Tax Reform: Counting Noses

American taxpayers can give thanks this holiday for being on the cusp of once-in-a-generation tax reform which will lower taxes for most middle class taxpayers while making American companies more competitive globally. As the Senate prepares to vote on their version this coming week, Republican leaders see the following:

The shape of the box

        – The large negative of increased budget deficits was largely agreed upon with the FY 2018 budget resolution which set a $1.5 trillion limit for tax reductions over the next ten years. That bill was passed 216 to 212 in the House, and 51 to 49 in the Senate. The potentially disruptive House Freedom Caucus is on board; among Republicans only Rand Paul in the Senate disagreed.

– By adding the repeal of the Obamacare individual mandate, the Senate has created a pool of about $338 billion over 10 years- which can be used to offset the cost of other desired changes.

– The House passed their version of tax reform on November 16, with a surprising margin of 227 to 205, leaving Paul Ryan some room to protect vulnerable members and accommodate some Senate-demanded changes in the reconciliation process.

–  The Senate’s 52 to 48 majority leaves room for only two defections (with the likely unanimous Democratic opposition). If Democrat Doug Jones beats Republican Roy Moore in the December 12, Alabama election, the margin will shrink to one vote by December 26. Passage before Christmas – including reconciliation with the House – is essential.

– The Congressional calendar is full – including renewal of the Continuing Resolution to allow spending without approval of specific authorization bills and an increase in the debt limit by December 8. Nancy Pelosi and Chuck Schumer agreed to an extension in September; this time the Republicans may need to navigate alone.

The “at risk” Senate votes

– In the Obamacare “Repeal and Replace” saga, Lisa Murkowski of Alaska, Susan Collins of Maine, and John McCain of Arizona were willing to sink the long term Republican agenda.

— Murkowski is chair of the Senate Energy and Natural Resources Committee, an important position for her to retain for her Alaskan constituents. Inclusion of approval of drilling in the Arctic National Wildlife Refuge has been enough to make her declare her support despite some concern about repealing the individual mandate. A Yes.

— John McCain, whose criticism of the ObamaCare effort was partly about the one-sided process, has praised the Republican leadership for their handling of the bill which passed out of Committee, and earlier tied his vote on the budget together with the need for tax reform. A Yes.

— Susan Collins has several misgivings – the elimination of the Obamacare mandate, the elimination of deductions for state taxes, and the “too low” 20% corporate tax rate. She did support the enabling budget resolution, and is considered a “not yet” rather than a “no”. A maybe.

– With much media fanfare, Ron Johnson of Wisconsin has declared that he would not vote for the House or Senate version of the current bill since they do not provide enough relief for small business owners who pass through their company’s earnings to be taxed as personal income. On Wisconsin media he has expressed confidence that the problem can be fixed, he supports the overall bill, and he considers passage an “imperative” for Republicans. A probable yes.

– Conservatives Bob Corker of Tennessee and Jeff Flake of Arizona who are not running for reelection have expressed concern about the deficit and drawn the public scorn of President Trump. Both claim to be unaffected by Trump; moderate ally Rob Portman affirms that both will be “all in” – with the fig leaf that lower taxes will stimulate the economy enough to offset the lower rates. Two probable yeses.

– Despite being the only Republican to vote against the budget, Rand Paul  tweeted on October 20, “I’m all in for tax cuts @realDonaldTrump. The biggest, boldest cuts possible – and soon!” A yes.

House Reconciliation

Threading the needle will require some modifications to the bill which the House passed on November 16.

– The Senate needs to accept the House’s elimination of deductions for state and local taxes – on the surface simple because there are no Republican Senators from the high tax states of California, New York, New Jersey, or Massachusetts. The calculation in the House is less obvious, but most of the Republicans from these states represent rural districts and know that most of their constituents will benefit from the larger standard deduction. (The Democrat dominance really is limited to a few rich coastal enclaves.)

– The House needs to accept the Senate’s addition of the provision eliminating the Obamacare mandate. Back in May, the House was willing to eliminate Obamacare entirely by a 217 to 213 vote – eliminating the mandate should not be a problem with Republicans.  There is even a potential softener of a bill by Senators Lamar Alexander (R-Tennessee) and  Patty Murray (D- Washington) which would subsidize insurance companies for two years if the elimination of the mandate drives down their profit margins. Some form may be necessary to assuage Senators like Susan Collins, and perhaps to peel off a few Democrats.

Net, net … the months-long effort by the Congressional leaders and the White House to craft a manageable version is on the cusp of success unless John McCain’s brain cancer flares, another Republican gets tackled while mowing his lawn, or President Trump can find more responsive Republican Senators to insult.


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