Senate Panel Approves Plan, Dangers Lie Ahead: Tax Debate Update

Updated on
Bloomberg’s Kevin Cirilli reports on Sen. Ron Johnson’s opposal of the tax reform bill.

House Republicans passed their tax-overhaul bill on Thursday as Senate tax writers sent their proposal to make individual breaks temporary and repeal a key part of the Obamacare law to the Senate floor. Here are the latest developments, updated throughout the day:

Senate Panel Approves Plan, Dangers Lie Ahead (10:32 p.m.)

Republicans on the Senate Finance Committee voted Thursday night to approve a sweeping tax package, sending it to the full chamber for a vote that party leaders say could come as early as the week after Thanksgiving.

The party-line vote of 14 to 12 came after four days of tense partisan debate in which Republicans voted down a swath of Democratic amendments aimed at portraying the tax measure as a giveaway to the wealthiest Americans and large corporations at the expense of the middle class. One example: Democrat Claire McCaskill proposed an amendment that would have prohibited a 17.4 percent tax deduction for owners of pass-through businesses who make more than $1 million. McCaskill also raised the issue of the carried interest loophole that gives private equity executives, hedge fund managers and others a reduced rate on much of their income.

Last-minute modifications to the Senate plan included changing the carried-interest tax break to increase the required asset-holding period that unlocks the benefit to three years from one year.

Senate Finance Chairman Orrin Hatch, a Utah Republican, grew frustrated with Democrats for using the amendment process to attack the legislation, describing their efforts as “a charade” and “kind of ridiculous.”

Democrats fumed about what they described as an unusually speedy and secretive process.

The legislation may change on the Senate floor to address concerns by GOP members. Senator Ron Johnson of Wisconsin has come out against the package as is, complaining that it unacceptably disadvantages pass-through entities relative to corporations.

And Senators Susan Collins of Maine and Lisa Murkowski of Alaska have said it’s a mistake to include the repeal of the Obamacare individual mandate in the tax bill, fearing that would disrupt the health-care system.

Senate Republicans -- who don’t plan to rely on any Democrats’ votes -- can lose only two of their members before the legislation collapses, and there are a host of concerns. For instance, Senators Bob Corker of Tennessee, Jeff Flake of Arizona and James Lankford of Oklahoma have said they don’t want tax cuts to add to the deficit. Senator Rand Paul of Kentucky has demanded middle class tax hikes for "every American," a high bar the plan doesn’t meet under many recent independent analyses.

How Senate GOP leaders will bridge those concerns remains a mystery. The GOP’s narrow vote margin in the chamber scuttled efforts to repeal Obamacare earlier this year. But the tax effort represents their last best chance to go home for Christmas with a major legislative achievement during Trump’s first year in office.

“When the Senate returns after Thanksgiving, I will bring this must-pass legislation to the floor for further debate and open consideration,” Senate Majority Leader Mitch McConnell said in a statement after the Senate Finance Committee vote. -- Sahil Kapur

Trump Likes House and Senate Tax Plans: Sanders (4:36 p.m.)

President Donald Trump thinks both the House bill and Senate proposal achieve his priorities of cutting taxes for the middle class and corporations, and he doesn’t prefer one over the other, according to White House Press Secretary Sarah Huckabee Sanders.

The revised Senate plan would attempt to contain the package’s cost by sunsetting individual breaks in 2026 and repealing the Obamacare requirement that individuals have health coverage. Most of the House bill’s individual tax changes are permanent and the measure doesn’t include the Obamacare mandate repeal -- but it also wouldn’t comply with rigid Senate budget rules that say it can’t add to the long-term deficit.

When asked whether Trump’s priorities include repealing the individual mandate, Huckabee Sanders said that while the president would “love” to see that happen, it wasn’t one of his main objectives. Trump has repeatedly touted breaks for the middle class as one of his main goals, and Sanders was asked about the fairness of ending those benefits in 2026.

“The president has made clear what his priorities for this legislation are and we’re going to continue to stay focused on them,” she said in response. -- Alexis Leondis

House Celebrates; Senate Panel Gets Back to Work (3:43 p.m.)

