"Make Or Break": Senators Push For Sweeping Changes To Tax Bill As GOP Leaders Struggle To Vote It Out Of Committee

With roughly 14 sessions of Congress left before the New Year break, the GOP’s chances of passing comprehensive tax reform by the end of the year – as the White House has promised to do - are looking increasingly remote. So far, the biggest obstacle – as with the Republicans disastrous failure to repeal and replace Obamacare – is the Senate, where disparate groups of lawmakers are opposing the bill for different, and sometimes contradictory, reasons.

In what has been called a "make or break" marathon negotiating session, at least two Senators have come out against the bill in its current form, sending the administration scrambling to hammer out a compromise on the pass-through rate that would entice Wisconsin’s Ron Johnson and Montana’s Steve Daines to vote ‘yes’.

But according to Bloomberg, the bill could get held up in committee, largely thanks to the opposition of the two senators named above, who are working to block it even as the leadership desperately tries to secure passage by end-of-day. To keep up with Mitch McConnell’s timetable, which would see a floor vote on Thursday, Republicans must successfully shepherd it through the budget committee by early Wednesday at the very latest.

As Bloomberg explains, normally the Senate Budget Committee vote on the tax legislation would be a mere formality. However, given Republicans’ razor-thin majority on the committee a single dissenting senator could block the bill. So far, two of the 12 Republicans on the committee have expressed serious reservations about the bill that they say will prevent them from voting on it. Senator Ron Johnson of Wisconsin wants a deeper tax cut for pass-through businesses - and says he won’t vote for the bill as written. Senator Bob Corker of Tennessee wants a provision that would impose tax increases if the bill doesn’t generate enough economic growth to cover the $1.4 trillion in revenue losses it’s estimated to produce over 10 years.

“I’m not exactly sure what’s going to happen in committee, we’re working diligently to fix the problem,” Johnson told Wisconsin reporters on Monday, according to his office. “If we develop a fix prior to committee, I’ll probably support it but if we don’t, I’ll vote against it.”

As of Monday night, no deal had emerged. “We’re still negotiating, let’s put it that way,” said Senator John Thune, the chamber’s third-ranking Republican leader.

In a last-ditch attempt to whip up votes, President Trump will lunch with Republican senators today just before the committee convenes to debate the bill, and possibly hold a vote.

But even if the bill manages to clear the budget committee on Tuesday, there appears to be enough opposition to render a floor vote dead in the water, as the WSJ reports.

One group, including Ron Johnson (R., Wis.) and Steve Daines (R., Mont.), wants deeper tax cuts for so-called pass-through businesses such as partnerships and S corporations that pay taxes on individual rather than corporate tax returns. Both said they want to prevent large corporations from deducting state and local taxes, freeing up money to drive down rates for pass-through firms. They said they would like to support a tax bill but can’t do so yet.

 

Another group, including Bob Corker (R., Tenn.), Jeff Flake (R., Ariz.) and James Lankford (R., Okla.), is concerned about the $1.4 trillion addition to budget deficits the bill would cause, and these senators are wary that it won’t generate enough economic growth to pay for itself.

 

A third group, including Susan Collins (R., Maine) and John McCain (R., Ariz.), helped kill the Republican health-care bill earlier this year and could pose resistance over a variety of provisions, including plans to repeal the Affordable Care Act’s health-insurance mandate as part of the tax bill. Mr. McCain said Monday that he is still undecided and had “a lot of things” he is concerned about.

As we noted yesterday, without a single major legislative victory for the Trump administration and its Congressional allies, it is hard to understate just how critical a victory on tax bill is with year-end fast approaching - especially amid concerns that the Democrats could triumph in the Alabama election, which has given the fight an added sense of urgency. Passing tax reform is enough to keep Republicans occupied until year end. Unfortunately, they’re also facing a “nightmare” list of legislative priorities that could great serious problems for the administration – including a federal government shutdown – if they aren’t handled accordingly.

Of course, even if the senate does pass the bill, the reconciliation process presents another grueling challenge because the House and Senate plans have many major differences.

Back door deals aside, here are the next steps:

  • On Tuesday, the Senate Budget Committee is scheduled to meet on the tax legislation at 2:30 p.m. The panel, which has 12 Republicans and 11 Democrats, could decide to send the tax bill to the Senate floor. Trump is also scheduled to attend the regular policy lunch held by Senate Republicans.
  • If all goes well for GOP leaders, the Senate may begin floor debate, which would culminate perhaps Wednesday or Thursday in a “vote-a-rama" - a chaotic session in which any senator can offer an amendment to the bill. Democrats would be expected to offer a variety of amendments designed to damage, delay or derail the measure - which may lead to some political fireworks. The voting would probably take place overnight.
  • If Republicans have the 50 votes they need, Senate leaders may call for a floor vote on Thursday or Friday.
  • That said, at least one group of Wall Street strategists believes the Senate could still pass their version of the bill by the end of the week. The team at Goldman Sachs, led by chief economist Jan Hatzius, maintained in a research note published Tuesday that tax reform legislation looks likely to pass the Senate by the end of the week.
  • “In a preliminary step, we expect the Senate Budget Committee to pass the bill tomorrow (11/28), with a procedural vote on the Senate floor Wednesday (11/29), votes on amendments on Thursday (11/30), and a vote on final passage Friday (12/1).”

However, even Goldman – which has persistently touted strong odds of passage (perhaps in a nod to their former leader, Gary Cohn, who has helped manage the bill and who will likely shoulder some of the blame if it fails) - admits that if the Senate can’t pass it by the end of the week, “enactment by year end will become more difficult."

If that happens, Republicans will probably be forced to table the issue until next year. Luckily, President Donald Trump has already tested a few excuses, after all "it took the Reagan administration months to pass tax reform."

But will investors accept Trump’s reassurances in good faith, given the administration’s embarrassing failure to repeal and replace Obamacare? Indeed, if investors pull the rug out from under the Trump administration, it will likely become even more desperate to pass the bill.  At that point, we wouldn't be surprised if Trump offers Democrats major concessions to try and win a handful of votes from the opposition – even if it’s ultimately a bluff to coax intransigent Republicans to fall in line.