(ZHE) — Shortly before 2am on Saturday, the Senate passed “the most sweeping rewrite of the U.S. tax code in three decades, slashing the corporate tax rate and providing temporary tax-rate cuts for most Americans” handing Republicans a badly needed legislative and political victory. Senators voted across party lines in a 51-49 vote, ending days of debate and “hand wringing” as leadership worked frantically behind the scenes to win over holdouts and get the proposal in line with the chamber’s rules.
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Tennessee Senator Bob Corker, who had cited concerns over the bill’s effects on federal deficits, was the only Republican dissenter. Corker, who is retiring after 2018, said in a statement ahead of the vote that he “wanted to get to yes” on the tax plan. “But at the end of the day, I am not able to cast aside my fiscal concerns and vote for legislation that I believe, based on the information I currently have, could deepen the debt burden on future generations,” he said.
Corker’s dissent however was not enough to halt passage, and shortly thereafter Vice President Mike Pence presided over the final passage vote. GOP senators, who stayed on the Senate floor until the vote closed after midnight, broke out into applause after Pence announced the bill had passed.
“This is a great day for the country,” Majority Leader Mitch McConnell (R-Ky.) said during a 2 a.m. press conference after the vote. “We have an opportunity now to make America more competitive, to keep jobs from being shipped off shore and to provide substantial relief for the middle class.”
The bill would lower tax rates for individuals through 2025 and permanently cut the corporate tax rate from 35% to 20% (more details below). The bill’s tax cuts for individuals are temporary in order to comply with budget rules that the measure can’t add to the deficit after 10 years. The bill would also repeal ObamaCare’s individual mandate, a priority for President Trump and many Republicans.
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The vote brings the GOP close to delivering a much-needed policy win for their party and President Donald Trump. After the vote, Trump said on Twitter that he looks forward to signing a final bill before Christmas. The president expressed gratitude to McConnell and Finance Committee Chairman Orrin Hatch for steering the measure through the Senate. “We are one step closer to delivering MASSIVE tax cuts for working families across America,” Trump wrote on Twitter.
On Saturday morning, Trump followed up his praise to the Senate GOP, tweeting the “Biggest Tax Bill and Tax Cuts in history just passed in the Senate. Now these great Republicans will be going for final passage. Thank you to House and Senate Republicans for your hard work and commitment!”
Amid the republican jubilation over the passage of a bill which is heavily weighted to benefit corporations and pass-throughs, and will encourage all self-employed businesses to become LLCs, there was just one problem: nobody actually read the 479-page bill.
As Montana Senator Jon Tester wrote late on Friday:
NY Governor Andrew Cuomo showed what the “handwritten notes on the page” looked like:
Commenting on this, Senate Democrat Charles Schumer noted that a set of last-minute revisions to the bill changed it in ways that had yet to be analyzed by the Joint Committee on Taxation, Congress’s official scorekeeper for the effects of tax legislation. “Is this really how Republicans are going to rewrite the tax code? Scrawled like something on the back of a napkin?” However, McConnell said the bill, the first text of which was introduced on Nov. 20, went “through the regular order.” He dismissed complaints like Schumer’s. “You complain about process when you’re losing,” McConnell said.
Bottom line: the chaotic process was similar to how Obamacare was passed on Christmas Eve in 2009: in fact maybe a slight improvement: at least this time Congress didn’t have to “pass the bill to find out what is in it.” And it’s not like anyone reads these bills anyway.
So what happens next?
Before it goes to Trump, lawmakers will have to reconcile differences between the Senate bill and one the House passed last month, a process that will begin Monday. Although both versions share common topline elements, negotiations on individual provisions inserted to win votes, particularly in the Senate, may be protracted and difficult. The final product will end up being a central issue in the 2018 elections that will determine control of Congress.
“We’re going to take this message to the American people a year from now,” Senate Majority Leader Mitch McConnell said after the vote.
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Among the major overhauls, both the House and Senate measures would cut the corporate tax rate to 20% from 35% – though the Senate version would set that lower rate in 2019, a year later than the House bill would. Also, the Senate bill, unlike the House version, would provide only temporary tax relief to individuals, ending tax cuts for them in 2026. Both bills are expected to add more than $1.4 trillion to the federal deficit over 10 years, before accounting for any economic growth. Bloomberg reported that last minute revisions to help shore up GOP support added about $32.5bn to the measure’s 10-year cost, according to a one-page analysis from the Congressional Budget Office.