House Republicans had barely finished applauding their successful vote to approve a major tax code overhaul Thursday when the Senate Finance Committee went back to work, grinding through a number of Democrats’ amendments aimed at slowing down the chamber’s plan.

Senate Finance Chairman Orrin Hatch -- a Utah Republican who took the debate to a new level this week after proposing a plan to eliminate the Obamacare individual mandate -- told committee members he wants to act on his latest plan tonight or tomorrow at the latest. But first, the panel has to work through Democrats’ offerings -- which it was rejecting on party-line votes.

For example, the committee voted 14-12 to reject a Democratic amendment that would have made the plan’s individual tax cuts permanent, while making the corporate tax cuts temporary. Hatch’s current package does the opposite. Democrats proposed the measure to try to bolster their message that Republicans are prioritizing large corporations over families.

Senator Ron Wyden, the committee’s top Democrat, told reporters he thinks Republicans are having a tough time uniting their caucus around the bill.

He cited the following: Republican Ron Johnson opposes provisions that would cut taxes for closely held businesses organized as pass-throughs -- but not as deeply as for corporations. Susan Collins of Maine is dismayed about the individual mandate repeal. Bob Corker of Tennessee has expressed concerns about the deficit.

“I don’t think they’re developing much momentum,” Wyden told reporters during a break. “One Republican after another is expressing very specific concerns.”

He said injecting Obamacare into the tax debate is also firing up grassroots groups in opposition that otherwise wouldn’t engage on this, he said.

“Now that they have made this a health care issue, I can tell you that we’re hearing from grassroots groups all over this country,” he said. --Laura Litvan, Sahil Kapur and Colleen Murphy

These Republicans Voted No on the House Bill (2:31p.m.)

Of the 13 Republican “no” votes on the House tax bill, five are from New York, four are from New Jersey and three are from California -- the three states are the heaviest users of the state and local tax deductions that are repealed or limited in the bill.

Here’s the list:

  • From Calif.: Darrell Issa, Tom McClintock, Dana Rohrabacher
  • From New Jersey: Rodney Frelinghuysen, Leonard Lance, Frank LoBiondo, Chris Smith
  • From New York: Dan Donovan, John Faso, Pete King, Elise Stefanik, Lee Zeldin

Many are expected to face tough re-election bids in 2018. The 13th Republican opponent was Representative Walter Jones of North Carolina, who cited concerns about the measure’s effect on federal deficits. “My no vote is for the next‪ generation‪ ‬so they won’t be bankrupt,” he said. --Sahil Kapur

House Passes Bill in First Step to Overhaul (1:52 p.m.)

House Republicans passed their version of legislation to overhaul the U.S. tax code by slashing the corporate tax rate, lowering tax burdens for most individuals and adding an estimated $1.4 trillion to the federal deficit over the next decade.

The vote Thursday represents a key milestone in President Donald Trump’s quest to cut taxes for businesses and individuals -- though challenges remain for the GOP’s far-reaching tax plans to fundamentally reshape aspects of the U.S. economy. The Senate is debating its own separate plan, and it isn’t yet clear the chamber will have enough votes to pass it.

The Tax Cuts and Jobs Act H.R. 1, passed the House in a 227-205 vote. -- Anna Edgerton

Trump Says Welfare Spending Overhaul is Next (12:42 p.m.)

President Donald Trump said he would turn to cutting welfare spending after tax legislation is completed, according to House Republicans who were present for his remarks Thursday.

Trump said the administration will pivot to welfare programs next year, said Steve Womack of Arkansas and Matt Gaetz of Florida. Tax legislation in the House and Senate is estimated to reduce federal revenue by at least $1.4 trillion over the next decade.

House conservatives welcomed the comments. “I’m fired up,” said Jim Jordan, a co-founder of the House Freedom Caucus. “Trump gets it.”

Jordan added that the president didn’t provide any details about which programs would see cuts.

