Status Check on Tax Reform

Since the Senate was working until early Saturday morning, here’s a quick recap of the latest on tax reform and how we see things playing out over the next few weeks.

Tax Reform

On timing:

  • We’re hearing the House will appoint its conferees today.
  • The Senate could appoint conferees as soon as today; Senate Conferees are expected to be appointed no later than Wednesday.
  • The House and Senate could finish reconciling the differences between the House and Senate passed bills by the end of this week, allowing for the compromise legislation to be scored.
  • Conferees will likely meet next week, although this is expected to be a short meeting for the sole purpose of signing the conference report.
  • The conference report is expected to pass both chambers by the end of next week.

On the substantive issues still being negotiated, we are hearing the House wants more on the State and Local Tax (SALT) deduction and changes to international provisions. However, on the international component, we understand there is a belief that the Senate version is slightly better and likely to prevail. Pass-throughs are also anticipated to be a topic for conference, but our gut tells us the Senate language secured by Senators Ron Johnson (R-WI) and Steve Daines (R-MT) may stick, especially given how crucial it was to getting these senators’ support for the bill. There also continues to be some discussion around the GOP’s desire to eliminate the Alternative Minimum Tax (AMT).

You may have seen over the weekend that the president tweeted that he may accept a final corporate tax rate as high as 22%.  Our guess is that perhaps on Friday, President Donald Trump was briefed on the multiple provisions to be added to the tax reform bill in order to get a final version through both chambers. Comprehensively, all of these add-ons will require additional revenue. As you know, both the House and Senate-passed bills decreased the corporate tax rate from 35% to 20%. However, we could see a final bill with the corporate rate at 21% or 22%. The need for revenue also makes it difficult for the final version to not include the repeal of the individual mandate.

The GOP faces two dilemmas on tax reform, both of which contribute to something of a “PR problem.” While tax reform is moving quickly, it is viewed as a corporate tax bill that provides tax cuts for corporations and the wealthy. The nature of cutting taxes, of course, is that doing so is likely to benefit those who pay more taxes than those that do not. However, the longer a tax bill is public, the easier it is for special interests to become involved, thereby leaving opponents to point out its deficiencies and suggest that congressional Republicans are moving quickly for the express reason that it is harmful to the middle class.

End of the Year

With tax reform nearly finished, we understand the Senate is going to return to nominations, beginning today with Kristjen Nielsen’s nomination to serve as Department of Homeland Security (DHS) Secretary, and then proceeding to judgeships. We know that work is also underway on another nominations package. This package is likely to include nominees for various posts who received bipartisan support in committee. Those nominees who were voted out of committee on a party line vote are likely to require a cloture vote on the Senate floor.

With government funding due to expire on December 8th, most focus will now be on end of the year negotiations to keep the government funded. We are hearing there will be a relatively clean continuing resolution (CR) to fund the government through December 22nd. This vehicle may also include some reallocation of CHIP funding for emergency states. We’re closely monitoring the CR, as a clean CR might sound better today than it will on Thursday.

Another CR is expected to fund the government beyond December 22nd and will likely go into January or February. This CR is the vehicle likely to carry a number of other provisions, such as a deal to lift spending caps, Deferred Action for Childhood Arrivals (DACA), and potentially other health care provisions. We know that Senator Jeff Flake (R-AZ) secured a deal on DACA in exchange for his vote on the GOP tax reform bill, but it is unclear exactly what deal was reached.

Additionally, in exchange for her vote for tax reform, Senator Susan Collins (R-ME) received a commitment that the Alexander/Murray legislation on health insurance subsidies and the Collins/Nelson bill that would provide funding to states for reinsurance programs, would receive a vote by the end of the year. These bills may also be candidates to ride on the next CR.

Obviously, the situation on both tax reform and the end of the year negotiations remains somewhat fluid, so we’ll be closely monitoring these issues in the days ahead.