In our comprehensive review of the GOP tax bill which was scheduled to be unveiled tomorrow, we noted the following key caveat "There are a lot of unknowns in this process, the biggest of which - of course - is whether the bill will be delayed from its scheduled Wednesday appearance." In retrospect, and in light of the conflicting reports about what may be contained in the final draft of the bill, this has proved prophetic because moments ago, Axios reported that week's 2nd biggest events - after Trump's announcement of Jay Powell as the next Fed chair - the release of the Republican tax bill is being postponed by at least one day, from Wednesday to Thursday.
The delay of the scheduled release, by the House Ways and Means Committee, reveals the difficulties the team has had in resolving how to raise enough money to pay for the massive corporate tax cuts. Political hot button issues — like the treatment of 401k savings — are still in flux. The delay shouldn't affect the timing for the mark-up, which is expected to happen Monday.
Separately, the Hill adds that the GOP now says the bill will be released on Thursday as lawmakers scramble to reach a consensus on how to restructure the nation’s tax laws.
Fights over possible changes to the tax status of 401(k) retirement plans and the state and local taxes deduction are at the center of the delay. Lobbyists chattered throughout the day over whether Wednesday’s big unveiling of the GOP tax package would have to be delayed as it became clear that lawmakers were differing over various reductions.
Hours before the decision was made to punt the release for a day, Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters that he intended to release text of a bill Wednesday — but that it would not be a chairman’s mark. This would allow Brady to make changes to the text through the weekend ahead of a planned markup on Monday in the Ways and Means Committee.
President Trump had sought to quash any changes to 401(k) plans last week, but it has become clear that Republicans have not stopped talking about shifting the tax status of the plans as they seek to ensure their bill does not add to the deficit after its first 10 years. Republicans have discussed lowering the amount people can put into their retirement plans before taxes, which could increase the amount of revenue initially hit by taxes.
Brady appears to be moving toward a compromise that would allow a deduction for local property taxes — a concession that could win at least some support from the blue-state Republicans. “I think we're moving in the right direction,” Rep. Leonard Lance (R-N.J.) said on CNN Tuesday.
The bill's unveiling would launch the GOP's blitzkrieg effort to try to pass legislation by Thanksgiving and trigger a lobbying bonanza from both supporters and opponents. Any delay in the bill’s introduction is not helpful giving the time pressures, though the delay of one day would not affect the planned Monday markup.
Meanwhile, earlier on Tuesday Bloomberg reported that Republican tax writers were planning to keep the top individual income tax rate unchanged at 39.6%.
The top rate may apply to taxpayers with adjusted gross incomes of about $1 million and higher, said the people who asked not to be named because the discussions are private. Currently, the 39.6 percent rate kicks in at $418,400 of taxable income for single filers and $470,700 for married couples filing jointly.
The White House and GOP leaders’ tax framework released last month called for reducing the current seven income brackets to three -- 12 percent, 25 percent and 35 percent, with the flexibility for the tax-writing committees to add a possible fourth bracket for top earners.
The delay itself is not surprising as the final bill is expected to somehow reconcile numerous other, often conflicting items among which:
- Are middle-class cuts from the budget framework (like doubling the standard deduction and expanded child tax credits) included?
- Is the SALT deduction included (or capped in some way)?
- What level is the corporate tax rate (over/under Trump’s 20% target)
- Is there a fourth tax bracket (rumblings suggest incomes above 1mm USD would be affected)
- Is the tax cut retroactive to Jan. 1, 2017?
- Is there a repatriation deal for money kept overseas?
- Does it add to the deficit? If so, how much?
- Will extraneous issues be slipped into the draft to entice specific voters?
- Minimum wage hike
- Border wall funding
- Debt ceiling compromise
- Planned parenthood funding
And much more. In light of this, the biggest surprise would be if the GOP actually manages to have a just one day delay.
This means that for markets Thursday is now shaping up as an especially painful day, with announcements due on not only the next Fed chair, but also the layout of the tax bill. The good news is that no matter what the "news" actually is, the market will hit new all time highs.