During the campaign, Trump promised that he wouldn’t cut Social Security, Medicare or Medicaid.

Tom Cole of Oklahoma said the president didn’t lay out whether he preferred the Senate proposal or House bill, and didn’t discuss whether a final bill should include a repeal of the Obamacare individual mandate. Trump tweeted his support of including the repeal in a tax overhaul earlier this month.

“This was mostly about, ‘Hey guys, we have an opportunity to do something historic. Let’s do it,”’ Cole said. -- Erik Wasson and Laura Litvan

Trump Reaches Out to Senator Ron Johnson (10:37 a.m.)

Ron Johnson

Photographer: Andrew Harrer/Bloomberg

A Republican senator who declared his opposition to the Senate’s tax plan on Wednesday said President Donald Trump called him Wednesday night. Wisconsin Senator Ron Johnson didn’t elaborate on the conversation, but he told CNBC Thursday morning that he wants “to vote yes” on the tax-overhaul plan and he’s optimistic that his concerns can be addressed.

Johnson has said that in its current form, the Senate plan doesn’t offer enough benefits for closely held businesses organized as pass-throughs. Such businesses, which include partnerships, S corporations and sole proprietorships, pass their earnings to their owners, who pay income taxes at their individual rates.

The White House is working on addressing Johnson’s issue and is happy he expressed his concerns before the vote, according to a senior administration official who asked not to be named because the discussions were private. Trump is confident House leaders have the votes they need, the officials said.

Meanwhile, Trump is scheduled to meet with House Republicans Thursday ahead of the chamber’s floor vote on its tax legislation. That vote is scheduled for after 1:30 p.m.

House Speaker Paul Ryan said Thursday morning that the House will pass the package of tax rate cuts for corporations, businesses and individuals -- and he dismissed studies that have said the measure would give some taxpayers higher bills.

Read more: Track the whip count ahead of the House vote

“I’m sure there are some wealthy people out there with lawyers and accountants” who can take advantage of tax breaks under current law, Ryan said during an interview on “Fox and Friends.” When Congress acts to take away those advantages, “they’re not going to like that,” he said.

Some House Republicans from New York plan to vote no on the tax bill, citing its repeal of deductions for state and local income and sales taxes.

“It is supposed to be a tax cut bill but it will be raising taxes on people in our communities,” said Representative Peter King, a Long Island Republican. King spoke during a Thursday morning news conference that Representatives Lee Zeldin, John Faso and Dan Donovan of New York also attended.

Donovan of Staten Island added: “New York, New Jersey, California and Maryland: those are the people subsidizing this tax cut for the rest of America.”

King said his group has proposed to House leaders that they leave the full state and local tax deduction in place for four years, before phasing it out for those earning more than $400,000 a year. The House bill calls for just preserving one part of the so-called SALT deductions -- a break for property taxes that would be capped at $10,000. The current Senate proposal calls for full repeal of SALT breaks.

In addition to the treatment of the state and local tax break, the House and Senate are working on different versions of tax legislation that have other significant differences. Those disparities will have to be worked out between the chambers before any measure can become law. Ryan called the legislation “a work in progress” and predicted it would get better after today’s vote. -- Anna Edgerton, Erik Wasson and Tolu Olorunnipa

Trump to Rally House Vote Amid Senate Drama (4:00 a.m.)

President Donald Trump is scheduled to head to the House on Thursday, rallying Republican members before their long-awaited vote on tax legislation, which is expected to take place after 1:30 p.m.

House GOP leaders say they’re confident they have the votes to pass the bill. But even so, drama unfolding in the Senate could trigger a sequence of events that parallels Congress’s failed health-care effort from earlier this year.

In May, Trump invited House Republicans to the Rose Garden for a victory celebration after they passed legislation to repeal and replace the 2010 Affordable Care Act. The festivities proved premature when the health-care effort failed in the Senate four months later.

Should the House pass its tax bill Thursday, it’ll be dead on arrival under Senate budget rules that prevent adding to the federal deficit after 10 years. To meet that constraint, Senate GOP leaders plan on sunsetting their individual income tax breaks while making the corporate cut and international changes permanent.

