Senate poised to Pass Tax Cuts for Big Firms, Wealthy (Dec. 1)

Update 230 —
Senate Poised to Pass Tax Cuts for Big Firms, Wealthy, Adding $1.5 tr. in Debt 
Lawyers and lobbyists on K Street are working overtime at the time of this writing, feverishly seeking to insert provisions — they aren’t amendments without votes and vote-a-rama doesn’t look imminent — into the $1.5 trillion GOP tax bill headed for a floor vote late tonight in the Senate. Some of the bill’s provisions are literally handwritten onto the current text of the biggest tax legislation in scope to go through in Congress in 31 years, mandating the single biggest increase in the national debt in American history.

Whether it’s the product or the process, Americans have figured out that most of us stand to be losers under the Senate tax bill.  Nevertheless, expect the Tax Cuts and Jobs Act to pass the Senate and be signed into law before Christmas.

Good weekends all,

Dana

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Outcome and Process

The Senate will likely vote on and pass the Tax Cuts and Jobs Act tonight after 20 hours of debate.  Leadership had the 50 votes needed for floor passage, enough skeptical Senators to get the bill over the finish line.

House Republicans will likely take up the bill just as the Senate passed it to avoid a prolonged conference. It is unclear how willingly House Republicans will accept a Senate bill different from the measure they initially passed.

The Senate grants owners of pass-throughs a deduction rather than a maximum rate, zeroes out the individual mandate penalty, and retains a panoply of deductions eliminated in the House bill.

Still, House Republicans may come around given that an extended debate could sink Republican tax intentions altogether.  Not only is the bill unpopular, but the December 8 debt ceiling deadline and the Alabama special Senate election loom over the next week and a half, making for a devilish December. If the tax debate bleeds out beyond those two markers, the GOP’s long dreamt-up tax cuts could be doomed. Republicans aim for the House to vote to pass the Senate version by December 8th.

Stumbling Blocks

H.R. 1 began and ended as a party line vote, but along the way,  Republican leadership ran into a series of stumbling blocks that sent them scrambling to assuage disgruntled Senators. The bill’s narrow margin for passage meant that individual Senators had a significant amount of leverage to advocate for issues they felt strongly about, and they used it. Republican Senators threatened to break ranks over a number of issues:

  • Fiscal Impact — Senators Corker and Flake set off a tense moment yesterday evening when they threatened to revolt over the tax plans debt impact. The standoff came after the Senate parliamentarian shot down Corker’s proposal to insert a “trigger” that would automatically increases taxes in the event the bill did not produce enough growth to cover its deficit impact.  Earlier in the day, the Joint Committee on Taxation (JCT) reported that H.R. 1 would add $1 trillion to the debt, even after accounting of dynamic growth effects. It is unclear whether or not the standoff amounted to anything more than posturing, but it sent leadership scrambling to find ways to raise revenue regardless. As of this afternoon, Flake has announced his support of the bill, while Corker remains one of the last remaining holdouts.
  • Small Business Treatment — Earlier this week, Republican leadership was primarily concerned with Senators Johnson and Daines, both of whom threatened to withhold their support unless more generous concessions were given to pass through businesses. Both Senators have indicated their support after the bill was changed to increase the deduction for passthroughs from 17.4 percent to 23 percent. A 23 percent deduction translates into a maximum rate of 29.6 percent, based on the 38.5 percent top rate in the Senate bill. Republicans plan on paying for their generosity by increasing the size of the one-time excise tax on the repatriation of foreign corporate earnings.
  • Property Tax Deductions — Senator Collins, one of the last Republican holdouts, signaled support after announcing that leadership had accepted her amendment to allow individuals to deduct up to $10,000 in state and local property taxes, the same treatment as the tax bill that the House passed last month. Winning Collins’ swing vote came at a steep price — eliminating state and local deductions is a key revenue raiser for the Byrd Rule-constrained Senate bill. Early indications are that Republicans have opted for keeping a modified version the Alternative Minimum Tax (AMT) in order to pay for Collins’ amendments.
  • ACA Individual Mandate Repeal — Senator Paul raised eyebrows last month when he announced that the Senate bill would zero out the Affordable Care Act’s individual mandate. While the provision was likely necessary to buy Paul’s vote and raise as much as $300 billion in revenue, dragging months of GOP failure to repeal the ACA into a must-pass tax bill was a risky move. Senators Collins, Murkowski, and Moran all took exception to the bill’s treatment of the ObamaCare at various points over the last several weeks.  With Collins indicating her support of the bill after getting promises on health insurance premiums, Murkowski signing on after an addition of ANWR oil drilling, and Moran never seriously dissenting, McConnell’s bargain appears to have paid off. As the bill moves back to the House, the major question now becomes whether or not Republican Representatives can stomach the changes necessary to get the Senate to 50 votes.

Equity Considerations

While Senators sparred over passthrough deductions and budget holes, few addressed the tax burden that will weigh heavily on the middle class following the passage of this bill. The Joint Committee on Taxation’s “dynamic analysis” estimates only a 0.8 percent increase in GDP and just $408 billion generated from economic growth over the next ten years, while other reports estimate even lower figures.

Reps. Ryan and Brady promised that this bill would save the average family of four earning $59,000 a year an estimated $1,182. But… this is only true for the first year of the plan, after that point the cuts decline. With elements like the phasing out of credits like the Family Flexibility Credit and the implementation of chained CPI (which indexes spending and taxes to slow adjustment for inflation) are accounted for, an analysis reveals that these families would experience tax increases in 2024, paying approximately $450 more in taxes by 2027. Furthermore, these hikes are expected to affect families making less than $40,000 a year in 2021 and those making less than $30,000 in 2019.

Earlier today, Sen. McCaskill revealed a series of amendments from lobbyists bundled together as the Manager’s Amendment and introduced by Senate Republicans.  A majority of these modifications are geared towards expanding pass-through and corporate deductions to various stakeholders. The chances of legislation that favors the middle class receiving such consideration appear bleak, indicating little effort to compensate this group for the burden to come.

Historically Unpopular

This is possibly the least popular tax package ever passed through the Senate.  A Quinnipiac poll reports only 25 percent approval of the bill. It is confounding that the bill could pass so fast and with only one likely GOP defection.  Americans won’t be filing under this tax system until April of 2019 and most Americans won’t suffer a tax increase until after the 2020 election.

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