WASHINGTON — State and local tax breaks, the deficit, income tax brackets and drilling in the Arctic National Wildlife Refuge are among the potential flashpoints as congressional Republicans push to pass a tax bill by the end of the month.
While it’s widely expected that tax legislation will eventually pass the House and Senate before Congress leaves Washington for the holidays, tense negotiations are ahead.
The Senate passed its version of the tax package early Saturday, 51-49. The House approved its plan last month.
Members of a joint congressional committee now will meet to resolve those differences, conflicts that pit all sorts of special interests against one another. But Republicans are so eager to pass a tax bill –– and claim a so-far elusive big win in President Donald Trump’s first year –– that compromise is not expected to be too difficult.
“There are real differences, but they’re not the differences that as you get into a room and roll up your sleeves that can’t be overcome.” said Rep. Mark Meadows, R-N.C., who is chairman of the House’s Freedom Caucus, a group of about three dozen hardcore conservatives.
The political stakes are just too high to fail, Republicans said.
“I truly think it will be the most important thing we do in this Congress,” said Sen. Thom Tillis, R-N.C. “It may be the most impactful thing Republicans do over the next decade.”
Still, there are several significant differences between the House and Senate bills to overcome, particularly in the Senate with its narrow margin for error. Republicans control 52 of the 100 seats. Since all 46 Democrats and two independents are expected to oppose the tax bill, the Republicans can afford to lose only three Senate votes.
The major issues are:
–– State and local taxes: The Senate bill would preserve some state and local tax deductions, a change from Senate Republicans’ initial proposal. Lawmakers agreed to allow taxpayers to deduct up to $10,000 of their state and local property taxes on their federal returns, echoing a compromise included in the House bill that passed last month.
The Senate version, though, may be problematic for Republicans in the House.
Thirteen Republicans voted against the House legislation in November, virtually all of them from New York, New Jersey and California –– high-cost, high-tax states that would be among the biggest losers if state and local tax deductions for property, income and sales taxes are eliminated.
Some other California Republicans said they voted to advance the House bill last month despite misgivings.
Those Californians are now pushing for a final bill to include more of the state and local write-offs that disproportionately benefit their constituents.
Conservatives balk at the Senate change. Heritage Action for America, the advocacy arm of the conservative Heritage Foundation, said in a memo that “Senate Republicans were wise to eliminate all state and local tax ... deductions in the Finance Committee’s tax reform proposal so that they could use the savings to lower tax rates across the board.”
The Senate bill would maintain the mortgage interest deduction on newly purchased properties, capped at the first $1 million. California and other states with high home prices prefer that approach to the House bill, which would lower the cap to $500,000.
–– Tax brackets: Lawmakers had hoped to cut the number of tax brackets in half as part of their initial goal to make the tax code so simple that taxpayers would be able to file their tax returns on postcards. That turned out to be difficult to do, but the House proposal goes further in meeting the goal.
The House has proposed four tax brackets: 12 percent, 25 percent, 35 percent and the current top rate of 39.6 percent.
The Senate would keep the current seven-bracket system, but lower the rates to 10 percent, 12 percent, 22.5 percent, 25 percent, 32.5 percent, 35 percent and a lower top rate of 38.5 percent.
–– Arctic refuge: Unlike the House bill, the Senate bill includes a provision that could allow oil and gas exploration in Alaska’s Arctic National Wildlife Refuge –– a concession considered important to winning the support of Sen. Lisa Murkowski, R-Alaska.
Twelve House Republicans, however, including Rep. Carlos Curbelo, R-Fla., a member of the House Ways and Means Committee, told Republican leaders that they oppose such drilling.
“For decades, Congress has voted to prohibit oil and gas development in the refuge, with the overwhelming support of the American public,” the 12 wrote in a letter to House Speaker Paul Ryan, R-Wis., and Senate Majority Leader Mitch McConnell, R-Ky. “Support for this protection remains strong today.”
It was unclear whether they would vote against a final bill that includes the Arctic provision.
–– One-year delay: Reflecting Trump’s top priority, both bills would drop the top corporate rate from 35 percent to 20 percent, but the Senate bill would do so in 2019, a year later than the House version would. The change would reduce the cost of the tax package and meet Senate budgetary rules, but House conservatives said it’s a mistake.
“If the Senate is pursuing a one-year delay it would mean the economy wouldn’t improve like it needs to,” said Rep. Louie Gohmert, R-Texas. “It’s a great strategy if you’re looking to put the Democrats in the majority and give them credit for what we did. But if you’d like to see the economy improve now and give credit where credit is due, they need to forget the one-year delay.”
–– Corporate tax rate: The House bill would set the corporate tax rate at 20 percent, a smaller cut than Trump sought but an acknowledgment that a lower rate would blow a big hole in the federal deficit.
Several Senate proposals sought to raise a new corporate rate, but House conservatives signaled that 20 percent is nonnegotiable.
“We have made it very clear that a 20 percent corporate rate is the red line,” Meadows said.
–– Health care mandate: The Senate bill would repeal the requirement in the 2010 Affordable Care Act that most people pay a penalty if they don’t purchase health insurance.
The provision isn’t in the House bill, but is popular among House conservatives. Yet those same conservatives are opposed to health care provisions that would be considered as a result of including the repeal which might be necessary to delivering critical votes in the Senate.
Sen. Susan Collins, R-Maine, said she expects legislation that would reinstate cost-sharing payments to insurance companies to pass before the tax bill is complete. The provision, authored by Sens. Lamar Alexander, R-Tenn., and Patty Murray, D-Wash., would help lower health insurance premiums, she said.
House conservatives suggested that would be difficult to accept.
“I don’t think any of that flies,” said Rep. Jim Jordan, R-Ohio, who likened the insurance provision to a bailout for the insurance industry.
–– Deficit: Fiscal conservatives who had long opposed legislation that threatens to significantly increase the deficit have largely held their nose and embraced the tax package, saying they are willing to tolerate short-term debt to stimulate the economy.
Republican leaders hoped that a “dynamic scoring” of the tax bill by the Joint Committee on Taxation would be optimistic that lower taxes would result in economic growth.
The analysis Thursday, however, showed that the bill would still cost $1 trillion, even after accounting for growth. Republicans questioned the accuracy of the committee’s projections.