Senate Would Preserve AMT, GOP Senator Says: Tax Debate Update
(Bloomberg) -- The Senate tax bill is headed for a round of marathon votes Friday with the goal of holding a final vote by the end of the work week. Here are the latest developments, updated throughout the day:
Senate Would Create New AMT, GOP Senator Says (1:38 p.m.)
A revised version of the Senate tax bill includes a new individual alternative minimum tax to help pay for proposed changes, according to Republican Senator Mike Rounds of South Dakota.
The so-called AMT would have graduated increases, Rounds said. The original version of the tax plan called for repealing the AMT, which was originally designed to make sure wealthy households couldn’t use deductions or credits to pay little or no federal income tax. Over time, inflation has meant that larger numbers of people have paid the tax.
The individual AMT was responsible for 80 percent of President Donald Trump’s 2005 federal income tax bill of $38.4 million, on income of $152.7 million, according to pages of the return that were leaked in March.
Eliminating the individual AMT is estimated to cost $769 billion over a decade, according to the Joint Committee on Taxation.
The new Senate bill will also include a modified corporate AMT, according to Rounds. The initial bill would have eliminated it.
The revenue saved from the AMT changes would be used to help pay for modifications pushed by GOP senators whose support has been in question. Senator Susan Collins of Maine has called for preserving individuals’ state and local property tax deduction up to $10,000, as the House bill does. That change is estimated to cost about $100 billion over a decade, according to a House aide who asked not to be named.
Senators have also agreed to raise the rates that multinationals would pay on their accumulated offshore earnings to help finance a more generous tax break for partnerships, limited liability companies and other so-called pass-through businesses, Republican Senator Ron Johnson said. -- Laura Davison
McConnell Says “We Have the Votes” on Bill (12:40 p.m.)
Senate Majority Leader Mitch McConnell says Republicans have the votes to pass their tax bill.
A vote may come later Friday or early Saturday morning, according to White House Legislative Affairs Director Marc Short.
“There’s no doubt that repealing Obamacare -- that effort not succeeding -- put additional pressure on all of us to get tax relief done,” Short said.
One of the remaining holdouts -- Jeff Flake of Arizona -- said he supported the bill in a statement Friday afternoon after securing assurance that what he called a budget gimmick would be eliminated and that leaders would commit to work with him on finding a solution to protect immigrants who were brought illegally to the U.S. as children.
Democrats and many Republicans want to protect undocumented immigrants brought to the U.S. as children from being deported. Trump announced in September that he would end the Obama-era Deferred Action for Childhood Arrivals program in six months and that it was up to Congress to provide any further action. -- Erik Wasson, Sahil Kapur and Laura Litvan
Senate Bill Won’t Include Extra Tax Increases (11:56 a.m.)
The Senate tax bill won’t feature any mechanisms to ward against future deficit increases, according to GOP senators Ted Cruz of Texas, Lindsey Graham of South Carolina and James Lankford of Oklahoma.
The move is a blow to Senator Bob Corker, who had pushed for a trigger that would have increased taxes if economic growth didn’t meet revenue targets. After the Senate parliamentarian ruled a potential trigger violated the chamber’s rules, negotiations continued over including additional tax increases totaling about $350 billion.
Lankford, who had been pushing for the trigger as well, said he would vote for the bill even though his deficit concerns remain.
Senators have also agreed to raise the rates that multinationals would pay on their accumulated offshore earnings to help finance a more generous tax break for partnerships, limited liability companies and other so-called pass-through businesses, Republican Senator Ron Johnson said.
The revised Senate bill would tax companies’ offshore income at 14 percent for cash and 7 percent for earnings invested in less-liquid assets -- mirroring a provision in the House legislation, Johnson, of Wisconsin, told reporters. The initial Senate bill called for rates of 10 percent and 5 percent.
U.S. companies currently can defer taxes on their foreign earnings until they return them to the U.S. Companies have an estimated $3.1 trillion stockpiled offshore. -- Erik Wasson, Steven T. Dennis and Kaustuv Basu
Senate Said to Preserve Property Tax Break (11:32 a.m.)
The Senate tax bill will include a measure preserving the state and local property tax deduction for individuals up to $10,000 -- mirroring the House bill in that regard, according to a person working on making changes to the bill. The person asked not to be named because the discussions are private.
The current version of the Senate tax bill calls for a full repeal of state and local tax deductions, which include property, income and sales taxes.
Republican Senator Susan Collins of Maine has been pushing for preserving the break for property taxes up to $10,000. -- Sahil Kapur
Collins Says She’s Still a Holdout on Bill (10:45 a.m.)
