliminating the property tax deduction along with deductions for state and local taxes, Senate Republicans will have more revenue to address the concerns of two key special interest groups: the National Federation of Independent Business (NFIB) and the National Association of Home Builders.
NFIB, which represents 325,000 small businesses, slammed the House tax bill last week for cutting the corporate tax rate to 20 percent while advancing a formula that would set an effective tax rate of between 35 percent and 38 percent for many pass-through businesses.
Juanita Duggan, the group’s CEO, said the House’s legislation “leaves too many small businesses behind.”
The National Association of Home Builders also blasted the House bill, charging it “effectively abandons the nation’s long-standing commitment to housing.”
Construction stocks dropped last week after details of the House bill became public.
Treasury Secretary Steven Mnuchin told reporters earlier in the week that the administration was taking the concerns of the small business trade association seriously.
“We’ve had very active discussions with the NFIB and I look forward to having a resolution with them shortly,” he said. “They’re a very important constituency.”
The group contributed money overwhelmingly in favor of Republican candidates in the 2016 election.
Republican senators say they expect the Senate to adopt a formula for small businesses that would give greater weight to capital investments.
Instead of taxing 70 percent of pass-through income at the individual rate, there’s support for taxing only 50 percent at that level and the remaining 50 percent at the lower 25 percent pass-through rate.
“I think the question is, how do you treat all pass-throughs … as equitable as possible? I think we’ll find a sweet spot in the middle,” said Sen. Tim Scott (R-S.C.), a member of the Finance Committee.
Another key question for Senate Republicans is whether to add language to their bill delaying the implementation of the new 20 percent corporate tax rate to 2019.
The maneuver would lower the projected 10-year cost of the bill but also delay one of its biggest economic benefits until after next year’s election.
Several GOP senators voiced strong opposition to a slower corporate tax rate phase-in.
“We don’t need to do that. That’s the worst thing we can do. We need to get this thing going right now,” said Perdue. “That’s nothing but a scoring mechanism.”
Scott said, “there’s a lot of pressure to do something now.”
One other potential break from the House could come on the estate tax.
While the House bill would repeal that tax after six years, Collins is pushing for it to be kept in some form. She said on Tuesday that she has “made my views known to the Finance Committee that I don’t think it should be completely repealed.”
Sen. Mike Rounds (R-S.D.) said he would support repealing the estate tax, but not if it costs the support of other members of the GOP caucus.
“I’d be more than willing to have the actual deductible or exemption go from $5 million to $15 million,” Rounds said, floating an alternative.