Congressional Republicans began taking steps Monday to reconcile differences between separate tax bills that passed the House and the Senate, hoping to complete negotiations and send legislation to the White House within weeks.
Republicans in the House of Representatives on Monday are expected to designate members to serve on the “conference committee” that will formally sort through differences with Senate colleagues. Senate Republicans are expected to appoint their members later this week.
The conference committee will be led by House Ways and Means Committee Chairman Kevin Brady (R-Tex.), and Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) is expected to play a senior role.
Democrats will also serve on the conference committee, but they will be outnumbered by Republicans and are not expected to significantly influence the process. Democratic leaders held a conference Monday to denounce the bill, in which Minority Leader Nancy Pelosi (D-Calif.) called it “one of the worst bills in the history of the United States of America. It robs from the poor to reward the rich.”
GOP leaders appear confident they can resolve numerous differences between the House and Senate bills easily, without losing support from any lawmakers in the process. They are weighing how to accommodate fresh concerns from California Republicans that Americans should be allowed to deduct some of their state income taxes from their federal income.
Most California Republicans voted for the tax bill last month, but they have pressured House leaders since then for more accommodation.
Americans are permitted to deduct their state income taxes from their federal taxable income, but the House and Senate bills would prohibit this starting in January.
The bills would permit Americans to deduct up to $10,000 in local property taxes from their federal income, but GOP leaders are under pressure to expand that exemption. Any expansion would probably add billions of dollars in costs to the bill, potentially forcing them to look for other ways to replace the revenue.
This is one of many issues GOP leaders will try to race and resolve in the coming days.
They must decide, for example, whether to lower the corporate tax rate from 35 percent to 20 percent in 2018, as the House bill stipulates, or use the Senate bill effective date of 2019.
There is now tremendous pressure from business groups to repeal the alternative-minimum tax (AMT) directed at corporations. This AMT was supposed to be repealed in the Senate bill, but it was reinserted late Friday night as lawmakers were scrounging for revenue to offset other changes.
The AMT is essentially a flat tax that is used as a backstop to make sure corporations don’t use deductions and credits in a way that allows them to pay very little taxes.
The U.S. Chamber of Commerce on Monday said retaining the corporate AMT discourages companies from using research and development tax credits because they would hit the AMT.
The corporate AMT is 20 percent, and if the new corporate tax rate is 20 percent it would make it virtually impossible for companies to use deductions in a way that lowers their tax rate. The House tax bill repeals the corporate AMT.
Making adjustments to a bill in the conference committee can be both necessary and difficult. Some changes might be made to secure support from wavering members, but other lawmakers could become agitated if their concerns aren’t addressed.
Lawmakers aren’t expected to publicly debate many of their key decisions during public hearings in the conference committee. Rather, they are expected to negotiate decisions privately, as they did many of the key changes to the House and Senate bills before they were approved.
But they are required to have a majority of the members on the conference committee sign a final report the House and Senate later vote on in order for the tax package to be sent to the White House for enactment. So the process can be both symbolic and necessary.
In addition to the timing of the corporate tax rate change, lawmakers have to decide how to tax millions of businesses that funnel their income through investors and partnerships. They also must decide whether to keep the existing seven tax brackets like the Senate proposes, or adopt changes in the House bill that would use just three brackets.
The Senate narrowly passed their tax cut bill with a 51-49 margin, which could put pressure on House Republicans to adopt many of the Senate changes to avoid losing votes. But making Brady chairman of the conference committee will give him even more influence over how the negotiations are handled.
Brady has spent weeks trying to deal with threats from the Republicans in California, New York, and New Jersey on their tax deduction concerns and already knows the personalities surrounding the issue. Even though the margin in the Senate is slimmer, some of the lawmakers there who raised the biggest concerns seemed satisfied by the way GOP leaders were willing to make changes before the bill was passed.
“They need 51 [votes] in the Senate,” said Douglas Holtz-Eakin, a conservative economist and former director of the Congressional Budget Office. “They need 218 in the House. I don’t think it matters how they get there.”
Republicans hope to vote on the final conference report in the House and the Senate by Dec. 22. The White House could pressure Congress to try to wrap the process up a week earlier if they feel like the process might bog down.
The tax negotiations will take place during an extremely busy political period in Washington. Congress needs to approve a bill by Friday that would avoid a partial government shutdown, and there is a special Senate election in Alabama on Dec. 12 that has become closer than many expected. The outcomes of both of those events could spill over into the tax conference committee, adding more incentive for GOP leaders to speed the process along.
The fight over government funding spilled into the tax fight Monday night, when GOP leaders briefly appeared to lack the support they needed on a vote to officially kick off the tax conference process. The vote was expected to be a formality, but members of the conservative House Freedom Caucus initially withheld their support, hoping to leverage concessions in the government funding debate.
The Freedom Caucus relented moments later, saying they’d struck a deal with leadership and were voting the motion through.