Republicans Release Final Version Of Tax Bill, And It Appears Likely To Pass
The final version of the tax bill appears to be on track for passage, but the devil is in the details.
House and Senate negotiators released the final version of their tax bill late yesterday, and after several tweaks to satisfy wayward Republican Senators it appears to be on track to pass both chambers of Congress next week and head to the President’s desk before the Christmas break:
Republican lawmakers appeared to secure enough votes on Friday to pass the most sweeping tax overhaul in decades, putting them on the cusp of their first significant legislative victory as leaders geared up to pass a $1.5 trillion tax cut along party lines and send it to President Trump by Christmas.
A day after the bill’s prospects wavered somewhat, Republican leaders notched two victories on Friday, when Senator Marco Rubio of Florida said he would vote yes after gaining a more generous child tax credit in the final bill and Senator Bob Corker of Tennessee, who voted against the initial Senate bill over deficit concerns, said he would support the legislation. The bill also won praise from Senator Susan Collins of Maine, leaving it likely to pass with all 52 Senate Republicans in support.
The final legislation released by Republicans on Friday follows the broad strokes of the previous House and Senate bills, providing deep and longstanding tax cuts for businesses, including a corporate tax rate of 21 percent, down from the current 35 percent. The bill also provides temporary tax benefits for low- and middle-income Americans, including lower marginal tax rates, and a new top tax rate of 37 percent for the wealthiest Americans, down from 39.6 percent. All of the individual tax breaks will expire at the end of 2025.
The final bill does build back in some of the prized tax breaks that had been slated for elimination in the House legislation, including the deduction for high out-of-pocket medical costs, tax-free tuition waivers for graduate students and the ability to deduct interest on student loans. But it also includes new limits on other popular tax breaks, including the mortgage interest deduction and the state and local tax deduction.
In a pre-emptive move against accounting maneuvers in high-tax states such as New York and California, the bill prohibits taxpayers from prepaying next year’s state and local income or property taxes, in order to deduct them from 2018 taxes. That form of tax planning would have allowed taxpayers to benefit more from the full state and local deduction this year before it is capped next year.
The bill also includes changes large and small to appease business lobbyists and their congressional champions, such as additional tax relief for the owners of engineering and architectural firms and the elimination of a change in capital gains treatment of homes sales — a key priority for the real estate industry.
One of the biggest changes came on Friday, when lawmakers agreed to a demand by Mr. Rubio to expand the child tax credit by allowing families who owe no federal income taxes to still claim up to $1,400 of the $2,000 child tax credit, up from $1,100 in the original version. But that change was offset by limiting the bill’s benefits to some higher-income families, and by restricting it to children age 16 and below, down from 17 and below in the Senate bill. The net result was a credit that is more lucrative for lower-income earners but actually slightly less costly than the Senate bill.
Republicans must stay within a $1.5 trillion limit that lawmakers have allowed on the amount the bill can add to federal deficits if they want to pass it without Democratic support.
The bill’s price tag had been a sticking point for one senator, Mr. Corker, a longtime deficit hawk, who voted against the initial Senate bill over concerns it would add to the federal debt. But on Friday, he said he was swayed to support the bill despite its cost. The congressional Joint Committee on Taxation analysis showed the Senate plan would add $1 trillion to the federal budget deficit.
“This bill is far from perfect, and left to my own accord, we would have reached bipartisan consensus on legislation that avoided any chance of adding to the deficit, and far less would have been done on the individual side with items that do not generate economic growth,” he said.
In a tweet on Friday, Mr. Rubio called the Senate’s inclusion of the expanded credit “a solid step,” and a spokeswoman said he would now vote for the bill.
The bill’s text, which was signed by Republican negotiators from the chambers’ conference committee on Friday, includes few major changes from the version that passed the Senate this month. The 2025 expiration date for the individual tax cuts remains, as does the estate tax, which would apply to fewer Americans down the road. At the center of the $1.5 trillion bill are large tax cuts for corporations and other businesses, which Republican lawmakers say will create jobs, investment and economic growth.
