Senate Republicans negotiated changes to their tax reform legislation Monday, with leadership working to alter the bill to win the support of their conference members and then quickly pass it later this week.
Two Senate Republicans have said they are “nos” on the bill as currently written, on the grounds that it doesn’t provide tax breaks large enough to small businesses: Ron Johnson of Wisconsin and Steve Daines of Montana, who declared his opposition Monday.
At least a handful of other Republicans, including ones who say they’re worried the tax cut could ramp up the federal debt, are uncommitted and seeking significant changes.
“We always have to deal with everybody, so it’s not any one particular person,” said Senate Finance Committee Chairman Orrin Hatch, R-Utah, after a meeting at the White House with President Trump.
Sen. John Cornyn of Texas, the No. 2 Republican in the chamber, told reporters off the Senate floor that the bill would undergo several changes via manager’s amendment to appease GOP demands. He said that he hopes to have a vote to begin debate by Wednesday.
Republicans want to finish the bill by Friday, “but who knows,” Hatch said. Any changes Republicans will make to the bill will be announced when it heads to the Senate floor, he said.
First, however, the bill has to clear the Senate Budget Committee, which is responsible for advancing the legislation under the reconciliation process that the GOP is trying to use to bypass a Democratic filibuster.
Johnson, a member of the committee, told Wisconsin media Monday that he could vote against the bill in committee unless changes were made before then. Republicans have a one-vote majority on the committee, meaning that Johnson could hold up passage.
Johnson and Daines oppose the bill because it creates a low 20 percent statutory rate for C-corporations but not, in their estimation, a corresponding tax cut for businesses that are not taxed at the corporate level but instead pass their earnings straight through to their owners’ tax returns. Such “pass-throughs” constitute the vast majority of businesses. Most are small businesses, although some are large.
The Senate bill would include a tax cut for such businesses by including a 17.4 percent deduction for pass-through income. That effectively would bring the top rate for pass-throughs to about 32 percent. That rate, though, would be subject to various limitations.
“We need to ensure that we’re taking care of the main street businesses in this country and not just the big corporations,” Daines told reporters at the Capitol Monday evening.
Daines said he has proposed raising the deduction to at least 20 percent, a change that would cost $60 billion to $70 billion over 10 years, he said. To offset that, he suggested eliminating state and local tax deductions for corporations.
Trump called the Montana senator Sunday from Air Force One to discuss the issue, and Vice President Mike Pence also talked it over with him. Both were interested, he said.
“We continue to make progress, minute by minute, hour by hour, day by day, but we’re not there yet,” Cornyn said of talks with Johnson and Daines.
Those two senators, however, are not the only ones seeking to alter the bill. Some Republicans are trying to add a mechanism to scale down the tax cuts if the debt rises too fast.
Speaking on Fox News Monday morning, Sen. James Lankford of Oklahoma said he was working toward what he called a “debt backstop” to the bill.
“I want to make sure that we have a built-in process, if the numbers don’t come in correctly, to make sure that we do actually provide a way to guard us against debt and deficit,” he said, explaining that he was still working on the language of such a measure.
Lankford, who said that he will support the bill and that it will pass before Christmas, is just one of several Republicans who have expressed concerns about the possibility that the $1.5 trillion tax cut could add more to the debt.
The Trump administration maintains that the tax cut will not add to the debt because it will increase economic growth, bringing in new revenue. The Senate is proceeding without an analysis of the bill’s impact on the overall economy, and studies from outside tax modelers have found that the bill would fall short of paying for itself.
Some Republicans argued Monday that setting a condition on the tax cuts, as Lankford suggested, would undercut its growth-stimulating potential and ultimately create the deficits it was meant to forestall.
“A trigger could have a sort of self-fulfilling effect that could be detrimental,” Sen. Pat Toomey, R-Pa., said on Bloomberg News.
To produce “behavioral” changes by businesses, tax changes have to be permanent and predictable, to allow for planning, Sen. Chuck Grassley, R-Iowa, said.
“We don’t need more tax rates, we need more taxpayers. And you’re not going to get more taxpayers if the economy’s growing at one-and-a-half percent as it did under Obama,” Grassley said, adding that the tax plan would pay for itself.
Sen. David Perdue, R-Ga., though, said that he was confident enough that the tax reform legislation, coupled with regulatory relief provided by the Trump administration, would generate enough economic growth to defuse concerns about the tax plan and the debt, regardless of whether a debt trigger of the kind Lankford advocates is included in the bill.
“I have no problem putting a point in the future and having a trigger,” he said. The only matter to work out would be the specifics of how the trigger would work.
Cornyn said leaders were working with proponents of the trigger and trying to arrive at a solution.
“At a time when you’re expecting economic growth as a result of the tax cuts, then you create a mechanism that makes it hard to predict what taxes are going to be,” he noted. “So, no one said it’s going to be easy.”
