Having sworn themselves to secrecy, Republicans on the House Ways and Means committee are scrambling to put together a tax bill by next week. But not knowing anything about the details of the plan, as it stands right now, hasn’t stopped an army of lobbyists from mobbing Capitol Hill with one overweening mission: To threaten, cajole or otherwise coax lawmakers into preserving loopholes that benefit their clients.
The stage was set with the House’s adoption Thursday of a budget resolution designed to speed the course of tax legislation and kick off a three-week sprint toward a House bill. Now, lobbyists representing every corner of the economy are poised to first devour, then attack what may be hundreds of pages of legislation that Brady says he’ll release Nov. 1.
Special interests from realtors to dairy farmers will be trying to save their industry-specific tax breaks, said Tim Phillips, president of Americans for Prosperity. His group, which is backed by billionaire industrialists Charles and David Koch, supports ending such breaks.
“It’s pretty fierce,” Phillips said. “We met with Brady on Tuesday and he was saying their offices are swamped with all the special interest groups swarming in asking to be protected.”
The immense pressure to find a source of revenue to compensate for the sweeping cuts to corporate and individual rates has already nearly derailed the tax reform process. Yesterday, House Republicans narrowly approved the Senate version of a $4 trillion federal budget over the objections of 20 blue-state Republicans who oppose the elimination of the state and local tax deduction, which they say would disproportionately raise taxes on middle-class taxpayers in blue states, which tend to have higher taxes. Yet, Ways and Means Chairman Kevin Brady has said the elimination of the SALT deduction will stay in the bill - for now, at least.
On a static basis, the nine-page outline introduced by the White House and GOP Congressional leaders last month will cost $2.4 trillion over the first decade and $3.2 trillion over the second decade, according to an analysis by the nonpartisan Tax Policy Center. The TPC also found that 80% of the benefits from tax reform would accrue to the top 1% of earners. Republicans who are writing the bill must somehow reduce the impact on the deficit to $1.5 trillion, while adhering to President Donald Trump’s promise that middle-class Americans would be the biggest beneficiaries of the tax overhaul.
Still, it remains to be seen which groups will lose their benefits. According to Bloomberg, even Republican members of Ways and Means don’t know what will be preserved and what will be eliminated.
That could make releasing the bill by the Wednesday deadline difficult.
“The problem is that Ways and Means has somewhat been kept out of the loop with details,” Representative Jim Renacci of Ohio, a member of the House tax-writing panel, said in an interview. “There are still a lot of hurdles to get it done.”
As Bloomberg points out, the elimination of the SALT deduction has become one of the most divisive issues surrounding tax reform. Trump and congressional leaders have proposed abolishing that break, which benefits high-tax states that tend to vote Democratic. But several Republican House members from such states want to preserve the break in some form.
“Can you get people to put their party loyalty above home-grown constituents’ concerns?” said Hollier, a former chief of staff and legislative director for Senator Mike Crapo, an Idaho Republican. “How they deal with that will show that people can be broken.”
And unsurprisingly, corporate lobbyists, who are used to their clients’ interests being given priority in Congress, are upset with the Republicans’ decision to keep other details of the bill under wraps.
Will Hollier, whose clients include Microsoft Corp. and Visa Inc., told Bloomberg that secrecy is a double-edged sword: The secrecy has allowed for some efficiency, but it’s also prevented GOP leaders from winning broad support.
Which could create problems for the bill as it moves forward because, as Sen. Bob Corker told Bloomberg: “I don’t think that people realize that 80 percent plus of this effort is eliminating things in the code,” referring to special interest loopholes. Meaning that, once the bill’s details are made public, Republicans will need to guide it to the president’s desk over lobbyists’ objections.
“I mean, over the next two weeks, especially when the Senate tax-writing committee puts their stuff out, they’re going to realize that this the biggest tax code rewrite since 1986 and it’s going to affect everyone,” Corker said.
Lobbyists have already started pushing back against details in the nine-page outline that would raise taxes on corporate America. Those measures include the elimination of corporate deductions for interest payments – which could raise as much as $1 trillion over a decade – as well as a new foreign minimum tax that would affect corporations who shift profits to offshore tax havens
One of the ways to make up the revenue gap is by limiting the deductions corporations take on the interest they pay on their loans -- a major consideration for industries such as private equity and real estate. A prior House Republican proposal called for completely eliminating the corporate break, which could have raised more than $1 trillion over a decade.
“They’re totally undecided,” about how to restrict corporate interest deductions, said Marc Gerson, the chair of law firm Miller & Chevalier. Gerson said proposals include setting limits based on a company’s earnings before interest, tax, depreciation and amortization, or Ebitda, a key measure of profitability. Existing debt might be grandfathered in, he said.
Another piece of the framework is aimed at preventing U.S. companies from shifting their earnings to offshore tax havens -- by imposing a minimum foreign tax. The idea -- described briefly and obliquely in the framework language -- was called “appalling” several weeks ago by Ken Kies, a lobbyist whose clients include Microsoft and General Electric Co. The rate and formula for such a tax haven’t been specified, but the proposal carries multibillion-dollar implications for multinationals.
On the individual side, the treatment of state and local deductions remains in question. At least 12 Republicans from high-tax states, whose constituents stand to lose if the tax break is repealed, voted no on the House budget Thursday. The most vocal among them have demanded a compromise on the issue.
Given the number of parties involved, there are many obstacles to passing tax reform by the Republicans’ hoped-for deadline of year’s end, including the other issues on the Congressional agenda. Congress must fund the government to avoid a shutdown by Dec. 8. That could turn ugly as the White House has signaled it’ll demand funding for a border wall, and Democrats say they want a solution to protect young undocumented immigrants.
To be sure, there is one powerful political imperative that might force Republicans to swallow their objections: The fear that another legislative failure - especially one with the potential to tank financial markets - could cost Republicans one, or both, of their Congressional majorities.
House and Senate leaders hope to pass bills through their chambers by Thanksgiving, said Speaker Paul Ryan and Senate Majority Whip John Cornyn. The different bills would then have to be reconciled with another round of votes in December. Only then can Congress send the final bill to the president’s desk.