(Bloomberg) -- It’s crunch time for Republican tax-writers on Thursday. The House Ways and Means Committee enters its final day of hammering out its tax-cut legislation, while a Senate panel plans to reveal its own version. Here are the latest developments, updated throughout the day:
Senate Bill Repeals State Tax Breaks, Hoeven Says (1:52 p.m.)
The Senate tax bill would fully repeal state and local tax breaks that have become a hot-button issue in the House, Senator John Hoeven said. He also said the bill would set a lower top rate for individual income taxes -- 38.5 percent, down from the current 39.6 percent.
The so-called SALT deductions tend to benefit people in high-tax states. House Republican tax writers ran into opposition from fellow GOP members in states including New Jersey, New York and California when they first proposed to do away with the deductions -- a move that would raise as much as $1.3 trillion over 10 years to help pay for the deep rate cuts the GOP wants to allow.
As a compromise, House Ways and Means Chairman Kevin Brady amended his bill to preserve the break for state and local property taxes only -- a deal that would still eliminate the deduction for state and local income taxes or sales taxes. Brady’s suggestion would cap the property tax break at $10,000.
Senators Share Details on Rates, Deductions (1:38 p.m.)
The Senate tax bill won’t repeal the individual mandate provision in Obamacare, Senator Ted Cruz said. It will preserve a credit for adoptive parents that’s worth as much as $13,750 per child, he said. House tax writers had proposed to repeal the adoption credit in their bill.
The Senate bill will also keep the home mortgage interest deduction capped at $1 million, said Senator Tim Scott of South Carolina. The House bill would have cut the cap to $500,000 for new purchases of homes. It would also preserve the individual deduction for large medical expenses, Scott said. The House bill would have repealed that break.
Senators described the bill, which hasn’t been released yet, after leaving a briefing on it Thursday afternoon. It will have seven tax rates, said Senator John Hoeven, a North Dakota Republican. The House bill would create four.
The Senate bill would allow for companies to fully and immediately deduct the cost of their spending on new equipment on a permanent basis, said Senator Mike Rounds, a South Dakota Republican. The House bill had limited that tax break to five years. Under current law, companies must deduct such spending over several years. -- Laura Litvan, Laura Davison and Erik Wasson
House Panel Said to Eye Higher Offshore Rates (12:49 p.m.)
The House’s chief tax writer is considering higher tax rates on trillions of dollars of overseas income that U.S. companies have stockpiled over the years, according to a person familiar with efforts to revise the House tax bill.
House Ways and Means Chairman Kevin Brady is thinking about boosting the proposed rates in the bill to 14 percent on income held as cash and 7 percent on non-cash holdings, said the person, who asked not to be named because final decisions haven’t been made.
The bill that Brady released a week ago proposed rates of 12 percent and 5 percent for companies’ offshore cash piles. The tax would be mandatory and would apply to earnings that U.S. companies keep overseas. The amount of those offshore earnings has been variously estimated at $2.6 trillion to $3.1 trillion, though President Donald Trump has said he suspects the amount may be much higher.
Brady’s rethinking is part of a major search for new revenue as he and others attempt to close a revenue hole and address Republican members’ concerns about various pieces of the bill. Provisions that would be included in the committee’s final bill draft remain undecided at this hour.
Under current law, companies are taxed on their global earnings, but are allowed to defer paying taxes on their foreign income until they decide to bring it back to the U.S. Companies would have eight years to pay the new tax, clearing them to return those earnings to the U.S. if they choose to. -- Kaustuv Basu
Senate Plans Delay on 20% Corporate Rate (12:29 p.m.)
The Senate tax bill will delay the corporate rate cut to 20 percent until Jan. 1, 2019, according to Senator Bill Cassidy, a Louisiana Republican. The move would defy President Donald Trump’s insistence that the cut from its current 35 percent rate take effect immediately.
Treasury Secretary Steven Mnuchin said in a Bloomberg TV interview Wednesday that the administration’s “strong preference” is for the relief to start in 2018. Still, Mnuchin declined to say that a phase-in of corporate tax cuts was completely off the table. The House GOP tax bill calls for an immediate corporate cut to 20 percent.
“The longer we wait, the worse it is for the economy and making companies competitive,” Mnuchin said.
U.S. stocks headed for their worst slump since August, with losses widening after reports of the corporate rate delay. Treasuries turned higher and the dollar extended losses.
