House, Senate Tax Proposals Likely to Diverge

By Richard Rubin Features Dow Jones Newswires

The House and Senate versions of a plan to overhaul the nation's tax code are likely to diverge on many issues, including the treatment of business interest expenses and their write-offs for investments.

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The tax-writing committees in the House and the Senate are eager to make their own marks on the U.S. tax system, the chairmen of those panels said Thursday.

Their comments underscored a challenge Republicans face. Even though party leaders and White House officials have been negotiating behind the scenes for months and have set a deadline for the week of Sept. 25 to release a blueprint for their tax proposal, many differences need to be worked out before the bill can become law.

Lawmakers and the White House want the tax changes to happen this year, which is creating pressure on legislators this fall.

"It's a very coordinated approach on the big issues," said Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee. "We'll take different approaches on some of those fill-in-the-detail elements. There will be a lot of them."

Senate Finance Committee Chairman Orrin Hatch (R., Utah) assured his committee members that the tax bill wouldn't be written only by House and Senate leaders.

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"We are not anyone's rubber stamp," he said at a hearing Thursday. "If a bill -- particularly on something as consequential as tax reform -- is going to pass in this committee, the members of the committee will have to be involved in putting it together."

The comments by the two chairmen are a reminder that the principles, bullet points and outlines that have dominated the tax debate all year are just the beginning of a process shaped by individual members' preferences, business lobbying, nonpartisan revenue estimating and hundreds of pages of details.

The timeline for committee votes hinges on the House and Senate adopting a budget that sets out the revenue target for a tax bill. But writing that budget requires some knowledge of what will be in the tax bill, and lawmakers haven't sorted out either piece yet.

It is unclear what will be in the statement from the group known as the "Big Six" in the week of Sept. 25. The group's members are Mr. Brady, Mr. Hatch, Senate Majority Leader Mitch McConnell (R., Ky.), House Speaker Paul Ryan (R., Wis.), Treasury Secretary Steven Mnuchin and White House economic adviser Gary Cohn.

"It won't answer every question that everyone so focused on tax reform will want to ask," Mr. Brady said at a Politico event Thursday.

Major structural decisions -- including revenue targets, international tax rules, exact tax rates and which tax breaks would be eliminated -- haven't been made yet, said a person familiar with the conversations.

The document will include a specific corporate tax rate and details on the deductibility of corporate interest, Mr. Mnuchin said at a separate appearance at the same event. He said news reports suggesting the six negotiators are far apart are untrue.

"We have a unified plan," Mr. Mnuchin said.

Mr. Hatch, 83 years old, has a long record of bipartisan deal-making, though Democrats have complained about being excluded from the Big Six process. He has veered back and forth on whether he would run for an eighth six-year term in 2018 and has been cautious about setting firm deadlines for the tax bill.

The Senate Finance Committee is split 14-12, meaning Mr. Hatch and the Republicans must keep their members together or seek Democratic support. Of the Republicans on the committee, only Mr. Hatch and Sen. Dean Heller of Nevada are up for re-election next year.

Mr. Brady, 62 years old, is a former local chamber of commerce executive and a lead author of the House Republicans' 2016 tax blueprint. Earlier this year, amid pressure from retailers and senators, he backed off a border-adjustment proposal -- which would have taxed imports and exempted exports -- that was a core piece of the plan.

He is now trying to protect other pieces of the House blueprint, including limits on business interest and as much write-off for business investment, also known as expensing, as possible.

Some companies, including Koch Industries Inc. and the political groups backed by its owners, have been urging a focus on corporate-rate cuts instead of investment incentives. Senators are more focused on the corporate rate than on interest and expensing, said the person familiar with the conversations.

"Rates vs. expensing is probably one of the economically most foolish debates we're having," Mr. Brady said, because both are important.

Mr. Brady and the GOP have a 24-16 margin on the Ways and Means Committee, giving him more room to lose Republicans on individual amendments. Three Republicans are retiring after this term and three are running for governor.

Both chairmen are under pressure to deliver tax bills quickly so Republicans have something to show for their majorities in the midterm election. And, Mr. Brady said, he is recognizing a "new reality" in Washington shaped by President Donald Trump's recent outreach to Democrats.

"If Republicans aren't going to unite and deliver on tax reform," Mr. Brady said, "he'll find someone else to work with."

Kate Davidson contributed to this article.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

September 14, 2017 19:07 ET (23:07 GMT)