Republican Senator Susan Collins of Maine said she hasn’t announced her support of the tax bill yet, adding it’s “amazing” that No. 2 Senate Republican John Cornyn would say the plan has 50 votes to pass.
Still, Collins said there’s been “very good progress.” Collins wants to expand the child tax credit, maintain a deduction for state and local property taxes and secure separate legislation aimed at stabilizing individual insurance markets.
Cornyn of Texas earlier implied that Collins backed the bill, and said leaders were still hoping to get Bob Corker of Tennessee and Jeff Flake of Arizona on board.
“We’re confident of the 50 and we’d like to build on that,” Cornyn said.
Another potential holdout -- James Lankford of Oklahoma -- supports the bill, according to Darrell Jordan, a spokesman for the lawmaker.
Senate Finance Chairman Orrin Hatch also said that he thought Collins would be on board, along with Lankford.
“I think they’ll be with us,” Hatch said. “I have no doubt about it.”
Senate leaders need 50 of their 52-member GOP caucus to approve a tax bill. Vice President Mike Pence could break a 50-50 tie.
Corker, Flake and Lankford have expressed concerns about the bill’s anticipated expansion of federal deficits. -- Erik Wasson and Laura Litvan
Higher Pass-Through Break Wins Holdout’s Vote (8:50 a.m.)
The Senate tax bill will be revised to include a larger tax break for partnerships, limited liability companies and other so-called pass-through businesses -- winning the support of holdout Senator Ron Johnson, an aide to the Wisconsin Republican said.
Johnson and GOP Senator Steve Daines of Montana had been seeking a more generous tax break for the closely held businesses.
The initial bill would have allowed owners of such businesses to deduct 17.4 percent from their business income for tax purposes -- subject to certain income thresholds. The newest version of the bill will increase that deduction to 23 percent, Daines said.
It wasn’t clear Friday morning how Senate tax writers would offset the cost of a more generous deduction. Johnson has suggested eliminating a corporate tax deduction for state and local taxes -- similar to an individual repeal that’s already in the Senate bill.
Senate tax writers are expected to reveal changes to their bill Friday, with the chamber scheduled to resume votes related to the measure at about 11 a.m. The process hit a snag on Thursday evening over some senators’ deficit concerns. The nonpartisan Joint Committee on Taxation found Thursday afternoon that the bill as written would increase federal deficits by roughly $1 trillion over 10 years -- even after accounting for any economic growth it would produce.
The delay shook some tax-sensitive bank stocks. Bank of America Corp. was down 1.2 percent pre-market; JPMorgan Chase & Co. was down 1 percent. Wells Fargo & Co. was down 0.9 percent; Goldman Sachs Group Inc. and Morgan Stanley were both down 0.8 percent. --Erik Wasson
Senate GOP Working to Address Deficit Concerns (8:14 a.m.)
Senate Republicans made a lot of progress overnight in crafting a new approach to address deficit concerns in their sweeping tax legislation, according to a Senate GOP aide.
More work remains in the next few hours, said the aide, who asked not to be identified because the discussions are sensitive. The Senate is scheduled to hold its first votes of the day at 11 a.m. on a pair of Democratic motions as GOP leaders try to salvage the legislation, which they see as vital to their political fortunes.
Senator Steve Daines, a Montana Republican, said Friday morning he backs the tax plan. He said in an interview that he thinks the bill will pass without a deficit-cutting mechanism sought by GOP Senator Bob Corker of Tennessee.
"That’s going nowhere," he said. "What Bob was suggesting is just causing more problems." Daines said he would oppose changing the bill to retain the alternative-minimum tax or to add another tax increase.
After failing to score any major legislative victory since President Donald Trump took office -- including a repeal of Obamacare that they’d promised for years -- Republicans have put all their chips into the most sweeping rewrite of the U.S. tax code in three decades.
If passed, it’s likely to be a centerpiece of their 2018 congressional campaigns, which will decide control of the House and Senate. Depending on the contours of the final tax package, the legislation is likely to feature prominently in Democratic campaigns as well. -- Erik Wasson
Senate Republicans Work to Salvage Tax Bill (4:00 a.m.)
Senate Republicans are struggling to salvage sweeping tax legislation they see as vital to their political fortunes amid an intra-party squabble over deficits that may undercut Trump’s promise of lasting and broad rate cuts.
Majority Leader Mitch McConnell called off a planned series of votes on the tax measure until Friday morning as he and other leaders negotiated their way around objections from three GOP senators that the measure, cobbled together in a matter of weeks, would explode federal budget deficits and add to the national debt.
Some of the solutions that were debated late Thursday night --including letting some taxes rise for individuals and corporations within six or seven years -- threaten to dissolve the precarious Republican majority for the legislation.
