GOP Senators Aim to Retain Medical-Expenses Deduction

By Siobhan Hughes Features Dow Jones Newswires

Senate Republicans aim to preserve a popular tax deduction for household medical expenses when they release their version of a tax plan later this week, parting ways with House lawmakers on a proposal that costs about $182 billion over a decade, according to people familiar with the matter.

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They are also considering delaying the start of a cut in the top corporate tax rate to 20% from 35% but hadn't decided on the matter as of Tuesday evening.

Those decisions are part of the complex trade-offs the GOP is considering as it tries to draft a historic overhaul of the U.S. tax code that would reduce business taxes in an effort to spur economic growth, and cut individual tax rates. To pay for those cuts, Republicans are trying to get rid of costly deductions and exemptions in the tax code, but they are facing blowback from consistencies that want to keep popular provisions.

"With high health-care costs, you want to be able to offset that," said Sen. Lisa Murkowski (R., Alaska) of the ability of households to deduct large medical expenses in their calculations of individual income taxes.

Ms. Murkowski appeared to wince when asked about eliminating the medical-expense deduction on Tuesday. "People look at that and say that is one area that can make a difference for them," she said.

"There is certainly an understanding of its importance," Sen. Bill Cassidy (R., La.), who sits on the Senate Finance Committee, said on Tuesday.

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In all, House Republicans want to get rid of $1.3 trillion worth of individual income tax deductions over a decade, including deductions for home-mortgage interest and state and local taxes.

After complaints spread about eliminating the medical-expense deduction, the Senate Finance Committee was likely to preserve it, the people familiar with the matter said. Republican senators are still recovering from a bruising fight over repealing and replacing the 2010 health law. Preserving the medical-expense deduction means Senate Republicans will have to give up on some other priorities. They are attempting to fit more than $5 trillion of tax cuts inside a box that allows for only $1.5 trillion.

Another idea that could get attention is full elimination of the deduction for state and local taxes, instead of taking the approach of the House, which preserved a property-tax deduction, while limiting the amount of the deduction to $10,000. During a debate over the Senate budget, Republicans backed an amendment calling for the full repeal of the state and local deduction, which would give them revenue they could use to preserve the medical expense deduction.

Julia Lawless, a spokeswoman for Finance Committee Republicans, declined to comment on any details. "Finance Committee members are working to make the appropriate policy decisions that will help deliver a comprehensive tax overhaul to grow the economy, boost job creation, and increase Americans' paychecks," she said. "The final details of the bill will be included in the chairman's mark, which is expected to be released later this week."

Senate Majority Leader Mitch McConnell (R., Ky.) can lose only two Republicans and still pass the legislation without Democratic support.

Republicans control 52 Senate seats, compared with 48 for Democrats, making the task ahead difficult in that chamber.

One potential Republican defector is Sen. Jeff Flake (R., Ariz.), a deficit-hawk who is worried that Republicans are mistaken to conclude that tax cuts will pay for themselves by generating economic growth.

"I just am concerned that we get the pay-fors and we don't explode the deficit," Mr. Flake said.

Sen. Ron Johnson (R., Wis.) said he was concerned about the treatment of pass-throughs -- the partnerships, limited-liability companies, and other businesses that pay taxes at their owners' individual rates. A House GOP plan would exclude professional services providers from receiving a preferential tax rate proposed for businesses, and would allow other businesses to apply the preferential rate to only 30% of their profits.

Other Republican senators have parochial priorities. Sen. Dean Heller (R., Nev.), who sits on the Senate Finance Committee, said he wanted to preserve a tax break for wind producers as well as a tax break for electric vehicles, which the House proposes to eliminate. Mr. Heller's state is home to an electric-car factory built by Tesla.

"I will do my best to try to keep it in," Mr. Heller said.

Write to Siobhan Hughes at siobhan.hughes@wsj.com

(END) Dow Jones Newswires

November 07, 2017 22:07 ET (03:07 GMT)