The differences between the two chambers will have to be reconciled before either’s plans can become law -- a goal they’ve set to accomplish before year’s end.

Nonetheless, tax legislation must begin in the House -- so Thursday’s vote is critical to the effort, and House Republican leaders were leaving little to chance. They completed two hours of debate on the bill Wednesday and plan to conclude two more on Thursday before the vote.

Only about 10 House Republicans had declared by Wednesday that they’d vote no -- and many of them cited a proposal to repeal or limit individuals’ state and local tax deductions. The House legislation would end all but the break for state and local property taxes, which it would cap at $10,000.

Republicans can spare 22 votes without Democratic support. House Minority Whip Steny Hoyer said Wednesday he didn’t expect any Democrats to support the bill.

Trump is gearing up to visit the chamber after his 12-day trip in Asia. He posted a message on Twitter on Wednesday evening saying: “Big vote tomorrow in the House. Tax cuts are getting close!” And while he’s met with Democrats to try to win their support on taxes, he continued to criticize them. “Why are Democrats fighting massive tax cuts for the middle class and business (jobs)?” Trump wrote. “The reason: Obstruction and Delay!”

It’s unlikely Trump will sway any of the moderate Republicans from high-tax states who’ve said they’ll vote against the tax bill. House Majority Whip Steve Scalise said he was still talking some members through their doubts about the bill, but he was confident that it would pass on Thursday.

On the other side of the Capitol, fresh changes to the Senate proposal are already spurring discontent among some GOP senators. Republican leaders have said they plan to pass the legislation without any Democrats, meaning they can only afford to lose two senators.

Republican Senator Susan Collins sounded the alarm against including the Obamacare individual mandate’s repeal in the tax bill. GOP Senator Ron Johnson emerged Wednesday as the first to say he’s opposed to the Senate tax proposal as it stands, complaining that it would disadvantage pass-through businesses in relation to corporations.

A final bill is more likely to resemble the Senate proposal, in part because of the upper chamber’s slim majority. Other divisive issues between the House and Senate could include where to set the top individual income tax rate, whether to retain the estate tax, when to begin a new, 20 percent corporate rate, how to treat pass-through businesses, and where to set rates for companies that bring offshore profits back to the U.S. -- Sahil Kapur and Anna Edgerton

What to Watch on Thursday:

  • The Senate Finance Committee will begin its markup at 11 a.m. and is expected to continue debating amendments. The panel concluded another heated markup on Wednesday evening, where most of the discussion focused on the Obamacare individual mandate repeal. Finance Chairman Orrin Hatch said the committee’s markup would continue into Friday if needed.
  • Senator Ron Johnson of Wisconsin was the first GOP senator to officially oppose the tax plan -- look to see if other Republican senators join him.
  • Trump will speak to the House GOP conference at 11:30 a.m.
  • The House will finish the remaining two hours of debate before a final vote.

Here’s What Happened on Wednesday:

  • Johnson said his main concern is that the corporate rate will be slashed to 20 percent from 35 percent, while the top pass-through rate won’t fall as much.
  • The National Federation of Independent Business said it “strongly supports” the revised Senate proposal. The NFIB had opposed an earlier version of the House tax plan.
  • Senate Minority Leader Chuck Schumer seized on the sunset provisions to criticize the revised Senate plan. “Either tens of millions of taxpayers will pay significantly more the longer this plan is in effect, or a future Congress will extend the tax breaks, making the deficit hole they create massively deeper,” the New York Democrat said.
  • Repealing the Obamacare individual mandate would increase premiums in the individual insurance market by about 10 percent, which would amount to increases of hundreds of dollars per year for about 7 million mostly middle-income consumers -- and up to $1,000 per year for many older people -- according to an estimate from the left-leaning Center on Budget and Policy Priorities.

— With assistance by Alexis Leondis, Sahil Kapur, Anna Edgerton, Toluse Olorunnipa, Erik Wasson, and Laura Litvan

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