Barring some unforeseen catastrophe (or another floor-vote surprise akin to Sen. John McCain’s last minute decision to strike down the Senate’s plan to repeal and replace Obamacare), Congressional Republicans appear all but certain to pass the reconciled version of President Donald Trump’s tax-cut plan - the first time Congress has successfully passed comprehensive tax reform since 1986.
With their self-imposed Friday deadline looming, the Republicans’ Senate leadership managed to secure commitments from several holdouts, including Maine Sen. Susan Collins, Florida Sen. Marco Rubio and Utah Sen. Mike Lee.
At last count, the only Senator who hasn’t committed to a ‘yes’ vote is Arizona’s Jeff Flake. Flake famously delivered a scathing speech condemning President Trump from the floor of the Senate after announcing that he would not seek another term. He has been an outspoken Republican critic of the Trump agenda, per Reuters.
Meanwhile, Sen. Bob Corker - the only senator who voted against the Senate’s original tax bill - said late last week that he would vote for the current bill after several provisions were added that would benefit him personally, along with a handful of other Republicans.
Sen. Orrin Hatch further inflamed the scandal, which Democrats will undoubtedly attempt to leverage in their last-minute effort to block tax reform, when he admitted yesterday that he drafted the controversial language that helped flip Corker to a 'yes' vote, but said he couldn’t remember if the provision had been included in previous draft versions of the bill.
Speaker Paul Ryan told reporters to expect the House to vote on the reconciled bill in the early afternoon. The Senate is also expected to approve the legislation by Wednesday morning.
In their push to find something - anything - that could obstruct the bill, or force it back to the House for revisions, Democrats are frantically searching for provisions that they might be able to block under the so-called “Byrd rule” - an amendment to the Congressional Budget Act of 1974 which stipulates that senators can block a bill during the reconciliation process if its provisions would significantly widen the deficit.
Senate Majority Whip John Cornyn of Texas didn’t rule out the possibility of other issues involving the rule.
“We’re still talking to the parliamentarian about that,” Cornyn told Bloomberg. “So we simply don’t know for sure. But that’s what this process is designed to tell us."
With the tax bill almost certainly headed to the president's desk by week's end, here's a roundup of what happened yesterday, when Republicans finished tying up the last loose ends. Per Bloomberg:
House Republicans agreed Monday on $81 billion in disaster relief for areas hit by hurricanes and wildfires, the largest standalone aid bill in recent years, according to a document provided by a Republican lawmaker. The aid likely would be attached to a government spending bill that must be passed this week to keep the government open after Friday.
Senate Finance Chairman Orrin Hatch pushed back on reports that the final bill’s pass-through provision included a last-minute change to appease the real estate industry, or to secure Senator Bob Corker’s vote.
The tax bill would lower taxes on average across the income spectrum for the first eight years, with the largest benefits going to upper earners, according to a new analysis by the Urban-Brookings Tax Policy Center. Next year, the average federal tax cut would be $1,610, the study found. The bottom fifth of income-earners would get an average cut of $60 and those in the middle fifth would get a $930 cut on average, according to the analysis. The top 1 percent would get $51,140 on average, and the top 0.1 percent would get $193,380, it found.
A separate report from the Tax Foundation found that the bill would add $448 billion to federal deficits over 10 years with economic growth factored in. The estimate is far lower than the $1 trillion deficit increases Congress’s official scorekeeper estimated for the House and Senate bills after accounting for economic growth.
Half the public thinks they’ll pay higher taxes under the Republican overhaul in a new Monmouth University poll, underscoring the difficulty the party faces in selling the plan.
While a handful of blue-state Republicans in the House are planning to vote against the final bill, the notion that it would easily pass the Trump-friendly chamber was never really in doubt.
Meanwhile in the House, a handful of Republicans have said they won’t support the final bill, including John Faso of New York, Dana Rohrabacher of California and Leonard Lance of New Jersey -- but the “no” forces lack sufficient numbers to sink the bill. Most of the House GOP dissenters are from high-tax states and are concerned that the bill’s $10,000 limit on individuals’ state and local tax deductions will raise taxes on their middle-class constituents.
As strategists from Credit Suisse and Goldman Sachs have pointed out in recent days, corporations - particularly banks, oil refiners, railroads and any other industry that derives most of its profits from the domestic market - will derive the biggest benefit from the legislation.
Trump, his advisers and Republican leaders continue to say the tax plan would help the middle class the most. But studies, including one Monday from Congress’s official scorekeeper, the Joint Committee on Taxation, have found that lower income earners will actually see a higher tax burden by 2027, while high earners will see a more enduring benefit.
Meanwhile, Goldman estimated that the reconciled tax bill would add approximately 13% to its EPS in 2018.
As Republicans prepare for what would be their first major legislative accomplishment of the Trump era, here’s what's in the final draft of the bill.
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BUSINESSES
CORPORATE TAX RATE: Falls to 21 percent from 35 percent. The House and Senate bills, as well as Trump, had earlier proposed 20 percent. Going to 21 percent gave tax writers more federal revenue needed to make the tax cut immediate. U.S. corporations have been seeking a large tax cut like this for many years.
PASS-THROUGH BUSINESSES: Creates a 20 percent business income deduction for owners of pass-through businesses, such as sole proprietorships and partnerships. The House had proposed a 25 percent tax rate; the Senate, a 23 percent deduction.
CORPORATE MINIMUM: Repeals the corporate alternative minimum tax, which was set up to ensure profitable companies pay at least some federal tax.
INDIVIDUALS
TOP INDIVIDUAL INCOME TAX RATE: Falls to 37 percent from 39.6 percent. The House had proposed maintaining the 39.6 percent top rate and condensing the current seven tax brackets to four. The Senate had proposed cutting the top rate to 38.5 percent and maintaining the seven brackets.
PERMANENCE: The expectation is individual tax rates will snap back to current levels in less than 10 years. The individual tax rates in the House bill were permanent. The individual tax rates in the Senate bill would have expired after 10 years.
STATE AND LOCAL TAX (SALT): Both the House and Senate had proposed scaling back a popular individual deduction for state and local tax payments by limiting it to property-tax payments and capping it at $10,000. The compromise bill is expected to keep that cap, but also allow for continued deduction of state and local income tax payments.
MORTGAGE INTEREST: Caps the mortgage interest deduction at $750,000 in home loan value, down from the current $1 million. The House had proposed a $500,000 cap. The Senate bill left it at $1 million.
ESTATE TAX: Roughly doubles the exemption from the federal estate tax on inherited assets to about $11 million, but leaves the tax in place, mirroring the Senate proposal. The House bill had raised the deduction, but also entirely phased out the tax.
OTHER PROVISIONS:
OBAMACARE MANDATE: Repeals a federal fine imposed on Americans under Obamacare for not obtaining health insurance coverage. The House bill did not repeal the Obamacare individual mandate.
ANWR DRILLING: Allows oil drilling in Alaska's Arctic National Wildlife Refuge. The provision was sponsored by Republican Senator Lisa Murkowski of Alaska.