Story highlights
The prevailing theme on tax reform: Getting something done trumps doing nothing
'Everything is good until it's not' is a smart way of thinking through this process
House Republicans are a little more than 24 hours away from voting on their tax proposal. Senate Republicans have introduced a politically toxic provision into theirs. The proposals differ quite a bit.
And yet, aides in both chambers say they are largely on track. House leaders remain confident they have the votes, according to multiple aides. Senate leaders, even in the wake of bringing the repeal of Obamacare’s individual mandate into their tax overhaul, believe they are in pretty good shape as well.
The usual caveat that there really is still a long way to go, and it only takes a few senators to throw this into a tailspin quickly. But as it stands, Republicans are very much on the surging toward a major legislative victory – and not just in the House.
What to watch today
- The House starts debate on the rule for the tax proposal
- The Senate finance committee enters day three of their mark up of their tax proposal
Your daily reading
- CNN’s Lauren Fox on Republicans putting it all on the table with the mandate repeal.
- CNN’s Tami Luhby deep dives the real-life ramifications of the mandate repeal.
Does the individual mandate repeal get Republicans closer to the finish line
In the end, this is probably the only question that matters from a strategic perspective. Here’s how it was laid out to CNN by one source involved in the process: “We wouldn’t have done it if we thought it would sink the bill outright. We’ve got a lot of work to do, but our guys had a chance to shoot this down and they chose not to do it. After we pulled the trigger the conference responded well. Can’t ask for much more than that.”
Bottom line: GOP aides describe early returns on this risky move as positive. If it holds, that’s a big, big deal.
The prevailing theme
CNN has spoken to dozens of aides and lawmakers involved in this process and all say some version of the same thing: they are stunned at how smoothly the process has gone up to this point.
Adding the individual mandate into this is unquestionably a risky play, but what it is more than anything else is a true test of the only thing everyone seems to agree is responsible for the progress thus far: that the political imperative to do something – anything – trumps everything else. It trumps concerns about individual provisions. It trumps concerns about outside interest groups. It trumps concerns that the plans will increase taxes for some. It trumps concerns that they will be undercut by the president at one point or another.
“Failure has a way of sharpening the senses,” was how one aide put it. “And so does the risk of losing one’s election.”
Why Senate Republicans added Obamacare changes
Revenue. Period.
GOP leaders in both chambers – despite the President’s repeated urging, both publicly on Twitter and, sources tell CNN, in private calls with top Republicans, were extremely wary of adding the health care into an otherwise smooth running process. But finance committee Republicans, along with leaders, came the conclusion the siren song of $338 billion in deficit savings (which the Congressional Budget Office projects repealing the mandate would create) was too difficult to resist.
The benefit of what they could add to the bill policy-wise, along with very real budget rule compliance issues, left it an option aides say they simply had to pursue. “It’s not like there’s a lot of places you can find an extra $300 billion laying around,” one aide told me. The added benefit of potentially accomplishing a separate significant policy goal at the same time as the tax overhaul is appealing to many in the rank-and-file as well, who still have the health care failures seared into their memories and are reminded of them every day by constituents and donors.
The risks
Two numbers: 13 million and 10%.
The former, the number of individuals fewer that would have health insurance over the course of 10 years, according to CBO. The latter, the amount the CBO projects premiums would go up in the majority of years in that 10 year window.
Those are the kinds of numbers that helped sink the Obamacare repeal effort, motivated Democratic grassroots to rain down opposition in phone calls, town halls and protests. Revving up a Democratic base that hasn’t seized on the tax issue in the way they did health care is something GOPers have been nervous about for weeks. And you better believe this will do that.
Where the senators stand
All eyes are on the three senators who effectively sank the Obamacare repeal efforts – John McCain, Lisa Murkowski and Susan Collins.
McCain told reporters he was leaning yes on the bill, and that the inclusion of the individual mandate repeal wasn’t a significant problem. Both Collins and Murkowski voiced concerns about the premium increases that may result from the repeal, but notably, neither rejected the idea outright.
Part of the plan
According to several GOP senators and aides, one of the ways GOP leaders will attempt to assuage concerns about rate increases will be to separately put the health care compromise legislation from Sens. Lamar Alexander and Patty Murray on the floor. There are two holes in that process, according to aides in both parties:
- There is no guarantee (and as it currently stands, little chance) Democrats will sign onto it knowing it’s effectively part of a tax plan that repeals the individual mandate. And Republicans need Democrats to pass Alexander-Murray.
