Outside the Beltway

House Passes Tax Reform Bill On Party-Line Vote

House Republicans passed their tax reform bill. That was the easy part.

Doug Mataconis · Thursday, November 16, 2017 · 4 comments

Not surprisingly, the House of Representatives passed its version of tax reform on a largely party-line vote, but the ultimate fate of the effort to reform the nation’s tax code remains quite uncertain:

WASHINGTON — The House passed a sweeping rewrite of the tax code on Thursday by 227-205, taking a significant leap forward as Republicans seek to enact $1.5 trillion in tax cuts for businesses and individuals and deliver the first major legislative achievement of President Trump’s tenure.

Attention now turns to the Senate, which was grappling on Thursday with another setback after a congressional analysis found that their revised tax bill would actually raise taxes on lower-income Americans within a few years.

The Joint Committee on Taxation projected that Americans earning $30,000 or less would see their taxes increase beginning in 2021, if the Senate bill becomes law. The committee also projected that Americans earning $75,000 or less would face large tax increases in 2027, after the individual tax cuts expire. The updated analysis stems from the Senate’s last-minute inclusion of a provision that would repeal the Affordable Care Act’s requirement that most people buy health insurance. The repeal would lead many lower-income Americans to choose not to buy insurance, and thus not claim tax subsidies that currently help them defray the costs of health coverage.

Senator Ron Wyden of Oregon, the ranking Democrat on the Finance Committee, called the development “astounding” and warned that middle-class taxpayers would get “clobbered” under the latest Republican plan.

“When you’re reaching for the cranberry sauce, Republicans are going be reaching for your pocketbooks to give handouts to multinational corporations,” Mr. Wyden said

Senator Orrin Hatch of Utah, the Republican chairman of the Finance Committee, said that the appearance of a tax increase was a mirage that is the result of arcane rules used to assess the budget impact. Because people will no longer have to purchase health insurance, they may no longer receive tax credit subsidies for insurance that they do not purchase.

“Without those credits, they see an overall uptick in their tax liability,” Mr. Hatch said.

The House easily passed its tax bill, with lawmakers voting shortly after Mr. Trump came to Capitol Hill to address House Republicans. Thirteen Republicans voted against the bill, and zero Democrats voted for it. The Republicans who voted no were from New York, New Jersey, California and North Carolina.

The tax overhaul still faces significant obstacles, as Republicans must align the House legislation with the bill that is working its way through the Senate Finance Committee this week and contains big differences that will have to be bridged.

Republicans are under pressure to get legislation to Mr. Trump’s desk by Christmas, especially after failing in their attempt to dismantle the Affordable Care Act this year, even though their party has full control of government. Lawmakers also want to push the legislation through quickly to avoid giving lobbyists and Democrats time to mobilize.

Republicans do not wish to witness a replay of their health care catastrophe, during which the House managed to pass a repeal bill in May, but the narrowly divided Senate could never do so.

The House tax bill, which passed in the Ways and Means Committee last week, would cut taxes more than $1.4 trillion over 10 years. It cuts the corporate tax rate to 20 percent from 35 percent, collapses the number of tax brackets to four from seven, switches the United States to an international tax system that is more in line with the rest of the world, and eliminates or scales back many popular deductions, including one for state and local taxes paid.

“For the first time in 31 years we are wiping the tax code clean and replacing it with one that is fairer and simpler for everyone,” said Representative Devin Nunes, Republican of California and a member of the Ways and Means Committee.

House Republican leaders were unable to win over a number of Republicans from high-tax states like New York and New Jersey, who have fought to preserve the deduction for state and local taxes. The House bill allows the deduction of up to $10,000 in property taxes, but that provision was not enough of a concession for them.

At least five Republicans from New York and three from New Jersey had come out against the bill before Thursday’s vote.

“I just have too many constituents who are going to see their taxes go up,” said Representative Lee Zeldin, who represents a district on Long Island and was one of several New York Republicans who spoke out against the tax bill on Thursday morning. “You’re taking more money from a place like New York in order to pay for deeper tax cuts elsewhere,” Mr. Zeldin said.

At least initially, there was some concern among Republicans regarding the fate of tax reform in House due primarily to what happened to the American Health Care Act earlier this year. In that case, the House effort to ‘repeal and replace’ the Affordable Care Act initially failed to gain enough support to pass and ultimately only passed with a handful of votes to spare. Those concerned proved to be unwarranted, however, due largely to the fact that there has always been a far more widespread consensus among Republicans regarding tax reform than there was on the healthcare issue. Additionally, Republicans are eager to show that they are able to get at least one piece of major legislation to the President’s desk before the end of his first year in office, and many Republicans had said privately that they were being told by donors that failure to pass tax reform would be a potential deal breaker when they come looking for donations for the 2018 midterms. These factors, combined with the fact that the Republican majority in the House is far larger and more powerful than it is in the Senate, all argued strongly in favor of the idea that the passage of this bill was never really in doubt.

Today’s win, of course, is only half the battle for Republicans. Now, attention shifts to the Senate where the Republican majority is thinner and the prospects for reform are murkier. As I noted yesterday, the Senate Finance Committee has apparently decided to attach a provision to the bill that would repeal the Affordable Care Act’s individual mandate, which is essentially the same “skinny repeal” effort that they attempted unsuccessfully back in July. If that provision stays in the bill it could throw the support of Republican Senators who opposed the idea, such as John McCain and Susan Collins into doubt. Both Senators have given off signals that they are at least leaning “no” on the proposal after the health care provision was added and others could join them. Additionally, Senator Ron Johnson of Wisconsin has already said he is opposed to the bill for reasons unrelated to the health care reform issue. Johnson’s objections appear as though they could be addressed before a final bill is drafted, so his no vote may not be guaranteed. That may not be true, though, in the case of McCain and Collins. Additionally, the outcome of the Senate race in Alabama. If Roy Moore ends up losing in December, or if he wins and there is an effort to expel him before a vote on tax reform, that would cut the Republican majority by one more seat. As with the health care reform effort earlier this year, Senate Republicans can only afford to lose two Senators to get a bill passed even under the relaxed reconciliation rules. Two no votes and a vacancy would seem to be the death knell should it come about.

Even if the Senate manages to pass it’s bill, the process isn’t over yet. Given the fact that there will be differences between the House and Senate bill, the two chambers will need to form a Conference Committee to come up with a bill that can pass both Houses. At that point, changes made in the Senate and in Committee could make final passage in the House more difficult. Additionally, the Senate would also need to pass the revised bill as written before it could be sent to the President for signature. If any of that fails to happen, the tax reform effort will fail and the Republican Party will end President Trump’s first year in office without a single major legislative accomplishment.

In any case, just as with the health care debate earlier this year, this win in the House was the easy part. Now, the real work begins. How it turns out is anyone’s guess at this point.