The Senate bill doesn’t include a measure to repeal the Obamacare mandate that requires individuals to purchase health insurance, Cassidy said. Republicans have been considering including the repeal in tax legislation to help offset the cost of tax cuts. Other Senate GOP members have said the idea is still under consideration.
The Senate plan keeps all seven tax brackets, according to Cassidy. It doesn’t keep the top rate at 39.6 percent, he said. The House bill condenses seven income tax rates to four, with a top rate of 39.6 percent for those earning more than $1 million.
The new top individual tax rate in the Senate bill is to be determined, according to Senator Rob Portman, an Ohio Republican. Asked whether the bill includes a repeal of state and local tax deductions, Portman said that was still being discussed. -- Laura Litvan and Laura Davison
Obamacare Mandate Repeal Still Possible (11:43 a.m.)
Ways and Means Republicans are waiting on updated scores from the Joint Committee on Taxation before deciding whether to include the repeal of the Obamacare individual mandate in their revised tax bill, according to a person participating in the drafting process.
Brady told Republicans that including the individual mandate repeal is still a possibility if they need that revenue to offset other changes they plan to make during Thursday’s committee hearing.
GOP senators also are considering repealing the mandate in their tax legislation, said Senate Majority Whip John Cornyn. “We’re taking a hard look at that.” Senator Pat Toomey, a Pennsylvania Republican, said the idea is on the table.
The repeal would generate an estimated $338 billion in savings over 10 years, according to the Congressional Budget Office. The savings would result because eliminating the mandate would prompt some 13 million people to forgo health insurance in 2027 -- lowering the amount that the government pays toward their coverage.
Brady may not be forced to use the individual mandate repeal because there will be other ways for him to find the desired revenue, according to a GOP member of the Ways and Means Committee. The member said the revised House bill still calls for an immediate and permanent corporate rate of 20 percent.
While Ways and Means committee members continue their markup, Senate tax writers are preparing to unveil their proposal later Thursday. The Senate Finance Committee is being briefed on details of the plan this morning, before providing an overview to the GOP conference, according to a statement from Senator Rob Portman’s office. The panel will unveil details publicly around 3 p.m. and begin its open markup process on Monday.
Senator John Cornyn, the No. 2 Republican leader, said the tax bill will likely be on the Senate floor the week after Thanksgiving. -- Anna Edgerton, Mark Niquette, Sahil Kapur and Kaustuv Basu
House GOP Tax Writers Briefed on Bill Changes (9:58 a.m.)
Ways and Means Republicans were briefed Thursday morning on changes Chairman Kevin Brady plans on introducing later in the day, but the legislative text hasn’t been finalized, according to Representative Mike Bishop, a Michigan Republican on the the panel.
Democrats will be allowed to introduce additional amendments while Ways and Means staff is finishing Brady’s amendment, Bishop said.
The House Ways and Means Committee gathered Thursday morning for Republican members’ last chance to make changes to the tax bill. Brady began the hearing about 40 minutes after it was supposed to start, following a closed-door huddle with Ways and Means Republicans.
Details of the changes have been highly guarded, demonstrating the high stakes for Republicans, who view the tax-overhaul legislation as their last chance for a substantive legislative win before year’s end.
“We will provide you that managers amendment just as soon as is practical,” Brady told Democrats during the hearing, adding that the markup will conclude Thursday.
Brady has been trying to find ways to trim the estimated $1.6 trillion cost of the tax package -- while addressing concerns from GOP members about state and local tax deductions, an adoption credit and other matters that the tax bill would either limit or eliminate. -- Anna Edgerton
Tax-Writers in Both Chambers to Release New Details (4 a.m.)
The Republican chairmen of Congress’s tax-writing committees were tight-lipped on Wednesday evening as House members rushed to find ways to reduce the almost $1.6 trillion cost of their tax bill and senators contemplated major departures from the House’s vision.
One example: Senators are considering keeping seven individual income-tax rates -- though the income thresholds that would apply to them aren’t clear. The House bill proposes condensing the marginal rates to just four.
Both chambers are scrambling to meet the same goal -- design legislation that doesn’t exceed the $1.5 trillion limit set by the fiscal 2018 budget resolution while providing deep rate cuts for businesses and individuals. But how they get there may be radically different.
Points of contention between the two chambers may include the number of individual income tax rates, the estate tax, treatment of state and local tax deductions, limits on mortgage interest deduction, guardrails for pass-through entities and international tax provisions.
