WASHINGTON — Republicans’ fast-moving effort to overhaul the tax code hit an unexpected roadblock Thursday night with the collapse of a plan to win over recalcitrant lawmakers with a promise to limit the impact of the legislation on the federal deficit.
Senate leaders, who had hoped to vote to pass the overhaul by late Thursday night, instead sent lawmakers home shortly after 9 p.m. and began to search for a new way to offset the cost of the legislation. They are looking to win the support of several senators, including Sen. Susan Collins, R-Maine, and Sen. Bob Corker, R-Tenn., who has led a small group of colleagues in demanding that the bill’s $1.5 trillion tax cut not drive up the nation’s debt.
The scramble was the result of two successive setbacks that Senate Republicans suffered Thursday as they moved toward a vote. First, the Joint Tax Committee, Congress’ nonpartisan scorekeeper, reported that the tax bill would not generate nearly as much economic growth over the next 10 years as Republicans had expected. As a result, the nation’s deficit would be $1 trillion higher.
Then, the Senate parliamentarian ruled that a Corker-backed proposal to automatically raise taxes in the future if Republicans’ expectations of higher growth did not materialize was not consistent with Senate rules.
While most Republicans would have been happy to move on and pass the bill, Corker stood his ground and demanded a solution. Corker and Sen. Jeff Flake, R-Ariz., together are demanding that the bill not drive up the deficit. Meanwhile, Sen. Ron Johnson, R-Wis., appears to be a holdout out of concern that the bill does not do enough for businesses that pay their taxes through the individual income tax code.
Republicans need the votes of 50 senators to pass legislation, given that Vice President Mike Pence can break a tie. In good news for the party, it picked up the support Thursday of Sen. John McCain, R-Ariz., who doomed the party’s earlier efforts to repeal the Affordable Care Act.
Thursday evening, senators were eyeing a wide range of options to move legislation forward, including adding higher taxes on upper-income Americans and adding some taxes on certain companies. But they did not have an obvious solution.
“Honestly, a lot of things are being discussed,” said Sen. John Cornyn, Texas, the Senate’s second-ranking Republican.
Lawmakers plan to resume efforts to pass the bill Friday morning, but the debate within the party could easily turn testy.
“I have no idea what they want. I do not want a tax increase, and I don’t want a trigger. I don’t think it’s necessary,” said Sen. Pat Roberts, R-Kan.
Republicans had been within sight of their biggest legislative victory during the Trump administration, and they were trying to prevent the effort from unraveling.
The debate is now expected to spill into Friday night. Corker and Flake are both retiring from the Senate and are not up for reelection, giving party leaders little leverage over them. And Johnson has exalted in challenging Republican leaders, some of whom he believes abandoned him during his re-election effort last year.
NO DEMOCRATIC SUPPORT
Democrats unanimously oppose the measure and ripped it Thursday.
Sen. Ron Wyden, D-Ore., the top Democrat on the tax-writing Senate Finance Committee, said that the late-breaking analysis of the bill’s economic effects – which Republicans have been touting for months – illustrates a mistaken approach.
“This isn’t tax reform at all,” he said. “This is now just a grab bag full of goodies for multinationals and donors and special interests.”
The U.S. government has more than $20 trillion in debt, accumulated from decades of spending more money than it brought in through revenue. As the debt grows, budget analysts have warned that it could become increasingly difficult for the U.S. government to respond to a financial crisis or an economic downturn.
It also means that the government must spend hundreds of billions of dollars more on interest payments, costs that go up if interest rates rise.
But Congress and the White House have had a hard time containing the budget deficits, in part because of costly entitlement programs that account for a growing part of the budget. The Congressional Budget Office has estimated that the gap between revenue and spending this year will be more than $600 billion and will continue to grow unless changes are made. The tax bill, budget experts have found, will widen the deficit even more.
Many Republicans believe the economic growth that will be unleashed by the tax cuts will be worth it, potentially creating such an economic boom that new revenue will come in from job creation and corporate investment. But these forecasts are often controversial because it is difficult to predict how tax cuts will affect behavior and how quickly the economy will respond.
Party leaders, though, have brushed off the criticism for weeks. Senate Majority Leader Mitch McConnell, R-Ky., told reporters Thursday: “We’re certainly optimistic. As you know we had everybody on board to take the bill up. I think everyone is trying to get to yes.”
Of the 52 Republican senators, there were just a handful whose stances remained uncertain or undeclared as of early afternoon Thursday, most prominently Corker, Flake, Johnson and Collins.
SUPPORTERS WANT CHANGES, TOO
But even Republicans who support the bill are seeking changes. Sens. Marco Rubio, R-Fla., and Mike Lee, R-Utah, were trying to increase a child tax credit. To do so, they would slightly decrease the size of the tax cut the bill proposes to offer corporations. Under the current version of the bill, that rate would drop from 35 percent to 20 percent.
House conservatives were drawing a hard line on that issue. “We have consistently said as low as possible but no higher than 20 percent,” said Rep. Mark Meadows, R-N.C., chairman of the House Freedom Caucus, referring to the corporate tax rate.
Collins was working on several issues, including partially restoring the ability of taxpayers to deduct state and local taxes from their federal tax bill.
Johnson still has not said whether changes made by leadership were enough to satisfy his concerns about the treatment of so-called pass-through businesses, whose owners pay taxes through the individual code rather than at corporate rates. Johnson retains partial ownership of one such business and wants better treatment for them.
Overall, the legislation represents a massive change for the tax code that delivers huge cuts for corporate America and the wealthy, while the benefits for individuals are mixed or in some cases nonexistent, according to multiple nonpartisan analyses.
The Senate bill would slash the corporate tax rate to 20 percent starting in 2019. It would also create incentives for multinational companies to bring foreign earnings back to the United States. And it encourages businesses to invest more, allowing them to immediately expense the cost of things such as new equipment and machinery.
The bill would temporarily cut taxes on families and individuals, lowering tax rates and expanding the amount of income that isn’t subject to taxation. It would also, temporarily, expand the child tax credit for families earning less than $1 million. But it would also cut back on many tax breaks, prohibiting people from deducting the taxes they pay to states and localities.
Importantly, the bill would also repeal a central element of the Affordable Care Act, which creates penalties for Americans who don’t have health insurance coverage. This is a major plank in President Barack Obama’s signature legislative achievement, and the Senate language, if signed into law, would mark Republicans’ biggest legislative success in paring back that law.
This change would create more than $300 billion in budget space because of the money that would be saved in Medicaid spending and other programs, but it would also lead health insurance premiums to increase and more than 13 million fewer people to have health insurance in several years, according to the Congressional Budget Office.
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