It’s all over but the last-minute haggling.
With the Senate passage of the GOP tax plan in the wee hours of Saturday morning, Republicans stand on the threshold of a legislative win they’ve sought for a generation but notched in improbably short time this year.
Some seemingly meaty differences separate the bills that passed the House and Senate, but with government funding expiring Friday and a toss-up special election in Alabama looming next Tuesday, the pressure is piled on leaders to hash out a blended approach as quickly as possible.
That process starts today, when House members return to work a day early to appoint their conference negotiators.
Among the more significant issues they’ll confront:
Repeal of the Obamacare individual mandate. The Senate’s decision to scrap a cornerstone of the Affordable Care Act generates $338 billion in savings the federal government otherwise would pay to help cover 13 million people expected to drop their insurance as a result.
The House bill leaves the mandate in place. Most House Republicans would be happy to take a whack at Obamacare, suggesting they’ll embrace the Senate version, although some moderates could protest. And Sen. Susan Collins, R-Maine, in a Sunday appearance on NBC’s “Meet the Press” noted her support for a conference agreement isn’t assured, pending votes on two Obamacare stabilization measures.
Mortgage interest deduction. The Senate bill allows homeowners to write off the interest they pay on mortgage debt up to $1 million; the House would cap that break at $500,000.
Pass-throughs. Under the House bill, businesses that file their taxes on the individual side of the code would see their income subjected to a 25 percent rate. But service-based professions, such as lawyers and accountants, would be excluded from the lower rate.
The Senate bill takes a different tack, giving pass-through businesses the ability to take a 23 percent deduction from their taxable income. Those in service businesses could still take the break, as long as their income is below $500,000 for a married couple or $250,000 for an individual.
The Washington Post’s Erica Werner, Damian Paletta and Mike DeBonis write that the House approach could violate Senate budget rules: “The House bill, multiple aides said, would not pass muster under those rules because it would increase deficits in the long run, beyond the coming decade. The Senate-passed bill contains multiple compromises and phase-outs of certain tax cuts to limit its impact on the deficit.”
The corporate rate. Both the House and Senate bills chop the rate paid by corporations from 35 percent to 20 percent. But the House bill implements the cut next year, whereas the Senate bill delays it until 2019 to save some money. This permanent rate reduction is arguably the centerpiece of the bill, but this discrepancy shouldn’t pose a major problem: Consider that House Republicans were toying with making the rate cut temporary the day before they rolled out their bill last month.
President Donald Trump injected some new uncertainty into the question by telling reporters on Saturday the corporate rate could rise to 22 percent. The change would free up $200 billion that lawmakers could put toward enhancing credits for the low- and middle-income earners who get the shortest shrift from the bill. Or not.
The corporate alternative minimum tax. The House bill repeals both the individual and corporate alternative minimum taxes, designed to ensure that gamesmanship doesn’t allow people and businesses to shrink their tax bill below a certain level.
But the Senate retains the corporate version – a last-minute decision that, as the Wall Street Journal’s Richard Rubin explains, could endanger the research credit prized by manufacturers, drug makers and tech firms. The effect was almost surely unintended, suggesting Senate could decide to accept the House approach and scratch the corporate AMT after all at an estimated cost of $40 billion.
Expensing. The House bill allows companies to fully and immediately expense investments in new equipment and facilities for the next five years. The Senate version does the same, but instead of abruptly canceling the break after five years, it gradually phases it out.
Sen. Jeff Flake, R-Ariz., sought the change, arguing that while it adds to the cost of the bill on paper, it would make lawmakers less likely to extend the full deduction indefinitely by weaning businesses off of it.
Deductibility of interest. The Senate measure goes further than the House bill to limit the write-off businesses enjoy on interest expenses – a key priority for a range of businesses, from farmers to Wall Street banks. “Given that lawmakers will be looking for more money,” Chris Krueger of Cowen Washington Research Group writes, “it seems the Senate approach on net interest is likely to win the day.”