Congressional Republicans are on the precipice of scoring their first major legislative victory under President Donald Trump — an overhaul of the tax code that hasn’t happened in 31 years.
Despite unified opposition from Democrats, who have been excluded from the bill-writing process, and skepticism from several of their own members, Senate Republicans are pressing full steam ahead on the project. It includes major reductions in the individual and corporate tax rates coupled with the elimination or reduction of several tax deductions.
After a version passed the House earlier this month, Senate Republicans voted to open debate on the tax bill on Wednesday, setting up a key vote that could happen later this week and determine the bill’s ultimate success or failure.
Regardless of what happens with the bill, it promises to become a political football with repercussions affecting the 2018 election — ads and attacks targeting Republican Sen. Dean Heller and likely opponent Democratic Rep. Jacky Rosen have already begun popping up in the last week alone.
More importantly, the proposed tax changes will likely affect a large number of Nevadans — especially as the bill still carries a provision repealing the “individual mandate” in the Affordable Care Act requiring most people to have health insurance.
A spokeswoman for Nevada’s Republican Gov. Brian Sandoval, a staunch opponent of his party’s attempts to dismantle the Affordable Care Act, said in a statement earlier in November that he “recognizes and believes federal tax reform is necessary.”
But in an interview with The Nevada Independent on Wednesday, Sandoval listed a number of concerns that he’s had during the development of the bill: cuts to affordable housing programs under the House proposal, changes to bonding that would affect the cost of the soon-to-be-built Raiders stadium and a now-deleted proposal to eliminate the adoption tax credit — a provision that he said prompted at least one person to visit his office and urge him to oppose the tax bill.
He also pointed out the trouble with eliminating the individual health insurance mandate.
“It would disrupt the exchange, because if people aren’t required to purchase insurance, specifically those that are healthy … it’s going to change the dynamic,” he said. “At least the information I’ve seen is that it would cause the premiums to go up even more for those who remain, so that’s an issue as well.”
He said he hasn’t had as many conversations with the congressional delegation about the tax bill as he had during debate about repealing Obamacare, but said state staff — especially in the housing division — have been communicating with Nevada representatives about the implications for the state.
With many parts still moving, here’s a look at what the bill would do, how it affects Nevada and what the state’s representatives in Congress have to say about it.
What the bill does
Though many potential changes are still in the works, the current Senate bill broadly aims to:
• Reduce the tax rates and modify the income tax brackets for most individuals
• Increase the standard tax deduction and raise the child tax credit
• Repeal deductions for personal exemptions, certain itemized deductions and the alternative minimum tax — a levy designed to capture income that high-earning taxpayers are able to deduct from standard taxation
• Permanently modify the current corporate tax structure, reducing it to a flat rate of 20 percent
• Reduce rates for “pass-through” businesses — such as partnerships, proprietorships and so-called “S corporations” with fewer than 100 shareholders
• Permanently repeal penalties for not obtaining health insurance under the Affordable Care Act’s “individual mandate”
Outside of the repeal of the health insurance requirements, the tax provisions in the bill are scheduled to take effect on Jan. 1, 2018 and expire at the end of 2025.
Removing the health insurance mandate is projected to save the federal government about $338 billion over 10 years mainly because it wouldn’t have to pay out subsidies to as many people for the cost of premiums. By 2027, an estimated 13 million more Americans will be uninsured as a result of the mandate being repealed.
A report released Thursday by the nonpartisan Joint Committee on Taxation determined that the economic growth spurred by the tax package would bring in an additional $458 billion in tax revenue over the next decade. With the tax package estimated to cost more than $1.4 trillion, the bill is still expected to increase the deficit by $1 trillion.
The JCT projected that the bill would lead to an increase in the nation’s Gross Domestic Product by about 0.8 percent over the ten-year budget window.