And two potential options for raising some offsetting revenue -- delaying a 20 percent corporate rate or repealing the Obamacare individual mandate -- come with political risks.
Slashing the corporate rate to 20 percent from 35 percent is one of the costliest measures in the House tax bill -- but it’s probably the one that Republicans need the most to sustain their vision of spurring faster economic growth. Phasing it in, as some lawmakers are said to have discussed, would likely delay that growth.
Repealing the Obamacare requirement that individuals buy insurance would save $338 billion over 10 years, according to the latest Congressional Budget Office estimate, but it would also mean that 13 million fewer Americans would have health insurance by 2027.
That potential trade-off -- sacrificing health care for millions in the name of tax-rate cuts -- risks losing support. Republican senators voted down a measure that would have repealed the so-called individual mandate last summer.
“We’re driving towards that $1.5 trillion,” House Ways and Means Chairman Kevin Brady said after his committee had adjourned for the night. “Our whole goal obviously is to make sure this tax plan meets those budget instructions.”
Brady is expected to release a revised version of the House bill Thursday morning. It could be a “substantively and materially different tax bill,” and include changes to the 20 percent excise tax on foreign earnings, and tax credits for adoptions and catastrophes, among others, according to analyst Henrietta Treyz, director of economic policy and a managing partner at Veda Partners.
Debate will continue before the bill’s expected approval by committee on Thursday. Brady has said that once it reaches the full House for a vote -- perhaps as soon as next week -- the legislation won’t be open to amendment.
While the House winds down its markup procedure, the Senate Finance Committee is just getting started. Brady’s counterpart, Orrin Hatch, plans to release what an aide called a “conceptual mark” to the GOP conference late Thursday morning. It won’t be an actual legislative text.
Instead, the Senate’s plans for overhauling the tax code will be released, examined and debated as a narrative, said Julia Lawless, a committee spokeswoman -- allowing for what she termed a more “fulsome and engaged discussion.”
Senate Finance members will still be able to file and offer amendments to the proposal during the markup, but won’t require bill text. Once the markup is completed, the committee will put out full bill text along with an updated estimate of its overall cost.
That format could make it difficult to drill down and evaluate specific proposals and compare them to House provisions.
Hatch declined to provide specifics when asked about the number of individual income tax rates, or the effective start date of a 20 percent corporate rate. On the individual mandate question, he said: “We’ll have to see. I’m chairman and I have to deal with all kinds of ideas and all kinds of people and all kinds of feelings. So I don’t want to talk about what I’m for right now.”
“I’m not sure what we’re releasing tomorrow,” Hatch said. Still, when asked if it would undermine the House GOP efforts he said: “I don’t think it will.” -- Anna Edgerton, Laura Litvan, Sahil Kapur and Colleen Murphy (Bloomberg BNA)
What to Watch on Thursday:
- The Joint Committee on Taxation is expected to release a new dynamic score for the cost of the House tax bill, which means it takes into account the changes’ macroeconomic effects. The score won’t reflect Brady’s changes from Thursday.
- Reaction among House members to the Senate proposal. House GOP members may not want to take a politically painful vote when the bill moves to the House floor if it’s something Senate tax writers have taken off the table.
- Senate Democrats are continuing to push for a bipartisan tax bill. Following Tuesday’s election results, Senator Ron Wyden, the top Democrat on the Finance Committee, said: “You can have a bipartisan bill with 70 to 80 votes, if you’re willing to do what you’ve said are your priorities, which is middle class and not focused on people at the top.”
Here’s What Happened on Wednesday:
- Treasury Secretary Steven Mnuchin signaled the White House is continuing to work with lawmakers on crafting a compromise on the treatment of state and local tax deductions.
- Senate tax writers are considering keeping the number of individual income-tax rates at seven -- a departure from the House bill that condenses the number of rates to four -- according to two people familiar with the emerging Senate bill. The people asked not to be named because the discussions are private.
- The Tax Policy Center released a study showing that 7 percent of taxpayers would get a tax hike in 2018 -- and a decade later that portion would rise to at least 25 percent. The report was a corrected version of an earlier analysis the group released.
- For a full account of the day, click here.
To contact Bloomberg News staff for this story: Alexis Leondis in Washington at aleondis@bloomberg.net.
To contact the editors responsible for this story: Alexis Leondis at aleondis@bloomberg.net, John Voskuhl
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