Compared with the Senate bill, the revised legislation would lower some thresholds for entering a higher individual marginal tax bracket. For example, the top bracket for a married couple filing jointly would begin at $600,000 a year, down from $1 million in the Senate bill.
Owners of so-called pass-through businesses, who pay taxes on their profits at the owner’s individual tax rate, would receive a slightly less generous tax break than the Senate- and House-passed bills called for, allowing a 20 percent deduction on profits they earn. That deduction would phase out — with some exceptions — starting at $315,000 of income for couples. The Senate bill included a larger deduction, 23 percent, and a higher phaseout point, $500,000 for couples.
Two newly revealed changes on the business side would help offset revenue losses: a provision that limits corporations’ deductions of their net operating losses to 80 percent of their income starting next year, instead of in 2023 as the Senate bill called for, and one that would effectively reduce the annual value of research and development tax breaks starting in 2022. Those changes combined to raise an additional $100 billion.
You can read a summary of the details of the bill at The New York Times, but as noted above, the final reservation largely resembles the package that passed the Senate earlier this month. The major changes appear to be with respect to the child care tax credit, which was a major sticking point for Florida Senator Marco Rubio among others, Beyond that, the details of the bill haven’t changed significantly, and one presumes that there wouldn’t be much change to the estimate from the Congressional Budget Office and other entities that the bill would add up to $1.5 trillion to the deficit over the course of the next ten years. Additionally, it would likely not change the estimates that the majority of the benefits of the bill would inure to corporations and to upper-income groups rather than the middle-class as has been represented by the Trump Administration and Congressional and Senate Republicans have claimed. On the bright side for pretty much all taxpayers is the increase in the standard deduction to $12,000 for singles and $24,000 for married couples, a change which among other things will mean that fewer people will end up itemizing their deductions, something that may offset some of the limitations placed on things such as the deduction for state and local taxes and the changes that will be made regarding the deductibility of medical expenses.
Looking at the numbers on Capitol Hill, while there are still some uncertainties, it seems likely that in the end, the bill will have the votes it needs to pass both chambers of Congress relatively easily. In the House, there doesn’t appear to be any significant opposition to the bill and it’s likely that the measure will pass just as easily as the House version did back in November. In the Senate, things are still somewhat up in the air, but it seems likely that the bill will pass there even though there are still a handful of undecided Senators and other factors that could have an impact on the final vote. As noted above, the two major hurdles for Senate Majority Leader Mitch McConnell were Senators Marco Rubio and Bob Corker. Rubio appears to be satisfied enough with the changes to the child care tax credit to vote for the bill, and Corker announced his intention to vote for the tax bill after negotiators agreed to make changes to the treatment of real estate LLCs, which just happen to be a major investment in Corker’s personal portfolio. At the moment, Senators Mike Lee, Jeff Flake, and Susan Collins have not announced their position on the bill, but the fact that they all voted for the Senate tax bill earlier this month seems like a strong indication that they will end up supporting the final version of the bill. Outside of those three Senators, the health status of two Senators could complicate things for McConnell as well. Mississippi Senator Thad Cochran is currently back home dealing with the aftermath of outpatient surgery for a non-cancerous skin lesion, and Senator John McCain remains hospitalized at Walter Reed Army Hospital to deal with complications resulting for his treatment for brain cancer and is being described by colleagues as “increasingly frail.” If the other three Senators are on board with the bill, this would mean that McConnell would need to rely on Vice-President Pence to cast his tie-breaking vote to pass the bill if Cochran and McCain cannot be present to vote.
As a political matter, passing this tax bill will give Republicans the major legislative victory that has eluded them all year, but it’s unclear whether that will end up benefiting them politically speaking. As it has over the past two months, polling shows that the American public does not support the tax bill and many Americans doubt that it will benefit them financially in the coming years or that it will provide the boost to the economy that Republicans on Capitol Hill and the Trump Administration claim that it will. No doubt, this issue will become a significant one in the run-up to the 2018 midterms. Democrats will argue that the bill largely benefits corporation and top income earners, while Republicans will argue that it will benefit all tax payers and that it will boost the economy. As it stands, though, it’s unlikely that any of these questions will be objectively answered between now and the election, especially since most of the impact of the bill won’t be felt for several years.