GOP Gears Up for Tax-Overhaul Push -- 2nd Update

The sprint toward an enormous tax bill has reached the starting line.

Republicans, eager to have something significant to show for full control of the Congress and White House, are attempting to do in as little as 10 weeks what took lawmakers 13 months in the mid-1980s: Release, amend, debate and pass a rewrite of the U.S. tax system.

In the frenzied days ahead, the GOP will seesaw between the political necessity of obtaining a legislative win to tout in the 2018 elections and the immense difficulty of the task they've set for themselves.

Republicans are optimistic about their prospects, and they have been talking about "tax reform" for more than six years, kicking around ideas, holding hearings and offering blueprints and frameworks. But they have delayed the moment that's arriving now -- unveiling and voting on a bill that limits or removes popular tax breaks -- and it's bound to be much tougher than any previous stage.

The Senate's 51-49 vote late Thursday for a budget marked an important step toward a tax bill that can become law by year's end without a single Democratic vote. The House is expected to back the same budget and set a schedule for the tax bill's release as soon as next week.

Diane Black (R., Tenn.), who chairs the House Budget Committee, made clear Friday morning that was the plan.

"I am pleased that the final version included some changes that reflect many ideas offered in our plan," Mrs. Black said of the Senate budget. "In the House, I look forward to swift passage and to working with the president on tax reform."

Members of the House Freedom Caucus, a group of roughly three dozen conservatives, largely backed the idea of the House quickly taking up the Senate budget, said Rep. Dave Brat (R., Va.), who participated in the group's conference call on Friday.

"Most of the folks were pretty much in favor of keeping the momentum going," Mr. Brat said. The Freedom Caucus took no official position, the group's spokesman said.

Here is the likely path for the tax bill through both houses of Congress:

Budget Deal

The Senate and House must first agree on the same budget document. The Senate budget and the one the House passed earlier this month have some major differences, but that is no longer expected to be much of an obstacle.

First, the Senate budget allows for tax cuts that reduce revenue and increase deficits by $1.5 trillion over a decade; the House version calls for a revenue-neutral tax bill that doesn't increase deficits.

Second, the House budget ties $203 billion in spending cuts and other deficit-reducing ideas to make room for tax cuts. The Senate budget has just one such offset, which generates federal revenue by potentially allowing the opening of Alaskan land to oil production.

At first, it looked like negotiations to reconcile those conflicting positions would take a week or two. But senators and House members worked out a deal Thursday night under which the House could vote next week without the need for a formal House-Senate conference committee. That would expedite the process of moving a tax bill.

The budget, which President Donald Trump doesn't need to sign, allows Congress to use fast-track reconciliation procedures. Those allow the Senate to pass a bill with a simple majority and not with a 60-vote threshold that would require Democratic votes.

House Tax Bill

Rep. Kevin Brady (R., Texas), the top House legislator, says that after the budget deal is delivered, his panel will release its tax bill. That proposal will fill in many of the blank spaces in a framework Republicans released in September.

It will spell out exactly what House Republicans plan to do with tax incentives for retirement savings, child tax credits and other points of contention. It will also show income cutoffs for various tax brackets, giving Americans a chance to calculate their tax bill under the new plan.

For businesses, it will show which companies qualify for a special 25% rate for "pass-through" businesses such as partnerships and S-corporations and will spell out which tax breaks go away.

Those details will stir disagreement among interest groups and House members. The Ways and Means Committee, where Republicans have a 24-16 edge and seven members who aren't returning in the next Congress, will consider amendments and vote on the bill. Then it heads to the House floor, where Republicans can lose 22 members at most. Republicans will likely have to make some accommodation for GOP members from New York and New Jersey, who oppose the repeal of the state and local tax deduction that has been a pillar of the party's plans.

House Speaker Paul Ryan (R., Wis.) has said a tax bill could pass the House by early November.

Senate Tax Bill

The Senate Finance Committee will release its own tax plan. Lawmakers expect it to be different from the House version, though it isn't clear how far apart they will be.

In the committee, the GOP has a 14-12 edge, meaning it will have to keep all its members on board. For now, votes from Democrats aren't likely.

Democrats on the committee say Mr. Trump supports some of their principles -- for example, a focus on the middle class instead of tax cuts for high-income households -- but the plans so far haven't backed up that specific objective.

The Senate bill will face some constraints because of the fast-track procedures. It can't add more than $1.5 trillion to deficits over a decade and it can't increase deficits at all after a decade. Those rules mean Republicans may schedule some of their tax cuts to expire.

On the Senate floor, Republicans can lose two members and still pass a bill. That may be a challenge: Sen. Rand Paul (R., Ky.) has called for significant tax cuts even if they increase budget deficits, Sen. Bob Corker (R., Tenn.) has pledged not to increase the budget deficit, and Sens. Mike Lee (R., Utah) and Marco Rubio (R., Fla.) are seeking bigger child tax credits that aren't in the GOP plan so far.

Democrats can offer unlimited amendments on the Senate floor, putting them in a position to drag out voting and write proposals that could peel off Republicans, such as increasing child tax credits in exchange for higher taxes on millionaires. It was on the Senate floor that Republicans' health-care plans fell apart this year, when they couldn't get 50 senators to agree on any particular plan.

Conference and President

Once the House and Senate have each passed their tax bills, they will have to bridge any differences, presumably in a House-Senate conference. Then the Senate and House will vote again and send the measure to Mr. Trump for his signature.

Kristina Peterson contributed to this article.

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

(END) Dow Jones Newswires

October 20, 2017 18:41 ET (22:41 GMT)