The Washington PostDemocracy Dies in Darkness

Another delicate challenge for Republicans: Reconciling House and Senate tax bills

Majority Leader Mitch McConnell (R-Ky.) leaves the Senate floor after negotiations on Nov. 30. (Melina Mara/The Washington Post)

Republicans will try Monday to urgently reconcile the tax overhaul bills they passed in the House and Senate, entering a delicate period where they have to retain the support of their party’s conservative and moderate members.

Party leaders insist that there are no showstopping differences between their two bills, each of which features a decrease in the corporate tax rate from 35 percent to 20 percent. Still, the bills feature differences worth hundreds of billions of dollars.

Lawmakers are expecting an intense period of work starting Monday as lobbyists descend on the conference committee that will negotiate differences between the two pieces of legislation. Of particular concern will be changes made hours before the Senate passed its final legislation early Saturday morning, when the Senate changed its bill to preserve a provision of the current tax code that sets an alternative minimum tax floor for very wealthy individuals. That provision would be eliminated in the House bill, and scrapping the alternative minimum tax has long been a priority for GOP tax writers.

The negotiations are to begin as Congress faces a Friday deadline to pass separate spending legislation or face a government shutdown, and for that task Republicans may need votes from Democrats. Yet Democrats are not at all eager to bail out the GOP on any issue, even keeping the government open, after watching helplessly as Republicans sidelined them to ram through a tax bill that is heavily weighted in favor of corporate America and the wealthy.

Republicans insist they will pass a final version of the tax legislation for President Trump to sign before Christmas, and Senate Majority Leader Mitch McConnell (R-Ky.) projected confidence Sunday. And even Democrats acknowledged that in getting the tax legislation through the Senate, Republicans had gotten the toughest part over, given their failures in that chamber thus far this year on their other headline issue, repealing the Affordable Care Act.

“We’ll be able to get to an agreement,” McConnell said Sunday on ABC’s “This Week.” “I’m very optimistic about it. And we think this will make a big difference in getting our economy moving again and providing jobs and opportunity for the American people.”

Discussions are expected to continue throughout the week and could conclude as early as next week with the drafting of a so-called “conference report” that constitutes the final legislation. That bill must pass each chamber before Trump can sign it into law.

The most delicate discussions will probably take place over how to tax so-called “pass-through” businesses. There are millions of these firms in the United States, and they can range from small businesses to large real estate companies and professional sports franchises. They are often owned by a single entity or partnership, and their income is passed through to the owners, who pay taxes on that money through the individual income tax code.

The two bills take markedly different approaches to the taxation of pass-through business income, with the House bill providing a much larger tax cut.

But it could be impossible to adopt the House approach to the issue, given the rigid budget rules under which the bill must be passed in the Senate. The House bill, multiple aides said, would not pass muster under those rules because it would increase deficits in the long run, beyond the coming decade. The Senate-passed bill contains multiple compromises and phase-outs of certain tax cuts to limit its impact on the deficit.

There has also been a flurry of complaints in recent days from businesses about the Senate's last-minute decision to retain the alternative minimum tax for corporations. There is expected to be immense pressure from business groups to force Republicans to repeal or scale back this tax.

“We’re not without differences, but they’re readily reconcilable differences, readily fixed,” House Chief Deputy Whip Patrick T. McHenry (R-N.C.) said in an interview Sunday. “You have to fight through.”

McHenry noted that leaders had to keep in mind the party’s narrow margin in the Senate and the byzantine rules the GOP had to use to get the bill through that chamber, but he added that the House package was designed with the more complicated Senate considerations in mind.

There are several other issues that need to be resolved.

The Senate bills begins lowering the corporate tax rate in 2019, and the House bill begins lowering it in 2018. The House and Senate bills take different approaches to the individual tax brackets: The House bill has only four brackets, and the top rate remains unchanged at 39.6 percent; the Senate bill keeps seven brackets but lowers the top rate to 38.5.

The House bill creates a five-year "family flexibility credit" that aims to help families lower their taxes. The Senate bill doesn't have such a measure.

The House bill entirely eliminates the estate tax — a tax paid on inheritances that is limited near exclusively to the very wealthy — beginning in 2024, while the Senate bill scales it back dramatically without getting rid of it entirely.

The Senate moved to resolve one potential sticking point between the two chambers — moving to scale back, rather than eliminate entirely, the deduction for state and local taxes. The Senate bill adopts a House compromise that would allow individuals to deduct up to $10,000 in property taxes only. But some House Republicans, including ones from California and New York, have continued to push for some deductibility for state income taxes, and GOP aides said that could become an issue in the conference.

Rep. Tom Reed (R-N.Y.), a Ways and Means Committee member who helped craft the House provision, said the Senate bill's inclusion of the property tax deduction was "a great first step" but said he was "advocating strongly for an income tax component" in the final bill.

The Senate bill allows almost all of the tax cuts for individuals and families to expire after 2025 — a step that was taken to make sure the bill didn’t add to the deficit beyond the levels permitted under complex Senate rules. White House budget director Mick Mulvaney insisted again Sunday that those cuts wouldn’t really expire because a future Congress would extend them.

“The Bush tax cuts were the same way, and most of them didn’t expire. We’ve said before and we’ll say it again, if it’s good policy, it will be permanent. If it’s bad policy, it will be temporary,” Mulvaney said on CBS’s “Face the Nation.”

It’s also uncertain how negotiations on the must-pass spending legislation will interact with talks on the tax bill. To get their “yes” votes on the tax bill, two GOP senators made demands on issues that are already intertwined with the spending legislation.

Sen. Jeff Flake (R-Ariz.) got the administration to agree to work with him toward a solution for immigrants brought illegally to this country as children and are facing possible deportation risk in March after because Trump announced he was ending protections they got under the Obama administration. Although Flake extracted no specific commitments, that’s an issue over which Democrats are raising government shutdown threats on if it’s not addressed in short-term spending legislation to keep the government open.

And Sen. Susan Collins (R-Maine) demanded assurances of votes on two bipartisan health bills aimed at stabilizing markets, after Republicans included in the tax legislation a repeal of the Obamacare individual mandate that requires nearly all Americans to carry health insurance or face fines. Those bills could be included in must-pass spending legislation, but they face opposition from House Republicans.

Trump himself is a wild card. After long pushing for a corporate rate even lower than 20 percent, the president unexpectedly suggested Saturday that he could accept that rate rising to 22 percent. That change would free up critical revenue to pay for other changes, since the legislation cannot create net tax cuts of more than $1.5 trillion under GOP agreements.

McConnell has already suggested it would be a non-starter. But other such unpredictable pronouncements from the president could upset negotiations.

Karen Tumulty contributed to this report.