House Lawmakers Face $74 Billion Revenue Gap in Tax Bill After Amendments -- 2nd Update

By Richard Rubin and Siobhan Hughes Features Dow Jones Newswires

House lawmakers on Wednesday prepared changes to the GOP tax bill to fill a revenue hole of at least $74 billion, as Senate Republicans were set to release their own plan with significant differences that the GOP will eventually have to resolve to complete its tax overhaul.

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House Republicans plan to make their changes Thursday and push the bill toward a vote by the full House as soon as next week. The Senate bill, expected to be released Thursday, will likely differ from the House version by preserving the medical-expense deduction, fully repealing individual deductions for state and local income and property taxes, and not repealing the estate tax.

"There are some areas where we have a different approach," said Sen. John Thune (R., S.D.)

The simultaneous negotiations in the House and Senate left the GOP tax bills in flux. Republicans remain confident they can deliver a sizable tax cut, but they have slim margins in both chambers and are trying to squeeze their plans inside budgetary constraints.

The $74 billion gap in the House bill stems from an amendment Republicans made late Monday that would scale back an excise tax on multinational corporations proposed in the first version of the GOP bill. The change removed 95% of that key revenue-raising provision, leaving the bill outside its budget target, according to an estimate provided Tuesday by the Joint Committee on Taxation, the nonpartisan scorekeeper for tax legislation in Congress.

The bill's author, Rep. Kevin Brady (R., Texas), said it was "not unusual" for amendments to push a bill outside its revenue target. He said Republicans are looking at options. Those include repealing the individual mandate to purchase health insurance.

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"We continue to weigh the scores from the Joint Committee on Taxation and drive toward that final amendment," Mr. Brady told reporters late Wednesday, offering no detail.

Rep. Vern Buchanan (R., Fla.) said Republicans were talking about needed adjustments. "They've got dials, and they're having to turn dials," he said.

Republicans also haven't said how they intend to address concerns from life-insurance companies and pass-through businesses that pay taxes through owners' individual tax returns.

"We're always looking to improve on the small-business side of things," said Mr. Brady, chairman of the House Ways and Means Committee. "I'm optimistic we'll continue to provide more relief."

The committee, which has been steadily rejecting Democratic amendments, plans to finish work on the bill Thursday.

Rep. Richard Neal (D., Mass.) and other Democrats have pressed Mr. Brady to give them time to review any major changes in the works.

The problem, Mr. Neal said, is that Republicans' tax-cut goals outpace their $1.5 trillion budgetary limit, forcing them to scramble when problems arise.

"The dilemma has been clear. You can't put a size 12 foot in a size 7 shoe," he said. "It appears to me as though substantial change is coming in their proposals."

Democrats have been hammering the GOP bill, arguing that it benefits high-income households and removes valuable deductions for items such as medical expenses and student loan interest.

The shape of a companion Senate tax plan was in flux Wednesday, with Republicans on the tax-writing Finance Committee set to hold more meetings later in the day. Senate Republicans said they were aiming to release their tax plan Thursday.

One of the main policies yet to be worked out was whether to delay for a year a planned cut in the corporate tax rate to 20% from 35%. Senate Republicans, who were coming under White House pressure to immediately implement the rate cut, said they still hadn't settled the question.

"The goal is to get the cut started as quickly as possible. The only question is what the definition of 'as quickly as possible' is, and whether that's a year, whether that's January -- we have not determined that as far as I know," said Sen. Tim Scott (R., S.C.), a member of the panel. "It hasn't been locked in."

Treasury Secretary Steven Mnuchin has called the 20% corporate rate one of the most important elements of the tax plan.

President Donald Trump "feels very strongly he wants to start this right away," he said Wednesday. "Having said that, we'll have to look at the entire Senate package. I assume it's really just a money issue as to how they're moving the different pieces around."

Republicans are still optimistic about their chances of passing a major rewrite of the tax code.

But the fluctuating revenue estimates of the House bill present a new challenge. The 20% excise tax that House Republicans put in the bill they unveiled last week was designed to prevent companies from shifting profits out of the U.S. to low-tax countries, and the original version generated $154.5 billion over a decade to help pay for other tax cuts. The tax would apply to payments from companies with U.S. operations to related parties in foreign countries.

After complaints from businesses, including foreign-based auto makers, Republicans made a series of changes, adopted on a party-line vote late Monday. According to the JCT, the amendments gave back $147.5 billion of that revenue.

Business groups said the changes didn't go far enough to address their concerns. It isn't clear whether Republicans will alter that tax further.

Other changes led to additional cuts of $13 billion, making the bill a $1.574 trillion tax cut -- beyond the revenue target of $1.5 trillion over a decade.

For technical budgetary reasons, the shortfall may be even greater.

Staying inside the revenue target isn't necessarily a fatal problem in the House, and Republicans have time to address the issue. But a shortfall would present a challenge in the Senate, where it could keep Republicans from passing the bill without Democratic votes.

Foreign taxes aren't the only area Republicans may adjust. Lawmakers have also talked about new changes for life insurers. And they are trying to respond to concerns about a 25% tax rate for pass-through businesses such as partnerships and S corporations.

Groups such as the National Federation of Independent Business say not enough businesses would benefit from the 25% rate. That is because professional-services businesses generally wouldn't get the break. Neither would businesses whose owners are in the 25% marginal tax bracket or below. The bracket above that would start at $200,000 for individuals and $260,000 for married couples filing jointly.

Any of those changes would require Republicans to find offsetting revenue elsewhere. One possibility emerged more clearly on Wednesday. JCT and the Congressional Budget Office released a new estimate showing that repealing the individual mandate to purchase health insurance would yield $338 billion over a decade.

Repealing the mandate generally raises money because fewer people would have insurance, and the government would thus spend less money on subsidies and Medicaid. But some Republicans worry about the political problems that come with adding health-policy questions to an already complicated tax bill.

Rep. Pat Tiberi (R., Ohio) said he was concerned about a piece of his party's plan that would eliminate tax-free private-activity bonds that finance hospitals, nursing homes and other projects. He said he was looking for a way to keep some of the program.

"The chairman has a really tough job, a balancing act that would be equivalent to someone on a circus wire," Mr. Tiberi said.

Write to Richard Rubin at richard.rubin@wsj.com and Siobhan Hughes at siobhan.hughes@wsj.com

(END) Dow Jones Newswires

November 08, 2017 22:04 ET (03:04 GMT)