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Senate GOP mulls delaying corporate tax cut in House bill

Additional changes could include the elimination of the state and local tax deduction.

Tax code books sit on a table as the House Ways and Means Committee begins markup of the GOP tax bill on Nov. 6.
Tax code books sit on a table as the House Ways and Means Committee begins markup of the GOP tax bill on Nov. 6.Read moreAndrew Harrer / Bloomberg

WASHINGTON – Senate Republicans on Tuesday were considering a starkly different approach to overhauling the tax code than their House colleagues, weighing a delay in the implementation of a major corporate tax cut and other measures to alter the cost and impact of the plan.

Senate leaders were exploring postponing the centerpiece of the effort – an $845 billion corporate tax cut – until 2019, according to four people familiar with a draft of the legislation. The move would make it easier to comply with Senate rules that aim to limit any legislation's impact on the debt.

At the same time, Republican senators were planning to eliminate the state and local tax deduction, going further than the House, which retained part of the popular tax break, said the people familiar with the matter, speaking on the condition of anonymity because they were not authorized to discuss sensitive deliberations. Senators also were debating how to ensure fewer of the plans' benefits flow to the wealthy and more flow to the middle class.

No decisions have been made, the people familiar with the negotiations said, but Senate Finance Committee Chairman Orrin Hatch (R., Utah) is slated to reveal his proposal Thursday. Hatch said Tuesday that his goal was to make the corporate rate cut immediate but that it was still being discussed.

"I hope we can get there, that's for sure," Hatch said.

The approach sets up a potential collision with House Republicans and the White House, which wants signed legislation by year's end. The House Ways and Means Committee is expected to approve its version of the tax bill Thursday and hold a vote in the full House next week.

The House and Senate must pass identical tax bills before President Trump can sign legislation, but Senate Republicans are confronted with much different challenges than their House colleagues.

Senate Republicans face acute concerns from some members, including retiring Sen. Bob Corker (R., Tenn.) that the tax plan will add to the debt.

The House GOP bill proposed slashing the corporate tax rate from 35 percent to 20 percent beginning in 2018, and the nonpartisan Joint Committee on Taxation estimated that this change would lead to a drop in federal revenue of $108 billion in the first year. Altogether, the tax bill is expected to add $1.5 trillion to the debt over a decade.

Senate rules allow legislation to pass with fewer than 60 votes only if it doesn't add to the deficit after 10 years; Republicans hold 52 seats in the Senate and are not expected to pick up Democratic votes. Republican leaders argue that their tax bill would prompt economic growth, creating more tax revenue, but many forecasters are skeptical of anything beyond a modest impact.

If Republicans cannot find a way to limit the budget impact of the tax plan, they may be forced to make it temporary, GOP lawmakers say.

Senate Republicans also face a different political calculus. House GOP leaders likewise had planned to eliminate the state and local tax deduction, particularly important in well-off cities and suburbs, but they decided to allow people to continue to deduct up to $10,000 in property taxes to win support from Republicans in high-tax states such as New York and New Jersey. Senators are less likely to worry about the impact of the tax change on metro areas as opposed to the entire state, and no GOP senators hail from New York or New Jersey.

Still others in the Senate have raised concerns that the tax plan's benefits could disproportionately flow to the wealthy. Others, such as Sen. Ted Cruz (R., Texas), Marco Rubio (R., Fla.) and Mike Lee (R., Utah) are pressing for more benefits for the middle and working classes.

Senate Republicans also do not plan to collapse the seven income tax brackets that families and individuals pay to four brackets, another major difference from the House GOP approach. The Senate plan is expected to keep roughly seven brackets, although they are expected either to lower the tax rates paid by some of these brackets or to change what income levels pay certain brackets.

Senate negotiators aren't planning to include a temporary $300 "family flexibility credit" contained in the House bill. It's this credit, which would expire after five years, that has fueled criticism that the House bill eventually would lead to higher taxes for some middle-class families.