The House and Senate bills also align on the contentious issue of individual deductions for state and local taxes: They’d eliminate all but a deduction for property taxes, which would be capped at $10,000. They differ on the home mortgage-interest deduction; the House bill would restrict that break to loans of $500,000 or less with regard to new purchases of homes. The Senate legislation would leave the current $1 million cap in place.
According to Bloomberg, the bills also differ on the tax rates they’d apply to multinational companies’ accumulated offshore earnings. The House bill would tax those profits at 14 percent for earnings held as cash and 7 percent for less-liquid assets. The revised Senate bill contains a lengthy section that has no direct mention of the rates, but a person familiar with the Senate plan said they’d be 14.5 percent for cash and 7.5 percent for less-liquid assets.
The Senate also approved a 23% tax deduction on business income earned from partnerships, limited liabilities and other so-called pass-through businesses. The House version would create a 25% tax rate for such business income, with restrictions on which businesses could qualify. Small businesses would get extra relief under the House legislation as well.
The House bill would also eliminate the estate tax, while the Senate version would limit the tax to fewer multimillion-dollar estates, but leave it in place. And after 2025, the limits would lift. Under current law, the estate tax applies a 40% levy to estates worth more than $5.49 million for individuals and $10.98 million for married couples. The Senate bill would temporarily double the exemption thresholds. The House bill would double the exemption thresholds, and then repeal the tax entirely in 2025.
As discussed previously, the House bill would consolidate the current seven individual tax brackets to four, leaving the top tax rate at 39.6%. The Senate bill would have seven brackets – with lower rates, and a top rate of 38.5 percent. As Bloomberg notes, “studies have shown that many of the tax bill’s benefits would go to the highest earners – and some middle-class taxpayers might actually pay more – a finding that could impact the House-Senate talks.”
Most importantly, perhaps, the Senate bill includes a repeal of Obamacare’s mandate that most Americans have health insurance or pay a penalty. The House bill does not.
Here is a side-by-side comparison of the two plans thanks to the WSJ:
Also while we have yet to get confirmation, below is a list of last minute changes and revisions that made it into the final bill per Reuters:
- PASS-THROUGHS: Senators Ron Johnson and Steve Daines announced their support for the tax bill after securing agreement on a bigger tax break for the owners of pass-through enterprises, including small businesses, S-corporations, partnerships and sole-proprietorships. An original 17.4 percent deduction would rise to 23 percent.
- FULL EXPENSING: Senator Jeff Flake, who was a holdout over deficit concerns, agreed to vote “yes” after Republican leaders agreed to change a provision allowing the full expensing of business capital investments to sunset after five years. Flake worried that Congress would be unable to eliminate the benefit cold turkey, allowing it to bleed red ink for years to come. But the Arizona Republican says the change would instead phase out full expensing over three years beginning in year six.
- RETIREMENT SAVINGS: Senator Susan Collins said she persuaded Republican leaders to retain catch-up contributions to retirement accounts for church, charity, school and public employees.
- MEDICAL EXPENSES: Collins also said she was able to include language to reduce the threshold for deducting unreimbursed medical expenses for two years to 7.5 percent of household income from 10 percent.
- STATE AND LOCAL PROPERTY TAXES: Collins has proposed an amendment that would retain a federal deduction for up to $10,000 in state and local property taxes.
- INDIVIDUAL ALTERNATIVE MINIMUM TAX: Rescinding a proposed repeal of the AMT and instead increase exemption levels and phase-out thresholds is also on the table.
- CORPORATE ALTERNATIVE MINIMUM TAX: So is rescinding a proposed repeal of the corporate AMT.
- REPATRIATION: Another change could be to increase tax rates on U.S. corporate profits held overseas to 14 percent for liquid assets and 7 percent for illiquid holdings, up from 10 percent and 5 percent, respectively
Attention now shifts to a House-Senate conference committee – a specially appointed, temporary panel that will be charged with hashing out the differences in the bills and preparing a final version for both chambers to consider. Party leaders will select a small group of lawmakers, likely from the House and Senate tax-writing panels in each chamber, who would then be approved by each chamber. That work could start as early as Monday, with many high-stakes issues to be worked through. The deadline of Dec. 31 is an artificial one, though – aimed partly at securing a victory well in advance of the 2018 congressional elections. Republicans would have until the end of 2018 before they lose their ability to clear final passage in the Senate without a filibuster.