(Bloomberg) -- The Republicans at the helm of the U.S. government are drawing closer to carrying out their pledge to cut corporate and individual taxes in 2017 -- their best chance to score a major legislative victory before 2018 midterm election considerations complicate the debate. If Senate Republicans can join their House counterparts in passing a bill, the fate of their proposed tax cut will rest on whether the two chambers can resolve a few key differences.
1. What are the next steps?
The Senate is gearing up for a "vote-a-rama" on proposed amendments that could lead to a final vote on Friday. It will test whether days of tradeoffs and negotiations have produced the 50 votes that Republicans need to move forward; they can afford up to two dissenters and still win passage without any help from Democrats. A bill passed by the Senate would need to be reconciled with the one adopted on Nov. 16 by the House of Representatives. A House-Senate conference committee would be named to iron out the differences. Its final product would be voted on by the House and Senate, and, if approved, sent to President Donald Trump to sign into law.
2. Will this get done by year's end?
The outlook has improved. On the website PredictIt Thursday night, bettors were assigning a 68 percent probability to Congress passing a corporate tax cut by the end of 2017, up from 35 percent on Nov. 17. Congress doesn't have that many scheduled workdays left in the year, but does have a busy to-do list that includes a spending bill to avoid a government shutdown, Trump's demand for Mexico border-wall funding, hurricane disaster relief, and, possibly, stabilizing health-insurance markets affected by changes to Obamacare that may be included in the tax bill.
3. What's the deadline?
You wouldn't know it from all the rushing, but there really isn't one. This term of Congress runs through 2018. The need for speed is almost entirely driven by Republicans having a heavy political incentive to pass tax cuts after failing to achieve any other major legislative victory over the past year. Lawmakers are counting on being able to present the tax cuts to voters while running for re-election in 2018.
4. What tax-cut elements do the House and Senate agree on?
As currently written, the House and Senate plans would both lower the corporate tax rate to 20 percent from 35 percent; double the standard deduction and expand the child tax credit that many Americans use to lower their tax bill; allow companies to fully and immediately deduct the cost of their spending on equipment for five years; and limit the so-called carried interest tax break for investment managers by applying it only to gains on sales of assets held three years or more. The final version of the Senate bill is still in flux, with some lawmakers pressing for changes. For instance, Senator Susan Collins, a Maine Republican, is seeking to tweak the Senate legislation to enhance the child tax credit and pay for that by ending the carried interest tax break entirely.
5. What are the biggest disputes?
The House and Senate differ on the number of tax brackets and the top rate for individuals, the start date of the corporate-tax cut and whether to end the inheritance tax on multimillion-dollar estates. The Senate bill envisions tax cuts for individuals expiring at the end of 2025, rather than being permanent, and incorporates a repeal of the requirement that most people have health insurance or pay a penalty, a cornerstone of the 2010 Affordable Care Act, also known as Obamacare. The House and Senate differ as well on what existing tax breaks would be narrowed or eliminated to keep the overall cost below $1.5 trillion over the next 10 years, as required by the Republicans' budget outline. The tax breaks under scrutiny include deductions for money spent on local property taxes, medical expenses and home-mortgage interest.
6. What are the obstacles to getting a tax cut done?
Right now they're in the Senate, where Republicans have a narrower margin. If all Democrats were to vote "no," the 52-48 Republican majority allows no more than two dissenters. At least seven -- Collins, Bob Corker of Tennessee, Jeff Flake and John McCain of Arizona, Ron Johnson of Wisconsin, James Lankford of Oklahoma and Lisa Murkowski of Alaska -- expressed concerns along the way. But McCain and Murkowski have indicated they're now on board, and the other five are negotiating fixes. One big challenge at the moment: a handful of senators including Corker worry about the tax cut's impact on the nation's debt.
7. Is there any chance of Democratic support?
Not really. A handful of Democrats who represent states Trump won in 2016 had said their votes were in play. They include Joe Manchin of West Virginia, Joe Donnelly of Indiana and Heidi Heitkamp of North Dakota. In recent days, all three have expressed dismay that their ideas to change the bill have been largely ignored.
8. What are the obstacles in the House?
There aren't many for now. Thirteen Republicans voted against the House's initial tax-cut bill; 12 of them are from New York, New Jersey and California, states that particularly benefit from the deduction for money spent on state and local taxes. The ranks of dissenters would need to grow for the House to become a possible obstacle to what emerges from House-Senate negotiations. House Republican leaders have a cushion of 22 votes they can afford to lose.
9. Would a tax cut make the economy grow faster?
In a Bloomberg News survey, economists said the planned cuts in the House bill would likely boost U.S. economic growth by about one-quarter of a percentage point in 2018. The Tax Foundation, an independent, right-leaning group in Washington, says over the long run, the House bill would boost U.S. gross domestic product by 3.6 percent, after correcting its initial estimate of 3.9 percent. Most important, perhaps, an analysis by the Joint Committee on Taxation released Thursday found that the Senate bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $407 billion over a decade, leaving a 10-year revenue loss of roughly $1 trillion. That's alarming news for the Republican senators who have voiced concerns about tax cuts adding to the federal debt.
The Reference Shelf
- How the House and Senate tax plans stack up.
- The Senate bill has something for every Republican to hate.
- A QuickTake Q&A on chained CPI, which Bloomberg View columnist Barry Ritholtz calls "the increase hiding in the Republican tax cuts."
- A look at which stocks are rallying under the Trump tax trade.
- More on Bloomberg's survey of economists.
- A QuickTake Glossary of tax terms to know.
- It's better to be a business than a person under the planned tax cut, Bloomberg View columnist Justin Fox writes.
To contact the reporters on this story: Laura Litvan in Washington at llitvan@bloomberg.net, Anna Edgerton in Washington at aedgerton@bloomberg.net.
To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Laurie Asséo, Laurence Arnold
©2017 Bloomberg L.P.
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