President Trump's announcement last Wednesday of the tax reform outline has set the pivot for the fall to taxes.
Certainly, there are other very important issues that will receive Congressional and White House attention - the Children's Health Insurance Program, small Medicare extensions, government funding for FY'18, building the wall, DACA and border security, and perhaps funding cost-saving reductions for the ACA. But front and center will be the dead sprint to get tax reform completed and signed by the end of this year.
The rollout of the tax reform plan was quite disciplined and effective. The
specifics released were sufficient to get the House Freedom Caucus and the
Republican Study Committee to agree to vote for the FY'18 budget. Indeed, it
received broad general support from across the Republican party and outside
groups.
Most of the details were on the tax cuts rather than the pay-fors:
- Set the corporate tax rate at 20%,
- Small business tax rate set at 25%,
- Double the standard deduction (increase child tax credit, eliminate exemptions for dependents),
- Three individual tax brackets - 12%, 25%, 35%,
- End individual and corporate AMT,
- Get rid of most itemized deductions for individuals and corporations,
- Retain charitable, mortgage interest deductions, and deductions for work, education and retirement,
- Repeal death tax and transfer tax,
- Allow annual expensing of capital investments for five years at least,
- Limit deduction of interest for C corporations,
- Eliminate section 199,
- Change to a territorial system and require repatriation at two new rates,
- Retain credits for business R & D and low-income housing.
As always the difficulty is which deductions to eliminate as one lowers the
rates and broadens the base. Receiving the most attention immediately is the
deduction of state, local and property taxes. High tax states like
California, New York, Maryland, New Jersey and others would pay higher taxes
if the deduction is eliminated. To get lower rates and keep the deficit
down, you have to eliminate some deductions. Ways and Means Chairman Kevin Brady (R-TX) has been holding preliminary discussions with Republican Ways and Means Committee members to check their temperature on various deductions.
The tentative calendar for tax reform has the House passing the FY'18 budget
the week of October 2. The Senate hopes to report out its budget next week
too. The week of October 16 the Senate hopes to pass their budget. The
conference report should be completed the week of October 23. The conference
report on the budget is planned for the House and Senate floor the weeks of
October 30 and November 6. A Ways and Means tax reform reconciliation bill
is targeted for the floor the week of November 6 and moving through the
Senate Finance Committee and the Senate floor before the break for
Thanksgiving. This would anticipate the conference committee resolving its
differences the week of December 4 and final passage by December 15.
This schedule is a rush, but not impossible.
It became clear early in the week that the Graham, Cassidy, Heller, Johnson (GCHJ) Amendment did not have the 50 votes needed to pass the Senate. Senator Lindsey Graham (R-SC) asked that no vote be taken on the bill. While this ends the attempt to pass a health care reconciliation bill using the FY'17 budget, plans are in the works to have further discussions on GCHJ and to consider using the FY'19 budget as a vehicle to a health care reconciliation bill early in 2018. The beginning point for these discussions is expected to be the GCHJ
legislation.
Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) have announced that they are continuing their efforts to find a bipartisan compromise that would fund the cost saving reductions for the ACA exchange participants and allow people over 30 to buy catastrophic insurance policies and provide some procedural waivers to the ACA for states that want to request them.
