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GOP Hopes Tax Bill Delivers A Happy Holiday

With the curtain about to descend on Year One of the Trump Era, Republicans have one final shot to translate their majorities into sweeping legislation.

Reforming the tax code goes to the very heart of GOP ideology. In short, this should be a slam-dunk followed by an extended victory lap that fires up the Big Mo(mentum) and carries the party into the midterms.

Alas, if the first 11 months of this recalcitrant GOP majority have taught us anything, it’s to expect dysfunction. The ongoing tax reform process looks no different.

Separate House and Senate bills were built around a tax cut that all Republican leaders from President Donald J. Trump on down are calling their No. 1 goal: slashing the corporate tax rate from 35 percent to 20 percent.

From there, the bickering starts. Similar to the health care acrimony, the GOP disunity is rooted in the wide-ranging concerns of its members.

The GOP is trying to find $1.5 trillion to pay for the corporate tax cuts. That means cutting, or eliminating, a series of popular deductions from across the spectrum.

The payoff, as Republicans see it, is a U.S. economy that charges to the forefront of a global economy marred by conflicts in many regions.

To be fair, hope shines from some Capitol Hill offices. Sen. Jerry Moran, R-Kan., spoke enthusiastically for a historic final tax bill: “I feel different than with health care, that there’s a greater likelihood that involves passage of tax reform.”

We break down the important components of tax reform, beginning with what’s at stake for financial services.

Financial Services. Two tax changes affect financial services and split into good news/bad news camps.

Good news: Tax writers in both the House and Senate leave intact the existing rules on 401(k) retirement accounts and the ability of Americans to contribute up to $18,000 into the accounts tax-deferred.

Bad News: Under both plans, the estate tax exemption would double immediately from the current $5.6 million for individuals and $11.2 million for couples.

The House would repeal the estate tax in 2024, while the Senate plan would keep it. Either scenario means a decreased need for big-case life insurance policies.

Cost. Various projections conclude the House/Senate tax bills will add $1.4 to $1.7 trillion to the federal debt over a decade. Proponents argue that higher growth will increase tax receipts and offset that figure.

Whether enough Republicans accept that argument is questionable.

“I remain concerned over how the current tax reform proposals will grow the already staggering national debt,” Sen. Jeff Flake, R-Ariz., told the New York Times, “by opting for short-term fixes while ignoring long-term problems for taxpayers and the economy.”

Comparing the House and Senate tax Bills

Perception and Politics. The politics will be fascinating to watch as the few remaining session days peel away from the calendar.

Republicans were chastened by the Nov. 7 election results. In particular, the Virginia governor’s race was expected to be a close match between Democrat Ralph Northam and Republican Ed Gillespie.

Instead, Northam coasted, and liberal/progressive candidates upset several

GOPers in the Virginia House of Delegates.

Pundits point to a fired-up Democratic base for the election success, while Republicans fear it could carry over into the 2018 midterms. Firing up the Republican base likely hinges on getting that tax reform victory lap.

Therein lies the conundrum.

Bolstered by independent analysis finding that the bulk of tax cuts will benefit the wealthiest Americans, opponents are effectively painting the tax reform plan as a giveaway to the rich.

The Tax Policy Center concluded that 25 percent of middle-class earners will pay higher taxes by 2027.

“I say to every one of my Republican colleagues in the House who come from a suburban district: This bill could be your political doom,” said Sen. Chuck Schumer, D-N.Y., from the Senate floor.

To make matters worse, a few Republicans spoke candidly of the need to get tax reform done to satisfy their antsy donors.

“The financial contributions will stop” if tax reform fails, said Sen. Lindsey Graham, R-S.C.

The Votes. Several Affordable Care Act repeal bills died in the Senate by a stray vote here and there, an occupational hazard of such a slim 52-48 majority.

Senate Majority Leader Mitch McConnell, R-Ky., learned that certain senators have pet positions that can’t be bargained away. Sen. Lisa Murkowski, R-Alaska, wanted Planned Parenthood covered. Sen. John McCain, R-Ariz., demanded fiscal responsibility. And so on.

There’s no reason to think a tax reform vote will be any different. A Dec. 12 special election to fill Attorney General Jeff Sessions’ Senate seat could cost the GOP another vote.

Republican leadership tried to snare a few Senate Democrat votes prior to releasing their plan, but it went for naught.

Already, Republicans are clamoring for tweaks. Sens. Mike Lee, R-Utah, and Marco Rubio, R-Fla., want a much bigger expansion of the child tax credit, which rose to $1,650 per child in the Senate version from $1,600 in the House bill.

The credit would now be available to families making up to $1 million a year, a big jump from the current $110,000.

“The Senate is not going to pass a bill that isn’t clearly pro-family,” Lee and Rubio said in a joint statement. “We look forward to working with our colleagues to get there.”

There is even an issue — the elimination of the deduction for state and local taxes (SALT) — that divides House Republicans from Senate Republicans. That deduction is a big value in high-tax states such as California, New York and New Jersey.

Those states are represented by Democrats in the Senate, but their House delegations include several Republicans. Not coincidentally, the Senate bill eliminates SALT, while the House bill retains the deduction for property taxes up to $10,000.

“I’m not voting for the $10,000, so I’m certainly not voting for zero,” Rep. Leonard Lance, R-N.J., told the New York Times.

Republicans have just two weeks to bridge these gaps. The Senate goes home for the holidays at the close of business Dec. 15.

 “The conversation, the negotiation, will continue until we arrive on consensus,” Sen. Ted Cruz, R-Texas, told CNN. “This is an ongoing discussion.” 

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. Follow him on Twitter @INNJohnH. John may be reached at [email protected].