Later this evening, the Senate is expected to vote on a motion to proceed with the Tax Cut and Jobs Act to provide $1.5 trillion in deficit-financed tax cuts. If the motion passes, the bill could see a floor vote late tomorrow (Thursday) or Friday. Republicans can only afford to lose two votes if their tax bill is to survive.
As leadership whips votes, tensions have wracked the Republican conference. We explore the main areas of disagreement and the possibility of failure on or forestalling final passage below.
The fate of the legislation rests in the hands of a half dozen Republican Senators. Which provisions make or break these Republicans’ “yes” votes?
• Fiscal Trigger Provision
A new fiscal trigger concept is pitting traditional fiscal conservatives against tax-slashing spendthrifts. Small business taxes have become a flashpoint that threatens to hold up proceedings. Moderates are balking at new plans to repeal the Affordable Care Act’s individual mandate. Sen. McCain is once again raising concerns about the procedural impropriety of ramming tax reform through at breakneck speed.
The Republican bill would add $1.5 trillion to the deficit over the next decade. The tax cut has a higher deficit cost than the Obama stimulus package and TARP combined. Raising the deficit by so much concerns at least three Senate Republicans — Corker, Flake, and Lankford, all skeptical of proponents’ rosy growth estimates.
Given these concerns, Sen. Corker has pushed for an agreement with leadership and the White House: a fiscal trigger that would raise tax rates if revenues fall short of GOP claims. This has immediately jumped into the spotlight as many Republicans rejected the idea of a trigger out of hand, Sen. Kennedy saying “I’d rather drink weed killer” than vote for automatic tax increases. Also, the trigger may not satisfy the Byrd Rule requirement that the bill not raise deficits beyond the ten-year budget window ending in FY 27.
While Sen. Kennedy is concerned about automatic tax increases, the automatic “sequester” spending cuts associated with the deficit impact of this legislation should be of greater concern. Because the bill is proceeding via reconciliation, it is subject to Senate PAYGO rules.
Programs ranging from Medicaid to Meals on Wheels would face steep cuts or get defunded entirely. Cuts to these programs will skew the equity of this bill towards the rich even further than it is already.
• Equity and the Individual Top Rate
The Senate bill lowers the top individual tax rate from 39.6 percent to 38.5 percent. This rate applies to individual filers earning $418,400 or more and married joint filers earning $470,700 or more. By contrast, under the Tax Cut and Jobs Act, the average married couple earning $59,000 annually would see their tax rates rise after 2025 as individual rate cuts sunset. Sen. Collins opposes lowering the top rate, believing tax rates should remain at current levels for top earners. Earlier this month, Collins said she could only vote “yes” if the 39.6 percent rate remains. But granting the following two Collins requests could win her “yes” vote back:
An itemized deduction for state and local property tax up to $10,000
An up or down floor vote on her proposal, S.1835, to provide $2.25 billion annually to states that establish “invisible high risk pool” or reinsurance programs
Equity concerns are likely to play a role in Sen. McCain’s expected “no” vote, although he has been more vocal about his problems with process (more below). Sen. McCain voted against the Bush tax cuts twice on the grounds that they favor the rich.
• ACA’s Individual Mandate
Congressional Republicans would zero the ObamaCare penalty for failing to buy health insurance as part of their tax plan. Repealing the mandate penalty has been scored as lowering the deficit because the money saved from no longer subsidizing the insurance of those who drop out outweighs the revenue from the penalty in a $300 billion reduction in health care subsidies for Americans in need.
This would create an insurance market “death spiral” because the healthiest people receiving the least subsidies would drop out first. That in turn would raise premiums for the remaining less healthy and less wealthy participants. Sen. Collins has made it clear she is concerned about the coverage impact of the repeal.
• Small Business Demands
The GOP’s treatment of small businesses moved to center stage earlier this month when Sen. Johnson became the tax bill’s first publicly dissenting Republican member. Since then, Sen. Daines has joined with Johnson, calling for changes to the bill to “ensure main street businesses are not put at competitive disadvantage against large corporations.”
At the heart of the debate is the bill’s treatment of pass through entities — businesses that “pass through” profits to owners and are thus taxed at the individual rate. The Senate bill allows for a 17.4 (reportedly rising to 20) percent deduction for pass through filers, while the House bill caps the rate at 25 percent. Neither of these provisions go far enough for Johnson and Daines. The duo reiterated its discontent on Monday, with Johnson threatening to hold up Tuesday’s Budget Committee vote on reconciliation instructions should his concerns not be addressed. Sen. Johnson ultimately voted in support of reconciliation bill in committee to keep the process moving forward, but he will need to see much better treatment for small businesses to vote “yes” on the Senate floor.
Senate Majority Whip John Cornyn said that steps were being taken to address Johnson and Daines’ concerns, reportedly offering to increase the pass through deduction from 17.4 to 20 percent. While this was enough to appease Johnson to vote in committee yesterday, the issue is far from settled. Late this afternoon, Daines signaled he has seen “good progress for small businesses.”
• Process Objection
Senator McCain voted to kill the GOP health care bill over the summer. In his July speech, he excoriated his own party for circumventing regular order and trying to jam the bill through reconciliation. As of today, McCain has yet to decide on the tax bill. Earlier this week he applauded the Senate Finance Committee for passing the bill through “regular order,” but also complained the bill was changing too frequently.
It has also been reported that McCain detests the Budget Control Act’s impact on defense spending. Some believe his “yes” vote on the tax bill could be secured with a plan to address defense.
The window to pass this bill is rapidly closing. If they can find the votes, Republicans will attempt to hold a vote late tonight on the Motion To Proceed. This will trigger 20 hours of “debate” and a Votarama. The hope will be that between vote-buying today and pre-conferencing with the House this week they will be able to pass a bill through the Senate on Friday for the House to pass cleanly, avoiding a conference.
Barriers to this come from the difficulty in placating small business advocates Senators Johnson and Daines, satisfying moderate holdout Susan Collins, and pleasing fiscal hawks Corker, Flake, and Lankford — all at the same time. GOP leadership aims to solve this rubik’s cube of a dilemna by Friday for a final Senate vote.
If this bill isn’t passed before the December 8th deadline to fund the government, it will have to work its way through Congress at the same time as a Continuing Resolution. Mixing a government shutdown with a massive tax cut package will make for a very complicated holiday stew and ruin more than a few Republican vacation plans.