WASHINGTON – A fast-moving Senate Republican effort to overhaul the tax code unexpectedly stalled Thursday evening over concerns about the federal deficit, leaving the GOP without a clear plan to pass the legislation.
Senate leadership, who had hoped to vote to pass the $1.5 trillion tax bill by late Thursday night, instead sent lawmakers home and began to search for a new way to offset the cost of the legislation. They are looking to win the support of several senators, including Bob Corker, R-Tennessee, who has led a small group of colleagues in demanding that the bill not drive up the nation’s debt.
Now, Republican leaders may have to brace for an intraparty battle over how far to go to accommodate deficit concerns. Other Republicans are arguing strongly against reducing the size of the bill’s tax cut, as may now be necessary to satisfy the deficit hawks.
The new tension threatens to undercut what had been an unusual degree of unity within the GOP, with even Sen. John McCain, the Arizona Republican who has repeatedly defied his party, announcing support for the bill Thursday.
Republicans are scrambling for a path forward as the result of two successive setbacks suffered Thursday as they moved toward a vote. First, the Joint Committee on Taxation, Congress’s nonpartisan scorekeeper, reported that the tax bill would not generate nearly as much economic growth over the next 10 years as Republicans had expected. As a result, the nation’s deficit would be $1 trillion higher.
Then, the Senate parliamentarian ruled that a Corker-backed proposal to automatically raise taxes in the future if Republican expectations of higher growth did not materialize was not consistent with Senate rules.
Although most of the Republicans would have been happy to move on and pass the bill, Corker stood his ground and demanded a solution. He is joined by Sen. Jeff Flake, R-Arizona, in insisting the bill not drive up the deficit. Meanwhile, Sen. Ron Johnson, R-Wisconsin, appears to be a holdout out of concern that the bill does not do enough for businesses that pay their taxes through the individual income tax code.
Republicans have a small margin for error as they control just 52 of the 50 votes needed to pass legislation.
Thursday evening, senators were eyeing a wide range of options to move legislation forward. They are discussing adding higher taxes on upper-income Americans and modestly rolling back the bill’s large corporate tax cut. But they did not have an obvious solution, given the need to add hundreds of billions of revenue back into the bill.
“Honestly, a lot of things are being discussed,” said Sen. John Cornyn, Texas, the Senate’s second-ranking Republican.
Lawmakers plan to resume efforts to pass the bill Friday morning, but the debate within the party could easily turn testy. Some within the caucus fumed at the holdouts, particularly Corker, who was surrounded by colleagues for a protracted period Thursday afternoon as they discussed next steps.
“Essentially he decided to hold court with the rest of the people who are not going to be here, before the gallery. It was quite a show. Sort of a CinemaScope kind of effect,” said Sen. Pat Roberts, R-Kansas. “So I don’t know. I have no idea what they want. I do not want a tax increase and I don’t want a trigger. I don’t think it’s necessary.”
Ted Cruz, Texas, said late Thursday that he was “absolutely” opposed to adding new taxes to replace Corker’s proposed trigger.
The party had been within grasp of their biggest legislative victory during the Trump administration, and they were trying to prevent the effort from unraveling.
The debate is now expected to spill into Friday night. Corker and Flake are both retiring from the Senate and are not up for reelection, giving Republican leaders little leverage over them. And Johnson has pushed his challenge of GOP leaders, some of whom he believes abandoned him during his reelection effort last year.
Democrats unanimously oppose the measure and ripped it Thursday.
Sen. Ron Wyden, Ore., the top Democrat on the tax-writing Senate Finance Committee, said that the late-breaking analysis of the bill’s economic effects – which Republicans have been touting for months – illustrates a mistaken approach.
“This isn’t tax reform at all,” Wyden said. “This is now just a grab bag full of goodies for multinationals and donors and special interests.”
The U.S. government has more than $20 trillion in debt, accumulated from decades of spending more money than it brought in through revenue. As the debt grows, budget analysts have warned that it could become increasingly difficult for the U.S. government to respond to a financial crisis or an economic downturn.
