House Republicans Rush to Release Tax Bill

One day after missing a self-imposed deadline, House Republican leaders were rushing to release a tax plan on Thursday, pressing ahead despite the hesitation of some Republicans from high-tax states who could be crucial to the bill's passage.

The White House and Republicans on the tax-writing House Ways and Means Committee said they were on track and ready to fill in such details as to which tax breaks they would drop or reduce to help cover the cost of the bill's individual and business tax cuts.

"There are some other issues at play here, and each one has its own constituency," Rep. Tom MacArthur (R., N.J.) said. The treatment of state and local taxes "is the only one that has the potential to blow up the bill. The introduction of the bill is really critical. They don't want a bill that is dead on arrival."

The last-minute negotiations reflected a Republican Congress that has found itself in a do-or-die moment, bumping up against its own Thanksgiving deadline to pass legislation through the House and aware that time was running short to have a major legislative achievement to show for President Donald Trump's first year in office. Mr. Trump is set to meet with House Republican leaders and Republican members of the House Ways and Means Committee on Thursday before he leaves for a 12-day trip to Asia.

After the legislation is released, House Republicans aim to steer the bill through the tax-writing committee starting Nov. 6, in what is expected to be a dayslong process.

Negotiations were also continuing over other issues, including the ability of businesses to deduct interest expense; the tax rates at which foreign earnings could be repatriated to the U.S.; how partnerships, limited-liability companies and other "pass-through" entities, would qualify for a new 25% rate; and whether to turn a portion of 401(k) plan contributions into something more akin to a Roth IRA, in which withdrawals may be made on a tax-free basis but contributions are made with after-tax dollars.

The tax treatment of pass-through entities flared up on Wednesday, suggesting a potential new flashpoint. Rep. Mark Meadows (R., N.C.), the influential chairman of the House Freedom Caucus, was pressing for a broad set of businesses to be eligible for the pass-through tax rate and expressed concern that some businesses, such as those that offer services, would be excluded. With pass-through businesses, such as partnerships and S corporations, owners pay taxes on their income at individual rates, rather than the corporate tax rate.

Mr. Meadows said the GOP shouldn't pick winners and losers among these businesses. "I want to make sure the pass-through rate for small businesses is actually a pass-through rate for all small businesses," he said. "Potentially that may not be the case and that's a problem."

Thirty-three House Republicans represent the top nine states whose residents benefit from the state and local tax deduction. With two vacancies in the House, the party can lose no more than 22 Republican votes if all Democrats remain opposed, as is expected.

The deduction is important in the New York metropolitan area, among other high-tax regions. Republicans from New York and New Jersey complained that they lacked information necessary to determine how their constituents would be affected by the multiple moving parts of the legislation.

A compromise on state and local taxes aimed at capping the deduction for property taxes, with $10,000 mentioned as one possible limit, but also on eliminating a deduction for state and local income and sales taxes.

That number was too low for some Republicans from high-tax states, and other Republicans insisted that the House GOP plan needed to preserve the deduction for state income taxes.

"We're still talking about the possibility of adding the income tax, either whole or part," said Rep. Claudia Tenney (R., N.Y.), who also said a breakdown of how the plan would affect her district showed certain groups not "seeing enough of a tax cut."

Meanwhile, Republicans were also in the dark about the income levels at which the plan's new tax brackets would take effect. Because of the interplay between income-tax brackets and tax deductions, Republicans from New York and New Jersey said they couldn't say whether they would be able to support the legislation, because they couldn't calculate how their voters would be affected.

The House GOP tax plan is expected to collapse seven tax brackets into four, with the highest rate remaining at 39.6% and a new bottom rate of 12%. The lowest current income-tax rate is 10%.

The GOP plan drops the corporate tax rate to 20% from 35% immediately, but the reduction would be temporary, as making the tax cut permanent would be too expensive under reconciliation procedures that Republicans are using to advance the bill without Democratic support. Republicans can't add more than $1.5 trillion to the federal deficit over 10 years and would still have to find many other sources of revenue to hit that target. In addition, they can't increase budget deficits at all after the first decade.

Democrats said that Republicans were entering the first stage of their tax rewrite with significant problems in rounding up the needed votes.

"This idea that everybody's going to be on board, because everybody's going to get what they want? It doesn't work that way," said Rep. Richard Neal (D., Mass.), the top Democrat on the House Ways and Means Committee.

The decision to delay the bill's release by a day left some Republicans frustrated by the length of time they have been left without knowing its details. Few outside of House Speaker Paul Ryan (R., Wis.), top GOP leaders and lawmakers on the Ways and Means Committee have detailed knowledge of the bill's provisions.

"Right now, there's some frustration across the board of our members as far as wanting more information," said Rep. Mark Walker (R., N.C.), chairman of the Republican Study Committee, a group of about 150 House Republicans. "We know this is going to be hundreds of pages, and to be able to take the time to process it fairly is something that's crucial."

Write to Siobhan Hughes at siobhan.hughes@wsj.com, Richard Rubin at richard.rubin@wsj.com and Kristina Peterson at kristina.peterson@wsj.com

(END) Dow Jones Newswires

November 01, 2017 20:37 ET (00:37 GMT)