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Some GOP senators raising doubts about revised Republican tax overhaul

A gambit by Senate Republicans to make a large corporate tax cut permanent by having benefits for individuals expire at the end of 2025 created new problems for the legislation Wednesday as lawmakers were still grappling with the controversial decision to add the repeal of a key Obamacare provision.

The decision by Republican leaders to double down on risky maneuvers to overcome budgetary hurdles with their tax overhaul threatened to put the entire effort in jeopardy.

Sen. Ron Johnson (R-Wis.) declared he would not support the bill because it treats large corporations differently than many small businesses, which pay taxes through the individual code.

“If they can pass it without me, let them,” Johnson told the Wall Street Journal. “I’m not going to vote for this tax package.”

He later said he hoped “to address the disparity so I can support the final version.”

At the same time, Sen. Susan Collins (R-Maine) raised concerns about the bill’s repeal of the individual mandate under the Affordable Care Act that requires all Americans to have health insurance.

"It greatly complicates our efforts to combine tax reform and changes in the ACA," said Collins, who was among three Republican senators who voted this year against the party’s attempts to repeal the entire Affordable Care Act, known as Obamacare.

On top of that, Republican deficit hawks were withholding support until they could be convinced that the economic growth assumptions were realistic and the tax cuts would not add more than $1.5 trillion to the deficit over the next decade.

"I'm not a yes, not a no," said Sen. Bob Corker (R-Tenn.) "I'm in a watch-and-see ... trying to ensure we're not going to do anything to exacerbate our deficit issues."

Senate Republican leaders made the major changes to the bill late Tuesday night as they raced to try to pass a tax overhaul by the end of the year.

The move to effectively repeal, starting in 2019, the individual mandate under the Affordable Care Act, would save the government an estimated $318 billion over 10 years. Senate leaders propose using those savings to make the tax plan more attractive to middle-class Americans, at least initially.

The bill would lower certain individual tax brackets from the 22.5%, 25% and 32.5% proposed last week, to 22%, 24% and 32%.

The revised plan also would increase the current child tax credit from $1,000 to $2,000. The original Senate plan proposed raising it to $1,650.

“Ultimately, I’m more than willing to defend the decision to end the individual mandate taxes,” Senate Finance Committee Chairman Orrin Hatch (R-Utah), who drafted the revisions, said Wednesday at the start of a hearing on the new bill. “It’s the right thing to do. Far more people will be better off as a result.”

But those changes, as well as reforms to help lower costs for so-called pass-through businesses that pay taxes through the individual code, would expire in eight years to avoid adding to the deficit.

The National Federation of Independent Business said it supported the revised Senate bill. But spokesman Jack Mozloom said the group was not happy that those provisions expire in 2025.

He said the group was optimistic that those cuts would be extended in the future.

“If the tax reform has the effect that everyone expects, which is to lift the economy and ignite growth, it’s going to be awfully hard eight years from now to let that expire,” he said.

The revisions to the legislation sparked outrage from Democrats. “This bill seems to get worse by the hour,” Sen. Ron Wyden (D-Ore.) said at Wednesday’s hearing.

“For multinational corporations, their handouts are set in stone, written in ink, locked in place with the key thrown away. But not for the middle class,” he said. Wyden noted that the individual tax cuts don’t even last a full decade.

He also pointed out that the Congressional Budget Office has forecast that repealing the health insurance individual mandate would cause an average increase in premiums of about 10% a year.

"For middle-class families, premium increases are the same thing as tax increases," Wyden said.

All the changes in the bill related to individual tax cuts would disappear after 2025, including the proposed doubling of the standard deduction.

But that also means the deduction for state and local taxes, which the original Senate bill eliminated permanently, would return in 2026. State tax deductions, including property tax deductions, are mostly used in California, New York and other high-tax states that are Democratic strongholds.

To ease concerns of Republicans in some of those states, the House bill eliminates the deduction for state and local income and sales taxes, but keeps it for property taxes up to $10,000.

Although the state and local deduction would not be permanently eliminated by the revised Senate bill, that might not satisfy House Republicans who worked hard to forge the compromise to keep the property tax deduction.

House Ways & Means Committee Chairman Kevin Brady (R-Texas) has vowed to preserve the property tax deal as the two bills are merged into a final product.

“Not ‘try,’” Brady said in an interview Wednesday. “I made a commitment that the final bill will include the property tax [provision] as the House has it.”

President Trump was set to meet Thursday with House Republicans as they prepared to vote on their bill, which has stark differences from the Senate version. House leaders were confident it would pass.

Expiration of the individual tax breaks in the Senate bill was done to allow Republicans in that chamber to address the complicated math they face. Because the Senate is planning to use a special budget reconciliation process to pass the tax bill, the proposal must not increase the deficit after 10 years, according to an arcane Senate regulation known as the Byrd rule.

The changes to the bill mean it would add $1.4 trillion to the deficit over 10 years, down from $1.5 trillion in the original bill and below the threshold needed to pass the legislation on a simple majority vote in the Senate.

But more importantly, revenues turn positive in 2027, adding $30 billion to the Treasury, according to an analysis by the congressional Joint Committee on Taxation, and allowing the bill to meet the Byrd rule requirement.

Expiration of the individual tax cuts bolstered criticism that the GOP overhaul favors corporations over middle-class Americans.

“Republicans have put themselves between a rock and a hard place: dramatic tax increases on the middle class or a huge hole in the deficit,” said Senate Minority Leader Charles E. Schumer (D-N.Y.). “Our Republican colleagues, particularly the deficit hawks, can't have it both ways."

The structure of the bill remains the same — lowering rates, but eliminating many deductions. Senate Republicans hoped that by lowering rates on filers in the mid-range tax brackets, it would make up for the loss of those deductions.

House Republicans, though, preferred their approach. “There’s common agreement between the Senate and the House to get tax reform to the president’s desk, and the complete elimination of state and local tax deduction does not allow that to happen,” said Rep. Tom Reed (R-N.Y.), a Trump ally who helped broker the property tax deal. “There needs to be a compromise.”

Adding the Obamacare bill also complicates GOP politics, because it would not take effect until after December 2018.

The delay may provide some comfort to reluctant Republicans, including Collins and Sen. Lisa Murkowski (R-Alaska), as analysts show 13 million more Americans would be uninsured by 2027 if the individual mandate is repealed.

The Senate is working on a bipartisan healthcare bill from Sen. Lamar Alexander (R-Tenn.) and Sen. Patty Murray (D-Wash.) that could provide some relief. But Collins said she would want to see that bill signed into law before voting on the tax package.

Repealing the mandate also keeps the issue prominent for the 2018 midterm elections and conservatives want the repeal done sooner.

lisa.mascaro@latimes.com

@LisaMascaro

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UPDATES:

2:25 p.m.: This article was updated with reaction from Sen. Ron Johnson and others.

11:55 a.m.: This article was updated with details about the state and local tax deduction.

8:25 a.m.: This article was updated with reaction from Democrats and more details about the Senate revisions.

This article was originally published at 4:45 a.m.

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