On Saturday morning the Senate passed their tax reconciliation bill by a 51-49 vote. All Republican Senators except Senator Bob Corker (R-TN) voted to pass the bill. As in the House, there were no Democrat votes for tax reform. Please find our chart with a comparison of the House and Senate bills here. It is expected that the House will name conferees on Monday and the Senate will follow suit on Tuesday. You can expect several motions to instruct the conferees by the Democrats in the Senate. The plan is to finish the Conference and have a vote in both the Senate and the House before Christmas and our prediction is for a vote on the Conference report in the House on December 18 followed by a Senate vote on December 19; then a signature by President Trump within hours or days.
Likely to be in the Conference report:
· Doubling of the standard deduction
· $2,000 child tax credit
· Expand estate tax exemption to $11 million - no elimination of estate tax
· Pass-through businesses will get the Senate passed 23% deduction
· Eliminate ACA individual mandate
· Preserve property tax deduction up to $10,000
· Repatriation tax rates 7% and 14%
· Alaskan National Wildlife Refuge oil leasing
· Senator Ted Cruz (R-TX) amendment allowing 529 accounts to be used for elementary and secondary schools and private tuition
· Senator Susan Collins (R-ME) amendment expanding the medical deduction temporarily
· Senator Jeff Flake (R-AZ) depreciation changes
To find additional pay-fors in the Senate, Finance Chair Orrin Hatch (R-UT) used extra reconciliation savings, kept the corporate AMT, increased the individual AMT exemption amounts and phase-out thresholds, and increased the repatriation rates to the same levels as in the House bill.
Key decisions:
· Will the corporate rate go to 20% or 22%
· When will the lower corporate rate go into effect
· Sunset the individual tax changes and/or child tax credit beginning in 2026
· Mortgage interest deduction changes
· Number of individual brackets and rates
· Corporate and individual AMT
There are a number of isolated issue decisions that need to be made on bonds, electric autos, renewable energy, excise taxes on payments to foreign owned parent companies by U.S. subsidiaries, etc. But there is not a lot of money to use for these issues and the default position will be to reduce and eliminate as many deductions and credits as possible in favor of lowering the tax rates.
Despite President Trump's statement that the corporate rate may end up at 22%, there are strong majorities of Republicans in both the House and the Senate who want to lower the corporate rate to 20%.
The Rest of the Story
There is a bit of work to finish up before the Christmas recess. Government funding runs out at midnight on December 8 along with the need to reauthorize the Children’s Health Insurance Program (CHIP) and extend the Foreign Intelligence Surveillance Act (FISA). Additionally, another emergency supplemental for disaster assistance, possible funding for ACA cost savings reductions and a healthcare reinsurance program, sequester spending caps, and DACA have all been mentioned as "must do" items.
There is an ongoing discussion of whether to do a two week or a six week continuing resolution (CR). The shorter CR would put all of these issues into the debate with Christmas as a backstop. Many House Republicans believe that it would be better to have the six week CR so that some of the issues can be debated without the stepping on Santa's toes. Defense hawks are reluctant to extend the CR for six weeks because a CR causes the biggest problems for the nation’s troops and military budgeting. However, Secretary Jim Mattis is interested in getting an adequate defense budget without blowing up the deficit and believes that a six week CR is manageable.
If they decide to go to a six week CR how would all of this shake out? Right now it appears that there would be another emergency supplemental for disaster assistance. This might be a vehicle to carry the children's health and FISA extensions (most likely without some of the changes that have been discussed to make sure that FISA is not used as a political weapon by outgoing administrations.) Such a supplemental would put the total assistance slightly over the $100 billion level. This is also a potential vehicle for the ACA cost savings reductions and the healthcare reinsurance proposal supported by Collins.
This would postpone the discussion of the Congressional Budget Act sequester spending caps into January on the omnibus spending bill for the rest of FY '18. This would also be the target vehicle for the resolution of DACA. That would leave the debt ceiling which now appears now to have a March drop-dead date for extraordinary measures, as the last major holdover item from 2017.
It has been suggested by a few people on the Hill that it might be worth trying to pass an all defense appropriations, authorization and budget caps package. With the recent ship collisions in the Far East and the shocking advances made by the North Koreans in missile and nuclear warhead technology, the lack of funds for training and for missile defense has come into sharp focus. Congress is under pressure to address these issues as soon as possible but will be pressured to match those moves with billions toward domestic spending programs.
Wrapping up tax reform, government spending, CHIP and FISA before the end of the month is the immediate challenge facing the Trump Administration and the Congress – not leaving a lot of time for Holiday cheer here in the Nation’s Capitol.
ABOUT David Hoppe: David Hoppe has nearly 30 years of experience on Capitol Hill; Mr. Hoppe has held a number of prominent staff positions within the Republican leadership most recently as Chief of Staff to Speaker of the House Paul Ryan. He also served as the chief of staff for Senator Jon Kyl (R-AZ) from 2011 through 2013. Prior to joining Senator Kyl’s staff, Mr. Hoppe was president of the bipartisan public affairs firm Quinn Gillespie and Associates. Earlier, Mr. Hoppe served as chief of staff to then-Senate Majority Leader Trent Lott from 1996 through 2002; and previously worked with Senator Lott as staff director of the House Republican Research Committee from 1979 through 1980 and staff director for the House Republican Whip from 1981 through 1984. Mr. Hoppe has served as chief of staff to Representative Jack Kemp (R-NY) and administrative aide to U.S. Senator Dan Coats (R-IN). He also has worked at the Heritage Foundation and Squire Patton Boggs, and Quinn Gillespie & Associates.
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JT Taylor
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Emily Evans
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Health Policy
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