Concord Policy Primer, Volume 5
December 6, 2017
Seeking to rewrite the script on what has been a year devoid of many signature legislative achievements, Washington Republicans are on the verge of passing the most substantial piece of tax legislation in three decades. Last week, in a show of legislative and political nimbleness that eluded Republicans during the Obamacare repeal debate, the Senate passed its version of tax reform – setting up the massive tax package for enactment before the end of 2017.
Prime Insight. President Trump and GOP congressional leaders have indicated from the beginning that their goal is to have a tax reform package signed into law before the Christmas holiday. While some will quibble with calling the tax bill winding its way through Congress a true “reform” bill, Republicans are on track to meet their self-imposed deadline for enactment.
Republicans on both ends of Pennsylvania Avenue are desperate for a win. Case in point, President Trump issued a blanket promise on November 30 to sign the legislation into law, even though the final details have yet to be negotiated. House and Senate leaders will be scrambling between now and December 22 to reconcile their significant differences and get the president a bill he can sign. Short of a negotiating catastrophe, they should be able to get the job done and close out 2017 with a signature legislative achievement.
The history of 2017’s version of tax reform will not be written without a chapter (or several) on the bill’s aftermath. With major changes in store on the individual side of the equation – with adjusted caps on deductions for state and local taxes and mortgage interest, for example – and projections of exploding national deficits over the next decade, voters in 2018 will have a say in how history treats the legislation. Rest assured, Republicans will spend the next 11 months touting the bill’s potential over time to deliver stronger economic growth and enable Americans to keep more of their hard-earned dollars. The question remains, however, whether congressional Republicans will be rewarded for their faith in tax cuts as singular economic drivers.
The Horizon. Now that both the House and Senate have passed separate versions of tax reform, it will be up to Republicans to negotiate a final package that can retain majority votes in both chambers. This will be a largely leadership-driven exercise, with House Speaker Ryan, Senate Majority Leader McConnell, chairmen Brady and Hatch, and Trump Administration officials parsing the final details.
The differences between the two bills are substantial but manageable, and most come down to a question of math. In drafting a final bill, negotiators must be careful to stay within the $1.5 trillion figure mandated by congressional reconciliation rules. With a cushion of only one vote in the Senate, negotiators also will be focused on keeping on board all 51 Senators who voted in favor of the Senate’s bill. With each provision negotiators will be asking themselves: “how much revenue is generated or lost, and will we lose votes because of the changes we are contemplating?”
In addition, GOP leaders reportedly made a number of promises to their rank-and-file to secure the votes needed for passage. Some of these promissory notes – on healthcare, government funding, etc. – will be due before the year is up. It will be interesting to watch how these issues play out and whether their outcomes have any impact on the GOP’s ability to move the reform package.
It is expected, though not certain, that the House and Senate will convene a formal conference committee to develop the final language. A legislative report developed by a conference committee enjoys certain procedural protections (non-amendable, etc.), particularly in the Senate, which is attractive from a timing standpoint. Regardless of procedure, Republican leaders’ overarching goal is to ensure any negotiated package can achieve a majority vote and get to the president’s desk before Christmas.
Bottom line: barring a host of unforeseen developments we expect tax reform to be the law of the land before Congress adjourns for the year.
Energy Yield. Energy tax provisions did not fare well in the Senate’s reform package. It quickly became apparent that energy was avoided purposefully in the Senate due to the controversy these provisions attract and the number of energy credits and deductions that Republicans senators were seeking.
Senator Chuck Grassley (R-IA), a senior member of the Finance Committee and committed advocate for wind energy tax credits, suggested that the difficulty with doing energy extenders in tax reform was a matter of equanimity: “When somebody tried to get in an extender dealing with nuclear power plants and there was an uproar from about eight of the 14 Republicans [who said] ‘If you do that one extender, we’re going to do every extender,’ and they took that out,” he said. In other words, each Republican senator has an energy tax priority and when one moves they all should move.
The opportunity to address extenders will come as Congress wraps-up the 2017 legislative session. In the coming days, Congress will pass a Continuing Resolution funding the government through December 22, which will be the deadline for moving year-end legislation – including those promissory notes mentioned earlier. Unlike tax reform under reconciliation, bipartisan support will be required to move the end-of-year packages, thus giving Democrats a fair amount of leverage to achieve their priorities.
At this point in time, tax extenders – which include the Section 179D deduction – are in the mix to be addressed before Christmas. The proof, however, is in the proverbial pudding; the complexity and number of negotiations that will occur in the next three weeks is dizzying, which means the situation can change rapidly.
Concord continues to coordinate outreach to Capitol Hill; please contact Concord should your company be interested in advocating support for Section 179D in these final days of 2017.