House Moves Ahead With Tax Bill as Pushback Mounts

Source: By JIM TANKERSLEY, ALAN RAPPEPORT and THOMAS KAPLAN, New York Times • Posted: Wednesday, November 8, 2017

Representative Kevin Brady of Texas, chairman of the Ways and Means Committee, said that he expected the bill to pass out of committee on Thursday and to move quickly to the House floor. Tom Brenner/The New York Times

WASHINGTON — An analysis of the Republican tax bill released Tuesday predicted that tax cuts for lower- and middle-income taxpayers would fade over the course of a decade, more so than they would for high earners.

The analysis by Congress’s Joint Committee on Taxation found that about 80 percent of tax filers earning from $50,000 to $75,000 would receive a tax cut from the bill in 2019. By 2027, just 60 percent of taxpayers in that same income group would see a tax cut. Of those earning more than $1 million, three-quarters would see a tax cut in 2019, and by 2027, two-thirds of millionaires would continue to see a tax cut.

A second analysis from the committee, released Tuesday evening, found that recent changes to the bill have appeared to have pushed the bill over the $1.5 trillion that Republicans have set as a cap for the bill’s cost.

On Monday, Republicans on the Ways and Means Committee approved a package of amendments to the bill, including one that watered down a proposed excise tax on foreign affiliates of multinational companies. Those amendments added more than $150 billion in lost revenue to the bill over the course of a decade, leaving it, in the joint committee’s estimation, $74 billion over the $1.5 trillion limit for revenue losses allowed under the budget resolution that passed Congress last month.

Together, the analyses could further complicate efforts by Republican leaders to forge ahead with a bill that is already under attack from Democrats, who say the plan is a gift to the rich, and from business groups that say the legislation would disadvantage multinational companies.

Some Republican lawmakers have already raised questions about provisions in the bill, particularly the repeal of the state and local tax deduction for income and sales taxes. Representative Darrell Issa, Republican of California, who is facing a difficult re-election campaign in 2018, said Tuesday that he had concerns about the effect on his constituents, while several senators over the past days have raised concerns about tax legislation that raises the federal budget deficit.

“I cannot endorse changes that may make the tremendous burden felt by California taxpayers even worse,” Mr. Issa said. “Tax reform should lower taxes for all taxpayers, regardless of where they live.”

Representative Kevin McCarthy, Republican of California and the majority leader, said Republicans would focus on clarifying what is in the bill as the House tries to push it to a floor vote next week.

“The challenge to the American public is what is the truth about this bill,” Mr. McCarthy said. “I think what’s most important is we should state the facts.”

The White House dispatched two top officials to meet with Democrats on Tuesday as President Trump sought to curry favor for the tax overhaul. Gary D. Cohn, the director of the National Economic Council, and Marc Short, the head of legislative affairs, met with a dozen Senate Democrats on Tuesday afternoon at the Library of Congress to make a late plea for bipartisanship on the tax plan. Mr. Trump, who is traveling in Asia, called into the meeting and made a personal pitch for Democrats to support the bill by making the case that the tax plan would not help the wealthiest Americans.

“The president said this bill is really bad for rich people,” said Senator Sherrod Brown, Democrat of Ohio, who was in the meeting.

Senator Heidi Heitkamp, Democrat of North Dakota, said that Mr. Trump told the senators that the bill did not benefit him personally and that he was happy with that because it meant it was tough on the rich. Democrats generally disagree with the president’s assessment.

According to Mr. Brown, Mr. Trump said that Republicans had to repeal the estate tax because there was nothing else in the legislation to benefit the rich.

“I think he may think that,” Mr. Brown said. “But nobody else in the room did.”

The House Ways and Means Committee held a second day of debate on the bill, which will continue through this week. The committee chairman, Representative Kevin Brady, Republican of Texas, said on Tuesday morning that he expected the bill to pass out of committee on Thursday and to move quickly to the House floor.

In an interview on Hugh Hewitt’s radio program, Mr. Brady said that the bill would not be subject to amendments on the House floor. But he also said that Republicans were still considering further changes to the bill, including possibly restoring tax breaks to encourage adoption and including a provision to repeal the Affordable Care Act’s requirement that most people have health insurance.

“We’ll work to continue to improve it at every step,” Mr. Brady said, “including as we send it to the House floor.”

