The Senate last week easily passed a fiscal 2018 budget, clearing the very first hurdle in the Republican quest to complete tax reform legislation this year.
Now lawmakers will begin tackling in earnest the more difficult job of writing a tax overhaul bill that can win the approval of at least 50 of the 52-member Republican conference, and 218 out of 239 House Republicans.
“It’s not going to be easy,” Senate Majority Whip John Cornyn, R-Texas, told the Washington Examiner.
The House this week will begin hammering out the details of its own tax reform plan after passing a fiscal 2018 budget resolution earlier in the month.
Both chambers had to approve a budget blueprint in order to use the measure as a legislative vehicle for tax reform that will allow it to pass with just 51 votes, skirting a filibuster by Democrats.
Now that the measure is behind them, Republicans in both chambers are looking for a way to write a tax bill that balances the interests of more moderate Republicans who fear ridding the tax code of popular deductions, with conservatives who want aggressive tax cuts that do not explode the deficit.
President Trump will visit Senate Republicans at their weekly lunch on Oct. 24 where he’ll undoubtedly hone in on the need to get a big win on taxes. Republicans have so far failed to pass a bill to repeal and replace Obamacare and have turned to tax reform as their top priority.
So-called tax loopholes will be among the biggest hurdles in the path to finding GOP consensus.
Republicans and Trump have agreed upon a tax reform outline that would end the popular deduction for state and local taxes while expanding the child tax credit and doubling the standard deduction.
Many Republican lawmakers, however, want to preserve the state and local tax deduction, particularly those from high-tax states including New York, New Jersey, and California.
“Certainly, loopholes cause consternation,” Senate Finance Committee Chairman Orrin Hatch, R-Utah, the chamber’s top tax writer, told the Washington Examiner.
Hatch wants to keep the state and local deduction.
But other Republicans say that without closing loopholes, you can’t lower rates without creating a huge hole in the U.S. Treasury.
Sen. Bob Corker, R-Tenn., a senior budget panel member, is among the Republicans who say they can’t back a tax plan that explodes the deficit. He’s been meeting privately with Treasury Secretary Steve Mnuchin to discuss the matter.
Corker believes the Senate plan to slash taxes by $1.5 trillion would require $4 trillion in additional tax revenue, acquired by closing loopholes, in order to keep the plan deficit-neutral.
“The hardest part for the tax writers, and what is going to be essential, is going to be closing $4 trillion worth of loopholes,” Corker told the Washington Examiner. “They have to make the taxes permanent in nature. So, that is going to be the toughest part.”
On the House side, Ways and Means Chairman Kevin Brady, R-Texas, will resume private meetings with Republicans to try to find agreement on the state and local tax deductions. Ideas include capping the deductions based on income, or giving tax filers a choice of claiming either the state and local taxes, or their mortgage interest.
The loophole fight does not end there.
Republicans will have to target other deductions in order to come up with the revenue needed for a broad tax cut.
Lawmakers will be under intense pressure from lobbyists and special interest groups, who have descended on Capitol Hill to try to preserve their own pet loophole.
“It’s going to be a knife fight,” Corker predicted.
