Significant Differences in Senate vs House Tax Overhaul Plan: Will Anything Get Done This Year?

There are significant differences between the House and Senate versions of the tax overhaul. Unlike the House, Senate Republicans cannot afford to lose more than two votes. Also unlike the House, the Senat has budget rules that must be met. Will the differences be resolved in reconciliation?

Two Votes to Spare

With only a 52-48 majority Republicans can afford to lose at most two votes in the Senate. In that case Vice President Mike Pence would break a tie.

The House added to budget negotiation difficulties by bumping up taxes on multinational corporations and exempting car dealers from a limit on interest deductions.

Exempting car payment interest? Really? What on earth for?

Greg Valliere, chief global strategist at Horizon Investments accurately sums up the situation: “There isn’t enough money to pay for everything that each house wants. Something has to give, most likely corporate tax relief, which may not be as generous as proponents expected a few weeks ago.”

Byrd Rule

The Senate must abide by the Byrd Rule. That's a requirement that the overhaul cannot increase deficits beyond the first 10 years.

Of course, no one can accurately predict such things in the first place. Nonetheless, if the non-partisan Congressional Budget Office makes that determination, the bill requires 60 votes to pass.

And right now we can say House Bill Does Not Meet the Byrd Rule.

The Tax Cuts and Jobs Act will add $155 billion to the deficit in 2028, the year after the 10-year budget window ends in 2027.

One dramatic option for making the tax bill Byrd-compliant would be to let some portion of the corporate and individual tax cuts sunset and expire after 10 years.

Allowing the corporate rate to sunset would not be an attractive option for Republican lawmakers. CRFB notes that some conservative leaning think tanks have said doing so would undermine business investment, and potentially be more anti-growth than no cut to the corporate rate.

Making individual tax cuts temporary, as was done under the Bush administration, would also be politically perilous, as it would amount to a tax increase for households in the foreseeable future.

Other Byrd Rule Violations

The Hill note other Byrd Rule Violations.

The House Bill “generates $74 billion in 'off-budget' revenue for Social Security, including $53 billion in additional revenue from certain business income being reclassified as wage income as well as other smaller provisions increasing the amount of taxable wage income. The Senate Parliamentarian may rule some of these provisions to be direct enough changes to the Social Security payroll tax that they cannot remain in the legislation without it losing privilege."

Seven Tax Brackets

The House plan had only four tax brackets, The Senate version has seven.

Questions of the Day

Will the resultant sausage benefit the middle class or will it just just shift some winners and losers around a bit?

Mike "Mish" Shedlock

Yes, the more you have the worse it is. BTW, if they are looking for offsetting revenue why aren't they considering the "angel of death" loophole? Getting rid of that is worth at least $1T over 10 years and would remove a distortion from peoples financial decisions.

How is it going to look for Republicans in 2018 if they run on a record of voting against a tax decrease AND leaving Obamacare in place? I can't see the base coming out to support those candidates.

'I can't see the base coming out to support those candidates.'

'I can't see the base coming out to support those candidates.' Ithink they'll be opposed in the primaries.

This bill is an unbelievable assault on the upper-middle class. They are trading personal exemptions for estate tax exemptions for people inheriting tens of millions of dollars. They are going to collapse the housing market with the SALT & mortgage restrictions, while continuing to tax hedge-fund managers at 15%. This is tax simplification? Someone explain in plain language the proposed rules on pass-through income. This is a flatter tax? This will increase the current 47% of the population who pay NOTHING while killing professional people, two income families with children and (genuinely) small business people.

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With establishment hacks continuing to say "we must find a way to pay for the tax cuts", ignoring the obvious solution of cutting spending, of course the answer is we are only shifting the chairs around on the Titanic.

Congress, especially the Senate, is heavily populated by the War Party and they are not going to give up the tax money that funds their bloody adventures.

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