The effects on individual taxpayers promise to be, at best, a mixed bag for the overall population. According to a report by the nonpartisan Joint Committee on Taxation that assessed the bill’s effect on tax returns without including effects from repealing the individual mandate, the measure in 2019 will result in a tax bill that’s $100 or more lower for nearly 62 percent of the population. About 31 percent will see no major change, and about 7 percent of individuals will see a higher tax bill.
But those reductions would evaporate by 2027, with nearly a fifth of taxpayers seeing their taxes rise by more than $100, while only 12 percent of taxpayers would see a decrease of more than $100 in their own tax bill. The majority of savings at that point will go to the wealthiest — more than 80 percent of taxpayers with incomes over $1 million will see a tax break of more than $500.
The Congressional Budget Office — a federal agency tasked with giving Congress nonpartisan scoring of various financial bills — released their own analysis of the Senate tax bill on Monday, but included the effects of repealing the health insurance mandate and the projected rise in premiums in their analysis.
The CBO report found that the Senate bill would, by 2019, lead to a higher tax burden among people with incomes lower than $30,000, though taxpayers on the whole would see a tax cut. By 2027, taxpayers with incomes below $75,000 would be projected to see a higher tax burden under the bill.
Republicans, including Finance Committee Chair Sen. Orrin Hatch of Utah, have argued that people in low-income brackets generally don’t pay income taxes, and that the appearance of higher taxes is actually covered by various government-provided health insurance subsidies, less important once the bill repeals penalties for not purchasing health insurance.
In addition to the major changes proposed in the Senate bill, the legislation also makes a variety of lower-profile changes to the tax code, including cutting taxes on alcohol production,
Like the existing law, the Senate plan has seven different tax brackets, but they’re broken up differently. Existing rates range from 10 percent to 39.6 percent, while the proposed rates range from 10 percent to 38.5 percent.
The House bill, by contrast, only calls for four brackets ranging from 12 percent to 39.6 percent.
politicians weigh in
Among members of Nevada’s congressional delegation, none are as enthusiastic about its prospects than Republican Sen. Dean Heller.
Heller has relentlessly promoted the bill in campaign emails and on social media, and has appeared at several events with White House officials including Treasury Secretary Steve Mnuchin and Ivanka Trump to tout benefits of the bill, primarily an increase in the child tax credit.
“By passing the Tax Cuts and Jobs Act out of the Senate Finance Committee today, Congress is one step closer to delivering tax relief to middle-class families in Nevada,” he said in a Nov. 16 statement.
Heller’s top primary opponent, businessman Danny Tarkanian, said in an email to supporters on Tuesday that he wholeheartedly supports “President Trump’s priority to secure tax relief” and would closely watch the delegation’s actions on the bill.
The other Republican in Nevada’s congressional delegation — Rep. Mark Amodei — took a hard look at the bill and didn’t publicly reveal how he would vote on it until the day of the vote.
Amodei ultimately voted in favor of the House version of the tax bill, saying that his staff’s conclusion was that the “vast majority” of his district would see a simplified filing and tax cut under the bill. He also brushed off complaints that the bill would substantially increase the federal deficit.
“For the newborn deficit hawks, clearly the objective of this legislation is to spur personal and commercial economic activity which will result in increased tax collections as a result of a growing and dynamic economy,” he said in a statement after the bill had passed. “While opinions vary on this, we believe the history lessons from the Kennedy Administration and the Reagan Administration are persuasive.”
Congressional Democrats — including those in Nevada’s congressional delegation — have vehemently opposed the bill. Democratic Sen. Catherine Cortez Masto panned the measure as a hypocritical move by a party that until recently had made reducing the federal deficit a major priority.
“It’s shocking that the party of fiscal responsibility voted for an irresponsible tax plan that will expand the deficit by $1.5 trillion while simultaneously raising taxes on 36 million working and middle class families,” she said in a statement when the House tax bill was passed.
