Economy & Business

What’s Next for the GOP Tax Plan?

(Photo: Dana Rothstein/Dreamstime)
After a hasty process in the Senate, the landscape for the bill has shifted.

The Senate GOP’s tax bill was passed in the middle of the night last Friday. By the end of the process, the bill had changed considerably from the one that had been approved in committee before the Thanksgiving recess — and even from what had been imagined over the course of the week’s discussions. It also seems that the rushed late-night calculations of the amendments’ fiscal effects were off the mark, on the order of hundreds of billions of dollars. And developments this week suggest that the deal-making process was not as stable as assumed.

Senate leadership made last-minute arrangements with seemingly every group of dissenters except for fiscal and family-oriented conservatives. From a political perspective, perhaps this made sense: All the deficit hawks but Bob Corker backtracked on their skeptical statements, with some — James Lankford, for example — dropping back into the delusion of “self-funding tax cuts.” Meanwhile, Marco Rubio and Mike Lee, perhaps because they had won an earlier concession on the child tax credit, did not threaten to vote against the bill; leadership could safely ignore their amendment boosting the credit further, and did.

The amendment process did, however, see the state and local property-tax deduction retained (up to $10,000) in line with the House bill, and a large expansion of the deduction for pass-through businesses (though this will expire with the individual cuts). Additionally, Senators Susan Collins and Jeff Flake secured agreements with the leadership to support their positions on health-care funding and DACA, respectively.

In making concessions and changes, the leadership claimed to maintain three non-negotiable red lines at the request of the White House: tax simplification, a middle-class tax cut, and a 20 percent corporate rate. Of these, simplification was barely even attempted, and the middle-class cuts are minor. The only real rule has been the 20 percent corporate rate.

Nonetheless, the deals with holdout senators made for revenue losses that needed to be compensated for. With a corporate rate above 20 percent off the table, Republicans decided at the last minute to reverse major structural reforms to the tax code to reduce future revenue loss — and struck major blows against simplification. For instance, the AMT (alternative minimum tax), the poster-child for bad tax policy according to everyone from the IRS to scholars at Brookings and Cato, is partially retained in the Senate bill as passed.

Given that the Senate majority for this bill was extremely slim, it had seemed likely that the House would amend its version of the bill to match the Senate version. However, immediately after the Senate bill’s passage, Trump indicated that the administration’s previous “non-negotiable” 20 percent corporate rate was now negotiable. Since the corporate-rate “line in the sand” had so shaped the bill from inception through amendments, this changes the landscape for it dramatically.

It is still possible that the House will accept the Senate’s bill, but should it? While personally I would prefer a cleaner bill with fewer specific credits, if such credits are to exist, I would prefer they be funded straightforwardly by reducing rate cuts, rather than by keeping distortions such as the AMT in the tax code.

To further complicate matters, when Collins and Flake agreed to support the Senate bill, they ensured its passage by securing a majority. It turns out, however, that the House GOP does not agree with the overtures that were made to them. While Flake has said that the DACA support was “a secondary thing” and not his “condition to vote for the bill,” Collins issued a statement crediting the health-care deal for her vote. If Collins withdraws her support and Flake does not, the best case scenario for the Senate GOP is a 50–50 vote with a vice-presidential tie-breaker.

The bill’s quick, late-night voting also means that some voted for it intending to criticize parts of it later. Richard Burr is fighting against the hastily re-added AMT, describing a tax bill that includes it as “punishing hardworking Americans and doing virtually nothing to simplify the tax code.”

Nevertheless, despite Trump’s openness to a corporate rate above 20 percent, GOP leadership seems to still be treating that as a line in the sand. Despite the criticism of AMT across the board, leadership seems to be signaling a repeal of the corporate AMT alone. While corporate-tax reduction is a highlight of these tax-reform proposals, leadership’s apparent exclusive interest in corporate cuts seems tone-deaf.

It’s not out of the question that the leadership will meet broader opposition in the next round of voting.

While leadership does not seem to want to play ball with dissenters, it’s not out of the question that the bill will meet broader opposition in the next round of voting. After all, it’s hard to imagine that even the appearance of a corporate preference in reform plays well with voters. Perhaps this will prove an opportunity for some movement on the corporate rate as well as more ground-level reforms such as the Rubio-Lee proposal.

But maybe this is all a moot point. If finalized calculations of the amended bill’s effects show numbers dramatically different from what the Senate thought it was voting on, as might be the case, senators might demand something new.

With the Christmas recess right around the corner, it remains to be seen whether the tax debate and voting will continue to proceed at breakneck speed, or if a more conservative approach to reform will dampen the rush for a 2017 “win.”


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Overheated Rhetoric on Tax Reform

— Jibran Khan is the Thomas L. Rhodes Journalism Fellow at the National Review Institute.