Republicans are about to confront Trump's 'red line' to fix problems in their tax bill
- The GOP tax bill is headed to a conference committee, wherein members will have to work out differences between the House and Senate versions of the plan.
- One change being floated: cutting the corporate tax rate to 22% from the current 35%, instead of the 20% proposed in the original version of the bill.
- Such a tweak would help free up money to solve problems that cropped up after the bill passed, but also could open the door to more intraparty bickering.
Republicans, moving closer to passing a massive overhaul of the US tax code, are heading toward a possible fight over corporate taxes as they work to finalize their legislation.
The House and Senate this week approved measures to send the Tax Cuts and Jobs Act (TCJA) to a conference committee, in which members from both chambers will try to hash out a compromise version of the two bills.
One of the most significant potential sticking points has begun to emerge: what the final corporate tax rate should be. According to reports, Republicans are open to cutting the rate to 22% from the current rate of 35%, instead of the 20% proposed in both versions of their legislation.
That would raise more revenue to help correct some unpopular provisions in the bills that were passed. Also, it could help enable tweaks to items like the state and local tax deduction, which the House and Senate bills proposed to largely eliminate.
President Donald Trump suggested over the weekend that he would be open to the slightly higher rate after previously calling the 20% level a red line.
Fitting it all into a tight budget window
Republicans must balance fixing errors in their original bills and adjusting deductions with the requirement that the bill only adds $1.5 trillion to the federal deficit over 10 years. Both the House and Senate versions of the TCJA came in just barely under that limit, so any major changes to make provisions more generous would likely need to be offset by increased rates or another revenue-raising change.
But raising revenue from a less generous corporate rate cut would also give the committee room to make changes to other provisions, which could reopen the fight for different pet projects.
For instance, Sen. Marco Rubio told Politico that if the corporate rate was increased, then the child tax credit should be more generous - or he would "have a big problem." Rubio pushed for an amendment to do just that when the TCJA was being discussed in the Senate.
Lobbyists could see the corporate rate increase as a way to win a benefit or carve out for their industry - similar to the ones proposed for craft brewers and fish processing plants.
While an increased corporate rate could be the biggest shift in the conference committee, there are still a slew of issues that need to be worked out from the elimination of the medical expense deduction to the tax break for pass-through businesses.
Chris Kreuger, an analyst at Cowen Washington Research Group, said the discrepancies will likely take some time to work out, but they shouldn't put the brakes on getting a bill to Trump's desk by Christmas.
"We expect the Conference Committee to conclude by the end of next week (December 15), though it is possible it could go to December 22," Kreuger said in a note to clients.
Both the House and Senate Republicans named their members of the conference committee soon after the motion to take the bill to conference passed. Democrats have also made their selections, most notably including Sen. Bernie Sanders, an independent from Vermont and former Democratic presidential candidate.
Here's a list of the Republican members of the conference committee:
- House:
- Ways and Means Chairman Kevin Brady (Texas)
- Reps. Devin Nunes (California)
- Peter Roskam (Illinois)
- Diane Black (Tennessee)
- Kristi Noem (South Dakota)
- Rob Bishop (Utah)
- Don Young (Alaska)
- Greg Walden (Oregon)
- John Shimkus (Illinois)
- Senate:
- Finance Committee Chair Orrin Hatch (Utah)
- Budget Committee Mike Enzi (Wyoming)
- Energy and Natural Resources Committee Chair Lisa Murkowski (Alaska)
- John Cornyn (Texas)
- John Thune (South Dakota)
- Rob Portman (Ohio)
- Tim Scott (South Carolina)
- Pat Toomey (Pennsylvania)