Tax Bill: State of Play

Outlook for Enactment: 

  • Dec. 1:  GOP has votes to pass tax bill
  • Dec. 1:  Tax Overhaul’s Arctic Drilling Byrd Problems Resolved (Roll Call)
  • Dec. 1:  Corker R-TN to vote no on tax bill.
  • Dec. 1:  Senators Collins R-ME, Flake R-AZ, Johnson R-WI, and Daines R-MT said they would support tax bill.
  • Nov. 30:  McCain R-AZ says he will support tax bill.
  • Nov. 30:  Adding a deficit trigger to the Senate tax bill runs into “Byrd Rule” hurdle (Politico)
  • Slim margins: As they are not seeking any Democratic support, the Senate GOP, with their slim 52-48 majority, can afford to lose only 2 votes.
    • Affordable Care Act (ACA) Concerns: Senators Collins (R-ME) and Murkowski (R-AK) have expressed concern about including effective repeal of the ACA individual mandate in the tax bill (although Murkowski may accept the healthcare repeal because the tax bill includes provisions to open the Alaska National Wildlife Refuge (ANWR) to oil and gas drilling).  Senator Collins told CNN that the premium increase that will result from repealing the ACA individual mandate “…is going to cancel out the tax cut they get,” she said referring to middle-class families. Administration has expressed willingness to drop the ACA provision, if necessary, to secure votes for passage.
    • Debt Concerns: Senators Flake (R-AZ), Corker (R-TN), and Lankford (R-OK) have raised concerns about the $1.5 trillion debt increase to finance the tax cuts, and Sen. McCain (R-AZ) has raised similar concerns in the past, fearing that increasing debt could interfere with defense spending.  The question is whether they will accept the unsubstantiated claims of the Administration that economic growth will offset revenue losses. Corker said he wants to see a trigger mechanism that rolls back tax cuts if the Administration’s projected revenue increases do not materialize.
    • Small Business Concerns: Sen. Johnson (R-WI) said he would oppose the bill in its current form because of its treatment of small businesses.  Sen. Steve Daines (R-MT) echoed concerns about inadequate support for small businesses.
    • House Margin: If the bill is able to pass the Senate, and a House-Senate compromise is reached, the House GOP, with their 239-194 majority, can afford to lose only 22 votes when the eventual compromise comes up for a vote.
  • Senate’s Byrd Rule:  During Senate Floor consideration, the bill could run into procedural trouble where the Byrd rule prohibits any revenue losses beyond the 10-year budget window–the effect of which is to require that tax cuts expire after 10 years unless fully paid for.
  • Push-back from Supporters of Current Deductions/Credits: The bill could run into political trouble in both chambers because it repeals or caps a multitude of popular individual and business deductions and credits to pay for the reduction in tax rates. Beneficiaries of the current tax preferences will have to decide whether tax rate reductions are worth the significant losses of current deductions and credits. See the House and Senate JCT revenue estimates for lists of the many deductions and credits slated for elimination or reduction in order to raise revenues to offset tax cuts.
  • Resolving the significant policy differences between the House and Senate tax bills, while staying within the $1.5 trillion limit for the first 10 years and complying with the Byrd Rule prohibition on outyear deficits will be technically and politically complex and challenging.
  • Bottom Line: For a tax bill to pass, House and Senate GOP will have to resolve their significant policy differences and agree on a slimmed-down tax bill that has no deficit impact after 10 years, keeps popular individual and business tax deductions in place, overcomes the public debt concerns of fiscal conservatives, and addresses the concerns of the small business community. That being said, the political pressures on the GOP to pass tax cuts will likely lead to enactment of a slimmed down tax bill.