That may be an uphill battle, as key groups begin coming out in opposition to parts of the bill, including a proposed excise tax of 20 percent on payments made by American companies to foreign affiliates. The provision is aimed at preventing American companies from shifting profits abroad through payments, such as royalties, made to subsidiaries or other foreign affiliates.

American multinational corporations are especially concerned about the proposal, which would raise just more than $150 billion over a decade. They say the tax will wind up harming American companies and their consumers.

The American Forest and Paper Association said it was “very troubled” by the provision, which it said “would lead to massive overcollection of tax in the United States.” The provision is also coming under fire from pharmaceutical companies and the small-government advocacy groups spearheaded by the billionaire Republican megadonor brothers Charles G. and David H. Koch, who are trying to generate opposition to the excise tax from other conservative groups.

Tim Phillips, the president of Americans for Prosperity, a conservative advocacy group funded by the Koch brothers and their network of donors, called the provision “misguided.”

Tax specialists at multinational firms have spent the past several days struggling to calculate what their new effective tax rates would be under a change that most did not see coming.

“As currently structured, the provision probably is not administrable and could also be gamed by taxpayers,” said Itai Grinberg, an international tax policy professor at Georgetown University Law Center. “Separately, the rule alters the purposes of financial accounting in ways that may create incentives for abuse.”

Mr. Brady said lawmakers are working with multinational companies to address their concerns. “But make no mistake,” he said, “we have to have safeguards in place so that companies aren’t encouraged to shift their earnings and their profits offshore and to low-tax havens, and we need strong guardrails to make sure they’re not importing deductions, exclusions and other tax rate issues.”

The Senate bill may drop the controversial tax entirely and replace it with a different measure aimed at discouraging companies from shifting production overseas and then selling back into the United States, according to multiple lobbyists with knowledge of the discussions.

A prominent conservative group, the Club for Growth, criticized the House bill on Tuesday for what it called “four serious shortcomings,” including maintaining the existing top tax rate on millionaires and phasing out the estate tax instead of repealing it immediately.

But other groups continued to praise the bill, even as they worked behind the scenes to shape it more to their liking. The Business Roundtable, an influential lobbying group in Washington, announced a new advertisement urging members of Congress to approve a bill. The ad features the line, “Congress promised tax reform. Congress needs to deliver.”

With the process underway in the House, business groups and other lobbyists began turning much of their attention to the Senate, which is expected to unveil its own version of the bill on Thursday.

At a news conference with Republican senators and Trump administration officials, Senator Ted Cruz of Texas expressed concern that the House Republican plan to roll back the deduction for state and local taxes could mean higher tax bills for people in some states. He also argued for repealing the Affordable Care Act’s mandate that most people have insurance as part of the tax overhaul, echoing Mr. Trump’s call to eliminate the provision that is central to the health law.

“I think we need to do even more to provide a tax cut, not just tax reforms, but a tax cut to every American,” Mr. Cruz said. “I think there is a path forward that, actually, the president laid out last week, which is repealing the individual mandate — the I.R.S. tax — from Obamacare.”

The Senate bill set to be released on Thursday will probably eliminate deductions for state and local income, sales and property taxes for individuals, according to multiple lobbyists with knowledge of the deliberations.

The future of the estate tax also remains unclear. While the House bill would phase out the tax that generally hits only the rich, some senators are skeptical that doing so is fiscally responsible.

Steven Mnuchin, the Treasury secretary, said, “The president is interested in repealing the estate tax,” but suggested that Mr. Trump has bigger priorities in the tax bill.

At a separate news conference, Senator Mitch McConnell, Republican of Kentucky and the majority leader, declined to discuss the House bill and dismissed an analysis that said the tax overhaul would add to the deficit.

“There are all kinds of reports about all kinds of proposals,” Mr. McConnell said, noting that the Senate had not yet unveiled its bill. “We fully anticipate this tax proposal in the end to be revenue neutral for the government, if not a revenue gainer.”

During the House Ways and Means Committee’s bill-drafting session on Tuesday, Democrats proposed a series of amendments, starting with an attempt to curb the ability of Republicans to add to the deficit with tax cuts.

“What we are incurring is immense debt at immense cost to the American people just to benefit a handful of people at the top and some multinational corporations that don’t believe in paying their taxes,” said Representative Lloyd Doggett, Democrat of Texas.

But the Democratic amendments went nowhere.