Showdown on Capitol Hill? "Major differences" between House and Senate bills

Perhaps policy has become passé these days, but a beatdown in Virginia this week should warn Republicans that rhetoric alone won’t carry them to victory. The GOP desperately needs a major legislative win, and tax reform gives them an opportunity to do that all by themselves. Unfortunately, a lack of coordination between the House and Senate Republican caucuses has produced two different approaches to this massive project, and it’s far from clear that there is any path to unite around a middle position between the two:

Senate Republicans released their own version of a tax plan Thursday, and it varies just enough from the House’s bill to set the two chambers up for a dramatic showdown over tax policy in upcoming weeks. …

According to Sen. John Hoeven, a Republican from North Dakota, the Senate tax bill includes more individual tax brackets than the House bill (seven instead of four). Hoeven also said that the Senate bill fully repeals the state and local tax deduction, which has become a must-save item for moderate Republicans in the House. The House bill repealed the deduction for state and local income and sales taxes, but preserved the property tax deduction up to $10,000 to assuage concerns from New York and New Jersey Republicans.

But the differences don’t end there. While the House bill eventually repealed the estate tax in its entirety, the Senate bill won’t repeal the tax, members said, but instead will limit the number of families affected by it.

The Senate bill also maintains a provision to allow individuals to write off medical expenses that exceed a certain amount of their income, something the House bill scrapped entirely. The issue has become a major flashpoint in the debate in the House, and Hoeven acknowledged that watching the fights play out in the House helped inform the Senate bill.

Just how different are the two bills? CNN provides this primer:

The biggest political flashpoint between the two bills may be the delay in the corporate tax rate change. The Trump administration — and, for that matter, House Republican incumbents — need a big GDP boost in 2018 along with a spike in job creation to relieve political pressures. Senate Republicans, facing a much less daunting cycle in which 25 Democrats have to defend seats while they only defend eight, have less reason to run up the deficit so quickly. The delay makes it easier for them to pass the bill under reconciliation, the only path for tax reform open to them:

The one-year delay would lower the cost of the tax cut bill by more than $100 billion, and negotiators are trying to preserve as much revenue as they can for other changes. But it could also delay decisions by companies to move back to the United States from overseas or have companies hold off on other decisions as they wait for the corporate rate to fall.

The Senate approach is much different than House Republicans are taking. They are advancing a bill that would lower the corporate tax rate in 2018. But they are also having problems dealing with the total cost of their bill, which has ballooned beyond the $1.5 trillion price tag they were permitted under budget rules.

Treasury Secretary Steven Mnuchin said in a Bloomberg interview Wednesday that the White House’s “strong preference” would be for the tax cut to go into effect next year, but the White House is not expected to threaten blocking the bill over this change, the people said.

Politically, though, the biggest problem with the Senate version of tax reform is that it doesn’t actually restructure taxes. Rather than flatten the current seven tax brackets — the House bill takes it down to four — the Senate just adjusts the rates on five of the seven, lowering each by between 0.5% – 3%. That cuts directly against Donald Trump’s promise to simplify taxes, although doubling the standard deduction (as the House bill does as well) would allow more people to file short-form returns instead.

If they really need more revenue, though, Senate Republicans still have one option left — repeal the ObamaCare individual mandate. The House bill doesn’t do that, but today Paul Ryan sounded pretty enthusiastic about the idea. Any way of ending the mandate is fine by him, Ryan told reporters:

That move would free up close to $400 billion over ten years, according to the CBO. Perhaps the House could have included that provision to help out their colleagues in the Senate. Or maybe, just maybe, Republicans in both chambers could figure out a way to talk amongst themselves and put together one coherent approach.