Senate tax bill: Corporate cuts permanent, but individuals ... not so much?

The Senate has finally produced its proposed version of tax reform nearly halfway through this session of Congress, and it’s clear that Republicans in Congress don’t talk much with each other. Not only did Finance chair Orrin Hatch include a repeal of the ObamaCare individual mandate, which the House eschewed, they took the opposite approach to deficit control for reconciliation. The House made the corporate tax rates temporary and the individual tax cuts permanent. Hatch flipped that around, which is bound to raise some eyebrows:

Senate Finance Committee Chairman Orrin Hatch (R-Utah) released modifications to the Senate tax bill late Tuesday, including the effective elimination of ObamaCare’s individual mandate and the expiration of tax changes for individuals after 2025. …

Hatch’s modifications also include several provisions aimed at helping the middle class and shoring up support from GOP senators. These include increasing the child tax credit to $2,000 from $1,650 in the original bill and further lowering some of the individual tax rates. Sens. Marco Rubio (R-Fla.) and Mike Lee (R-Utah) have been pushing for a larger child tax credit expansion.

But the modified mark would also sunset the measure’s changes to the individual tax code, excluding the mandate repeal, after 2025. Provisions that would sunset include the lower tax rates, the larger standard deduction and child tax credit, the 17.4 percent deduction of income from pass-through businesses and the repeal of the individual alternative minimum tax.

This may be a smarter approach, but it’s going to be a tough sell to voters. Republicans and the White House need significant and quick economic growth out of tax reform — a boost not just in job creation but also a move back to the US for large corporations, which have taken to tax inversions over the last few years for better competitive positions in global markets. That’s the biggest part of Donald Trump’s America-First approach, but a temporary tax cut won’t suffice as a catalyst for the scale necessary to demonstrate unchallengeable success. Those cuts have to be permanent for businesses to shift their long-term investment strategies enough to produce the economic results Trump and the GOP need for 2020, if not next year.

In essence, Republicans are rolling the dice on the middle-class tax cuts in Hatch’s plan. They’re betting that in 2025 the idea of allowing those tax cuts to expire will be so unpalatable that they can use a regular order vote on making them permanent. That’s not exactly how it panned out with George W. Bush’s “temporary” tax cuts; it took a series of budget battles and years of brinksmanship to settle that issue. However, it will be a lot tougher to fight that battle over corporate tax rates in 2025 than individual tax cuts. Hatch is at least giving Republicans a fighting chance at winning in eight years, and he’s raising the stakes on it by making the cuts and exemptions broader than the House version did.

Needless to say, though, the bill looks like Republicans favor corporations over individual taxpayers in taking this approach. Democrats will rain class warfare all over them, and it might be enough to peel off more than a couple of moderates in the Senate Republican caucus. One would presume that Hatch and Mitch McConnell whipped this version before unveiling it so as not to embarrass themselves by failing to get to 50 when it comes to the floor, but …. say, you’ve been around this year for ObamaCare repeal efforts, right? Riiiiiiight.

Keep that history in mind, especially now that the bill contains a mini-repeal of ObamaCare:

John McCain (R-Ariz.), one of three GOP senators who voted down the Obamacare repeal effort this summer, said repealing the mandate is not a deal-breaker for securing his vote.

“I want to see the whole package — it keeps changing as it goes through the House and Senate,” McCain said. “I want the regular order.” …

“I’m fine with it,” Corker said. “I would hope that if we do and there is real money there, that we use it as a buffer against any deficit in the first 10 years.”

Susan Collins of Maine, who opposed Obamacare repeal this summer, said combining the two issues could make tax reform more difficult.

“My concern is that if we combine the health care issues with tax reform, we make it far more controversial,” she said.

McCain seems determined to exit the Senate as its Grand Protector of Regular Order, so chalk him up as a no. Collins will almost certainly be a no too, but in this case McConnell can almost certainly count on Rand Paul as a yes. Assuming no one else defects, McConnell will need Luther Strange not just for the passage of Hatch’s bill but also for the conference report that will have to take place to clean up the major differences between the House and Senate, unless Ryan can get a majority to back the Senate version. They have until December 12th to get that done, and the clock is already ticking. Lots of luck.