They also risk creating a stalemate with the House, where hardline conservatives could throw up roadblocks to reconciling differences if the Senate version waters down tax cuts for businesses and individuals. The House is moving toward naming their members to a conference committee by Monday night.
“We’re trying to get to a point where nobody is going to get exactly what they want but enough to get the bill passed,” Senator Thom Tillis of North Carolina said.
After failing to score any major legislative victory since Trump took office -- including a repeal of Obamacare that they’d promised for years -- Republicans have put all their chips into the most sweeping rewrite of the U.S. tax code in three decades. If passed, it’s likely to be a centerpiece of their 2018 congressional campaigns, which will decide control of the House and Senate. Depending on the contours of the final tax package, the legislation is likely to feature prominently in Democratic campaigns as well.
The plans from both chambers already were well short of the promises made by Trump that middle-income Americans would be the biggest beneficiaries and the pitch by Congressional Republicans that the tax cuts would generate enough economic growth to pay for themselves.
An analysis released Thursday by the Joint Committee on Taxation, Congress’s official scorekeeper, concluded that the Senate bill would boost gross domestic product by about 0.8 percent on average over the next 10 years. But that still wouldn’t cover the loss of government revenue, leaving a shortfall of roughly $1 trillion over the decade, the JCT said.
The nonpartisan Congressional Research Service concluded separately that under the Senate plan, Americans making between $500,000 and $1 million a year would see the biggest percentage increases in their after-tax income, but taxpayers making less than $30,000 would see their after-tax income decline as soon as 2021.
Most Republicans brushed aside those conclusion. “I think it’s pretty clearly wrong, but it’s their opinion,” Senator John Cornyn, the No. 2 Republican in the chamber, said of the JCT analysis.
But the momentum to pass the legislation in the Senate came to a halt Thursday night over deficit concerns and arcane parliamentary rules.
Two of the three Republican holdouts over a procedural vote -- Corker and Jeff Flake of Arizona -- had tied their support to a complex mechanism that would trigger tax increases if government revenue targets weren’t met. James Lankford of Oklahoma has also said he has deficit concerns. The third holdout -- Ron Johnson of Wisconsin -- has argued that pass-through businesses aren’t getting deep enough tax cuts.
But the Senate parliamentarian ruled a potential trigger violated the chamber’s rules, leading to a dramatic hour-long delay in action on the Senate floor.
The legislation is “still changing,” said Corker, who is retiring when his term is up after next year’s election and so is under less pressure to soften his stance to get something passed. “I’m trying to do the best I can to make it a better bill.”
Though Corker was one of three senators raising the deficit concerns, Senator Ted Cruz of Texas was among the Republicans singling him out, ignoring other potential opposition.
Cruz said he “absolutely” will fight Corker’s effort to add taxes back to the Senate’s tax bill.
"Fifty-one senators want to cut taxes," Cruz said. "One is trying to raise taxes. That’s not right."
Lankford said the Senate parliamentarian hadn’t issued a formal ruling yet on a trigger, and Cornyn later tweeted members were still exploring options for triggers.
Cornyn said Corker “latched on” to the analysis by the JCT and is insistent that there should be no added deficit. He said there’s been a discussion of a “stair-step” approach in which taxes would rise beginning in the sixth year of enactment if revenue targets aren’t met.
Cornyn said his preference would be not to add taxes, "but what I want most is 50 votes." -- Erik Wasson, Steven T. Dennis, Sahil Kapur and Laura Litvan
What to Watch on Friday:
- Senate votes are scheduled to resume at 11 a.m. on Democratic motions.
- Senate leaders may release details of how they will address concerns about future deficits as well as other objections from Republican lawmakers.
- Numerous amendments will be proposed and voted on, leading up to what Republican leaders are expecting to be final passage by Friday night.
Here’s What Happened on Thursday:
- Senate Majority Leader Mitch McConnell suspended votes after a key compromise on dealing with deficits collapsed.
- An analysis by the Joint Committee on Taxation found that the Senate tax bill would generate enough economic growth to lower its $1.4 trillion revenue cost by only about $458 billion over a decade.
- Republican John McCain of Arizona said he would support the tax bill, a key vote for party leaders who can afford to lose only two of the members to pass the legislation. McCain’s statement added to the already buoyant sentiment in the U.S. stock market.
- Senator Susan Collins of Maine said it “would be very difficult” to support the Senate tax bill unless Congress agrees to preserve an individual deduction for state and local property taxes and passes separate legislation to support the individual health care market.
To contact Bloomberg News staff for this story: Erik Wasson in Washington at email@example.com.
©2017 Bloomberg L.P.
With assistance from Erik Wasson