In a guest column published Wednesday in the Las Vegas Sun, Rosen said she would be open to working on a bipartisan tax reform bill, but that the current effort would “throw millions of Americans under the bus.”
“Instead of this one-sided charade, it’s time for comprehensive reform on a broad bipartisan basis that will create a fairer tax code,” she wrote. “Trickle-down economics does not work, and tax reform should not be defined as partisan tax cuts for the wealthy and huge corporations.”
Rosen’s Democratic House colleagues — Reps. Ruben Kihuen and Dina Titus — are also opposed to the measure. Titus called the House bill a “red herring” that would raise taxes on lower-income people, while Kihuen called it a “shameless giveaway for special interests and corporations.”
Current political status
Senators voted Wednesday on party lines, 52 to 48, to begin debating their bill. A version of the tax reform plan had already passed the House Nov. 16.
Debate on the Senate bill is limited to 20 hours total under special fast-track rules Republicans are using so they can pass the measure with 50 people rather than 60 votes (and some Democrats) they would need under normal circumstances.
Then, there’s a “vote-a-rama” — a period in which the Senate votes on numerous amendments. After that, perhaps as early as sometime this week, the full Senate would vote.
If the bill succeeds, it will go to a conference committee, where members of the House and the Senate reconcile differences between their two versions of the tax overhaul.
While Democrats have little sway on the bill itself under the fast-track rules, their votes are needed in the near future — Congress must reauthorize spending by Dec. 8 to avoid a government shutdown. The spending bill is also expected to include aid for hurricane-battered locales such as Texas and Puerto Rico, and reauthorization of funding for the Children’s Health Insurance Program.
Democrats also don’t want to vote for a spending bill unless Congress also passes legislation to protect DREAMers — young immigrants who were brought to the country illegally as children. The Trump Administration in September ended the Deferred Action for Childhood Arrivals (DACA) program that was shielding many from deportation; recipients are not able to renew two-year work authorizations that expire in March or later and could become subject to deportation if Congress doesn’t impose a fix.
Potential swing votes
With a slim 52-48 majority, Republicans are trying to cobble together at least 50 votes by appeasing both “deficit hawks” in their party who are concerned that the tax bill will boost the federal deficit too much, and those who are most interested in cutting taxes as much as possible.
One proposal aimed at getting the hawks on board would trigger automatic tax increases if the country didn’t meet economic growth and tax revenue projections. That’s attracted a slate of opposition among conservative groups and lawmakers, especially in the House.
Rep. Jeb Hensarling (R-TX), for example, said the proposal was “a uniquely bad idea” because it could raise taxes amid a slowdown in the economy.
Heller said he’d support the idea if it’s needed to garner enough votes.
“Personally I prefer not to have a trigger, but I wouldn’t vote against the bill,” Heller said, according to The Associated Press. We’ll do what we can do to get Bob Corker’s vote.”
Others with concerns:
Maine Sen. Susan Collins said Tuesday that she was more optimistic about the tax bill after President Donald Trump seemed to warm up to an idea of allowing deductions of up to $10,000 in property taxes. That’s similar to a compromise in the House related to SALT (state and local tax) deductions that are frequently used in high-tax states. Collins is also wary of removing the individual mandate. While she supported the procedural motion to start debate, she still hadn’t committed Wednesday to voting on the overall tax bill.
Wisconsin Sen. Ron Johnson, who had expressed reservations about the bill and has concerns about tax rates for “pass-through” businesses.
Tennessee Sen. Bob Corker is a fierce “deficit hawk” who was concerned that the bill would balloon the federal deficit if rosy projections for economic growth do not materialize. He’s among the three senators pushing for tax increase “triggers.”
Oklahoma Sen. James Lankford is also pushing for triggers.
Arizona Sen. Jeff Flake is concerned about the deficit and supports triggers.
Updated at 1:15 p.m. on Nov. 30, 2017 to add information about a new analysis from the Joint Committee on Taxation.