Here goes nothing.
That’s basically the take on the day from Republicans, who have promised overhauling the US tax system in campaign after campaign, and made clear this is their sole domestic priority for the remaining year (and quite possibly remaining 13 months of the 115th Congress).
Make no mistake, the pull of the political imperative of doing something — anything — is real, and has driven Republicans to this point. But everything leading up to this has been the easy part. Now it gets hard.
What to watch Thursday:
The House GOP closed-door conference meeting at 9 a.m. ET.
The bill release: 11:15 a.m. ET.
House GOP news conference on the bill 11:15 a.m. ET.
CNN interviews House Speaker Paul Ryan at 11:45 a.m. ET.
Key reading:
CNN’s Lauren Fox, Ashley Killough and Deirdre Walsh, who have been all over every twist and turn of this, set the table for you.
Where we stand:
The toplines of this bill are already known — for the most part. But as always, it’s the details that matter. And it turns out compromising on the proposed repeal of the state and local deduction, something Republican leaders have done in the past few days, costs money. Like hundreds of billions of dollars money. And that’s revenue Republicans desperately needed for this bill, that over the last 72 hours, they’ve desperately been seeking to make up for.
At one point Wednesday, sources said a phase-in or sunset of various cuts — most notably the 20% corporate rate — was the most likely way they’d attempt to get there in this bill. This, plugged in sources said, would serve as a placeholder of sorts.
The end goal would be permanence, but they were out of time and clear revenue options, so this was the way forward in the draft bill. It’s something House Ways and Means Chairman Kevin Brady alluded to when he told us Wednesday evening, regarding a permanent corporate rate of 20%: “That’s our goal. I think it’s going to take several steps through the process to achieve that.”
And yet: Late last night, a source close to the process told me the corporate rate cut — from 35% to 20% would be permanent. Expect this in the bill Thursday. Why? See next point.
Reminder:
President Donald Trump has called for a permanent cut of the corporate rate to 20% a “redline.”
In fact, sources say in various meetings since that number was agreed to, he’s still agitated for dropping the number to 15%.
So when Brady implied the only option may be to get there eventually, it wasn’t a goal, it was a necessity. So is taking the phase in or out idea of the table altogether. At least, based on public and private statements, as far as the President is concerned.
Where they stand on SALT:
How to cut or modify existing tax breaks for state and local taxes (also know as SALT) has been the most contentious part of the negotiations up to this point (but it’s not the only issue — more on that later). As it currently stands, on the table is a cap on the deduction for property taxes. The state and local income and sales tax deduction would still go away.
Is that enough to convince high-tax state Republicans to get to yes: Not so far.
How many Republicans hail from high-tax states: More than 30
How many Republicans can leaders afford to lose: No more than 22
What other potential issues are lurking:
Change in treatment of a portion of contributions to 401(k) plans, to a more Roth IRA type model. This has been a major fight between House Republicans and the White House in recent days. The President has said he’s opposed. But it’s an immediate source of revenue. Sources last night said don’t expect the major changes Brady had been seeking, but instead something smaller that won’t be as difficult to message, but still raises some revenue in the near term.
– Shape and size of a global minimum tax on the corporate side
– Rates for repatriation of foreign earnings
– The actual income levels for the four new tax brackets, including the one for high earners that will be maintained at the 39.6% level (and far more importantly, how analysts determine the proposal helps or hurts taxpayers at each of those levels).
– The size of the child tax credit
– A delayed repeal of the estate tax
– The pass through rate — dropping to 25%, as agreed upon by GOP leaders and the administration — is almost certain to flare as a major issue in the days ahead.
The vast majority of US businesses large and small are structured as “passthroughs,” not corporations. They run the gamut from mom-and-pop shops to big law firms to investment partnerships.
Profits from the business are passed through to the owners, shareholders and partners. They then report those profits and pay tax on them on their individual tax returns.
The House bill would lower the top income tax rate on the profits of so-called pass-through businesses to x% from 39.6% today.
The issue isn’t the rate, it’s who gets it (and how much of it they get.) Republicans want to impose guard rails so wealthy individuals can’t just incorporate themselves to get the low rate. But those guardrails are fraught with problems — make them too tight (i.e. only allowing entities to take the rate on a portion of their profits, while paying the individual rate on the rest) and you risk alienating members the very powerful small business lobby. Make them too lose and it creates a huge loophole (and, oh by the way, costs a ton of money). This is a hugely consequential — and complicated — issue that is almost certain to cause problems.
Speaking of revenue
Trump pitched his own idea on Twitter Wednesday morning: add a repeal of the Affordable Care Act’s individual mandate into the bill.
Now, it would seem a mechanism that requires people to pay a tax penalty for not purchasing insurance would cost money, but that’s not so.
According to the Congressional Budget Office, it would reduce deficits by more than $400 billion over 10 years, due to a reduction of Medicaid enrollees and need for federal insurance subsidies.
This idea has been pitched hard by Sen. Tom Cotton, who has reached out to colleagues and the President about its merits. Sen. Rand Paul also supports it (and just so happened to be talking about it on Fox News a short bit before the President’s tweet).
But GOP leaders in both chambers have been unequivocal up to this point: health care and tax reform must be separate, on all fronts. It will not be in the bill released Thursday.
Can that change? Sure. But will it? Members are sure wary of tossing the potential grenade of a CBO projection of 15 million people fewer having health insurance over ten years. Don’t believe me? Read this from Killough, Fox and Walsh.
Where we go from here:
Brady has said the next few days will be “listening sessions” with the GOP conference. He is more than willing to incorporate changes that make sense (especially if they involve increasing revenues!) Brady’s committee will mark up, or take action, on the tax bill starting November 6. It will be a multi-day, dozens of hours long markup process. The next week it will go to the House floor for passage. Then House Republicans wait.
And the Senate:
Prepare for hyperspeed, at least according to sources involved in the process. While all the focus has been on the House, the Senate finance committee has been finalizing it’s bill. GOP senators have been working on a “buddy system,” sources say, with committee members serving as liaisons for their colleagues. The panel plans to mark up its bill the week of November 13, sources say, and have it on the floor the week after.
What’s the goal:
Have both House and Senate-passed legislation by Thanksgiving. Then they have the next few weeks to reconcile the bills and send something to the President’s desk.
Why are they trying to move so fast:
“This doesn’t get any easier with time,” one senior GOP aide told me. “Leave this out there hanging for long and it will get whacked. Hell, we’ll all get whacked.”
Another aide described in the terms of “striking while the iron is hot.” Members have been hearing it constantly from back home — Congress hasn’t done anything. This goes to the political imperative — the idea that something beats nothing, even if it diverges from long-held ideological positions or core beliefs. The gamble here is that that will win out over all other concerns/roadblocks/landmines.
Is the timeline realistic?
Anyone who watched health care would say no. But, at least at the moment, they are going to give it a shot.
Periodic reminder:
Tax reform is hard. Speaker Paul Ryan is fond of saying the effort will have several near death experiences before it’s all said and done. He’s likely not wrong.
Final note:
Yes, as MJ Lee reported, the President’s proposed name for this bill (The Cut, Cut, Cut Act) is real. In fact, he’s lobbied congressional leaders multiple times on the idea, sources tell me, and when gently rebuffed, these sources said, didn’t hesitate to remind them that he — not they — is the marketing mastermind of the operation. His point: how many of them won presidential elections with limited resources and a slogan: “Make America Great Again.”
But no, the bill will not be called the “Cut, Cut, Cut Act.” It’s the “Tax Cuts and Jobs Act.”