It also means that the government must spend hundreds of billions of dollars more on interest payments, costs that go up if interest rates rise.
But Congress and the White House have had a hard time containing the budget deficits, in part because of costly entitlement programs that account for a growing part of the budget. The Congressional Budget Office has estimated that the gap between revenue and spending this year will be more than $600 billion and will continue to grow unless changes are made. The tax bill, budget experts have found, will increase the deficit even more.
Many Republicans believe the economic growth that will be unleashed by the tax cuts will be worth it, potentially creating such an economic boom that new revenue will come in from job creation and corporate investment. But these forecasts are often controversial because it is difficult to predict how tax cuts will affect behavior and how quickly the economy will respond.
GOP leaders, though, have brushed off the criticism for weeks. Senate Majority Leader Mitch McConnell, R-Kentucky, told reporters Thursday: “We’re certainly optimistic. As you know we had everybody on board to take the bill up. I think everyone is trying to get to yes.”
Of the 52 Republican senators, there were a handful whose stances remained uncertain or undeclared as of early afternoon Thursday, most prominently Corker, Flake, Johnson and Sen. Susan Collins, Maine.
Beyond the deficit demands, GOP leaders face a growing split over how large of a tax break the bill should give to corporations. In current form, the bill would drop the corporate tax rate from 35 percent to 20 percent starting in 2019, but multiple Republicans are pushing for changes.
Johnson wanted the rate to be lowered to 22 percent, rather than 20 percent, but he wanted it to take effect immediately. Johnson still has also not said whether changes made by leadership were enough to satisfy his concerns about the treatment of so-called pass-through businesses, whose owners pay taxes through the individual code rather than at corporate rates. Johnson retains partial ownership of one such business and wants better treatment for them.
Sens. Marco Rubio, R-Florida, and Mike Lee, R-Utah, have proposed a 22 percent corporate rate, but they want to use that revenue to expand tax credits for low-income working parents. Their amendment is slated for a vote Friday.
Collins also supports bumping up the rate, saying she would back the Rubio-Lee plan and other attempts to move more of the tax cuts to the middle class. (She was also seeking the partial restoration of the ability of taxpayers to deduct state and local taxes from their federal tax bill.)
House conservatives were drawing a hard line on the issue of the corporate tax . “We have consistently said as low as possible but no higher than 20 percent,” said Rep. Mark Meadows, R-North Carolina, chairman of the House Freedom Caucus.
As debate on the tax bill dragged into another day, lobbyists were frantically scurrying to try to continue shaping it. Wall Street executives were pressing hard for Senate Republicans to scale back proposed changes that banks believed could throw the international derivatives business into disarray.
Overall, the legislation represents a massive change for the tax code that delivers huge cuts for corporate America and the wealthy, while the benefits for individuals are mixed or in some cases nonexistent, according to multiple nonpartisan analyses.
The Senate GOP tax bill would slash the corporate tax rate to 20 percent starting in 2019. It would also create incentives for multinational companies to bring foreign earnings back to the United States. And it encourages businesses to invest more, allowing them to immediately expense the cost of things such as new equipment and machinery.
The bill would temporarily cut taxes on families and individuals, lowering tax rates and expanding the amount of income that isn’t subject to taxation. It would also, temporarily, expand the child tax credit for families earning less than $1 million. But it would also cut back on many tax breaks, prohibiting people from deducting the taxes they pay to states and localities.
Importantly, the bill would also repeal a central element of the Affordable Care Act, which creates penalties for Americans who don’t have health insurance coverage. This is a major plank in President Barack Obama’s signature legislative achievement, and the Senate language, if signed into law, would mark the biggest GOP legislative success so far.
This change would create more than $300 billion in budget space because of the money that would be saved in Medicaid spending and other programs, but it would also lead health insurance premiums to increase and more than 13 million fewer people to have health insurance in several years, according to the Congressional Budget Office.