While Senate Republicans say they still hope to make the corporate tax cut immediate and permanent, they are planning to pair any potential delay with other initiatives to limit its impact on the economy. For example, they're considering allowing companies to immediately deduct capital investments in 2018 from their taxable income, the people familiar with the matter said, which would avoid having companies wait until 2019 to spend on the economy.

Corporate America has made a tax cut its top legislative priority, and any delay or temporary structure could elicit strong criticism. House Ways and Means Committee Chairman Kevin Brady (R., Texas) in writing his legislation, was considering having the corporate tax rate cut phase out after eight years but made a change the night before the bill was introduced to effectively make it permanent.

While the Senate went down a different track, Republicans in the House faced their own challenges Tuesday when prominent conservatives came out against their bill.

"All in all, this bill must be changed if Republicans intend to keep their promise of real pro-growth, job-creating tax cuts," said the Club for Growth's president, David McIntosh, advocating for changes that would further reduce the tax bills owed by the wealthy.

The group is calling on lawmakers to the cut the tax rate on income over $1 million, which the House bill as currently written would leave unchanged at 39.6 percent.

The group also wants the bill's authors to make it easier for businesses to claim a lower 25 percent income tax rate, as well as to speed up their planned repeal of the estate tax, in a bid to promote economic growth.

Meanwhile, groups including the National Right to Life Committee, Focus on the Family and the U.S. Conference of Catholic Bishops mobilized to restore an existing tax credit that's worth up to $13,570 for families who adopt children.

A petition circulated Tuesday to members of March for Life, a leading antiabortion group, said that the loss of the adoption tax credit would "adversely affect families seeking to adopt."

"Adoption is a critically important pro-life effort, and the adoption tax credit is a significant government policy to encourage and enable it," the petition said.

The nonpartisan Joint Committee on Taxation estimated this year that the adoption tax credit would cost $2.2 billion between 2016 and 2020. The changes advocated by the Club for Growth could cost much more – tens if not hundreds of billions of dollars.

To accommodate the requests, Brady would have to find new tax revenue elsewhere, possibly by shrinking the size of provisions in the bill aimed at benefiting middle- and working-class households.

In a morning interview with conservative talk show host Hugh Hewitt, Brady said that changes to help adoptive families are under discussion but also argued that the GOP bill as written offers broad benefits to adoptive families.

"We know how important this is, but it doesn't help a lot of families," said Brady, the father of two adopted sons. "Do we want to stick with the old credit, which leaves fewer and fewer people behind, and helps one time in your life, or do we go with the tax cuts that provide about $2,000 a year, and the new family credit that helps you with your child every year of their life?"

Brady said he was still considering another conservative demand – repealing the Affordable Care Act's individual mandate to purchase insurance. That move, supported by Trump, would please the health-care law's opponents and could generate hundreds of billions of dollars to offset cuts elsewhere.

But it would create a major new political hurdle for the bill, and Brady thus far has declined to include it.

Trump, meanwhile, on Tuesday made a personal appeal from across the globe to ask moderate Senate Democrats to support the emerging Republican tax plan.

At a meeting of administration officials and Democratic senators, National Economic Council Director Gary Cohn pulled out his cellphone and took a call from Trump, who is traveling in Asia this week, according an account of the meeting from Sen. Sherrod Brown (D., Ohio) – one of the Democrats gathered for a meeting organized by Sen. Joe Manchin III, D-W.Va., to hear about the GOP plan.

Emerging from the meeting, Brown said that Trump reiterated to the group that "rich people get hurt" by the Republican tax plan – a point that has been disputed by Democrats and independent tax experts who consider the emerging proposals as favorable to wealthy earners and corporations.

Democrats say once the Republican effort fails, they could come to the table.

"This effort to just jam it through, straight Republican votes on an accelerated scheduled will lead to failure. But in that failure lies opportunity, and then we'll have a chance to do it right," said Sen. Thomas Carper (D., Del.), who attended the meeting.

The Washington Post's Ed O'Keefe contributed to this report.