- House Republicans have had zero desire to pass Alexander-Murray. They will need to move off that strongly held position for this to be considered a legitimate side play to get Collins, Murkowski et al on board.
Important side story
The budget, which serves as the vehicle for the tax overhaul, also included reconciliation instructions for the Senate energy and natural resources committee to come up with $1.1 billion in deficit savings or revenue.
Murkowski is the chair of that committee. Murkowski has been pushing for years to open up Alaska’s Arctic National Wildlife Refuge to oil and gas drilling.
It just so happens that to comply with the reconciliation instructions that Murkowski has drafted a bill that does just that. Tough to overstate how big of an issue this has been for her. She now has the vehicle to get it done, finally. Pretty tough to vote against that in the end.
What the mandate repeal actually got Republicans
The Senate finance committee released the revised version of its bill late Tuesday night. Here are the highlights:
- Repeals the individual mandate
- Increases the child tax credit to $2,000, from $1,650 in the original proposal and $1,000 in current law
- Rate reductions: the 22.5% rate drops to 22%. The 25% rate drops to 24%. The 32.5% rate drops to 32%.
- Revisions to allow pass-through businesses with income up to $500,000 for married couples and $250,000 for individuals have an easier path to get the full 17.4% deduction
Oh yeah, and this
The revised version of the bill creates a massive future fiscal cliff.
All of the individual tax cuts, plus the higher standard deduction, plus the repeal of the alternative minimum tax, would sunset on December 31, 2025.
This is being done entirely for reconciliation compliance purposes – this is how you squeeze a bill of this magnitude inside the requirements that it doesn’t add a penny to the deficit after 10 years.
GOP aides tell me there’s no way Congress would allow massive, across the board tax increases. But man, oh man, is that quite a cliff – and a lot of faith future congress will actually get something done.
What this will also mean
The expiring tax cuts, plus the shift to a less generous inflation measure, ensures that the analyses of the final years of the decade will look particularly bad for Republicans – as in, significant tax increases. Expect Democrats to highlight that and for it to become a major political issue for Republicans … fast.
By the way: The revised version solidifies that the corporate rate, slashed to 20% from 35%, would be permanent.
Of note: There are lots of potential sweeteners for lawmakers and industries in the revised bill – nothing dramatic, but provisions with a very clear purpose. See ‘em all here.
Don’t forget the House
As noted, House leaders feel like they’re well on their way to passage of their tax proposal Thursday. They will spend Wednesday debating the rule for the bill, then take the bill up Thursday. The House chose not to add the individual mandate repeal for a couple of reasons – one, they want the Senate, which has been the graveyard for health care proposals up to this point, to prove they can actually get it done first. Probably more importantly: they believe they have the votes on their proposal. No reason to screw around with it.
As one aide put it plainly: “Don’t mess with the count when the count is good.”
Bottom line: House leaders will agree to keep the mandate repeal in if it gets through the Senate.
What roadblocks remain
“Everything is good until it’s not” is a smart way of thinking through the legislative process. Top GOP aides think things are in a good place right now, but our fully aware that things can spin out quickly – very quickly. Here’s a partial list of the very serious potential problems are still very much in play:
- Deficit hawks wary of the cost, especially given the individual side sunset
- Tax increases on the middle class (and, uh, for everyone after 2025) as the bill is scored
- The pass-through business rate in the Senate is a very different approach than the House, and still hasn’t gotten the sign off of Sen. Ron Johnson. It was made more generous in the revised version, and it’s backed by the NFIB, so we’ll see where he stands. But this has always been one of the most complicated and important pieces of the tax effort.
- Multinationals revving back up against the international side of the overhaul.
- Homebuilders. Realtors. Mortgage Bankers. And now: Health Insurers. Doctors. Hospitals. AARP. These are really powerful interest groups with major constituencies on the Hill. They all have major problems with the bill GOP proposals and they don’t lose often.
But are Republicans still on track to finish by Christmas
Yep.
House on schedule to finish this week. Senate on schedule to finish its committee markup this week. Senate on schedule to vote the week after Thanksgiving. Then both chambers will reconcile their proposals.