Getting Down To Business Taxes (Sep. 19)

This morning, Senate Finance held its second  hearing exploring tax policy in a week.  This time, the focus was on corporate tax.  The Committee heard testimony on pass-through rates, C-corp rates, territoriality, options to raise revenue, etc.

Chairman Hatch again asserted that a tax bill will be written by the Committee in a bipartisan way, insisting that the Secret Six will not force  partisan changes since it doesn’t legislate.  Ranking Member Wyden took aim at the all-GOP Secret Six, whose tax reforms deliberations are the subject of intense lobbying and speculation, attacking purported GOP plans on pass-through taxation and expressing outrage about the latest attempt to jam through health care repeal.

What are the dividing issues here?  Are these divides so great that Republicans will have to rely on reconciliation to move on a $1.5 trillion tax cut?  Or does Hatch think bipartisan accord possible?

Best,

Dana

_______________________________________________

Frequently, bipartisan differences on corporate tax proposals were aired, particularly regarding:

•  Pass-Throughs:  Republicans defended pass-throughs as a way to support small businesses and spur economic growth by increasing investment.  Sens. McCaskill and Wyden were quick to refute these claims, arguing that the benefits of a pass-through rate cut would accrue mostly to the top one percent of earners, as pass-through income accrues to wealthy owners of larger businesses.

•  Deficit Financing:  Democrats emphasized the likelihood that tax cuts would be deficit financed. Precious few ideas have surfaced from Republicans about how to compensate for this revenue loss.  Sen. Carper expressed concerns about deficit-financed tax cuts, particularly those disproportionately benefiting the affluent.

•  Dynamic Scoring:  Conservatives continue to cite this fiscal impact metric to mollify those concerned about adding trillions to the debt, saying that tax cuts will spur growth and in turn increase revenue.  Not many serious economists think the government would get more than a dime out of the best designed tax cut dollar.  Carper and others today called this trickle-down theory, recalling how similar corporate tax cuts of the past have increased deficits without generating growth to make up for them.

Send. Brown and Stabenow excoriated trickle-down economic policies.   Stabenow suggested ending the tax subsidies that the five largest oil companies have enjoyed for over a century.  She said eliminating the business interest deduction would harm workers, particularly in small businesses.  Sen. Cantwell focused on the most vulnerable, highlighting the precarious situation of the Low Income Housing Tax Credit Program, a program with major implications for investment spending patterns of developers.

If the GOP tax plan is so fiscally reckless and inequitable that no Democrats sign on, it will have a better shot if Republicans pass a budget resolution with reconciliation instructions providing for tax changes.   No tax changes can add to the deficit outside of a 10-year budget window under reconciliation.  A budget resolution that complies means the GOP would need only a 50 + 1 majority to pass the legislation; a filibuster requiring 60 votes to overcome, would not available to Democrats.

There are a few obstacles to shepherding legislation by way of reconciliation.  Per the Byrd Rule, Senators can raise a points of order against an extraneous provision in a budget bill. A provision could be considered extraneous if it:

•  changes provisions for social security

•  doesn’t change the overall spending or revenue

•  only incidentally changes spending or revenue

•  is outside the jurisdiction of committee(s) reporting it

Republicans must work with alacrity to create a product that overcomes the above obstacles to reconciliation.  The window for using budget reconciliation will soon close.  The Senate parliamentarian, who oversees the chamber’s arcane procedural rules, decided last week that the current budget reconciliation privileges would expire at the end of September, the last day of this fiscal year.

The GOP badly wants to get a tax bill done this year, so as not to boot it to 2018, an election year.  But it will be nearly impossible for Republicans to get this done by the end of the fiscal year.

Just tonight, Sen. Corker, a senior Republican on Senate Budget, told reporters that the budget resolution that could unlock the process for reconciliation could be marked up in the coming week or two, depending on whether the Senate is focused on healthcare.