Republicans took two enormous steps toward passing fundamental tax reform this week, further paving the way for historic reductions in corporate and individual tax rates.
In the House, the Tax Cuts and Jobs Act passed through the Ways and Means Committee after four days of debate and discussion. The markup brought some significant changes to the bill, including preserving the adoption credit, established a new tax rate for start-ups to help them get on their feet, and raises the threshold on taxes on private universities’ endowments.
“Today, the first and oldest Committee in Congress passed transformational tax reform legislation that charts a new course for the country,” Committee Chairman and lead bill sponsor Kevin Brady said in a statement. “We reaffirmed for all of the families and Main Street businesses struggling to get by that relief is on the way – relief from a broken tax code, from a slow-growing economy, from stagnant wages, and from jobs fleeing overseas.”
That relief comes in the form of an average tax savings of $1,182 for a family of four under the House Republican plan. In addition, a new report from the Tax Foundation estimates that the reforms will create nearly one million full-time jobs, raise after-tax incomes for middle class families by $2,598 over the next decade, contribute 3.9 percent to GDP growth over the long term, and lead to a 3.1 percent increase in wages.
Similarly, the Senate has been hard at work on their own tax plan, which was introduced this week. As expected, the two bills have some differences. Among them, the Senate bill includes more individual brackets (seven instead of four), fully repeals the state and local tax deduction, and preserves some different tax deductions and credits, such as one that allows individuals to write off medical expenses that exceed a certain amount of their income.
Perhaps the most significant change is phasing in the enforcement of the lower corporate tax rate until 2019, a move that was done to stay within the strict reconciliation rules.
To listen to media prognosticators, these differences represent an unbridgeable gulf that could put Republicans’ key legislative promise on shaky ground.
CNN reported that it “varies just enough from the House’s bill to set the two chambers up for a dramatic showdown.” The New York Times argued that the “disparate bills show the competing pressures that Republican lawmakers are facing and the calculations that Senate and House leaders are making to ensure passage.” And Politico wrote that “[y]awning divisions …[are] raising doubts about whether Republicans will be able to achieve their most important political and policy priority.”
But these stories miss the point. There were always going to be differences between the House and Senate. And they were always going to be worked out after both chambers passed a bill, which moved one step closer to reality last week.
“We are going to conference,” Speaker Ryan said after the Senate unveiled its bill. “Yes, the Senate bill is going to be different than the House bill because that’s the legislative process.”
Never mind the differences, the biggest takeaway were the remarkable similarity in priorities. Both chambers have prioritized the reduction in corporate tax rates, there is just some negotiating that needs to be done on the timing. Both chambers want to provide relief to small businesses by adjusting the taxation of pass-through entities, there just needs to be a decision on what mechanism works best. And both chambers agree that changes need to be made to individual rates, particularly in doubling the standard deduction and expanding the child tax credit, though the two sides will have to hash out the number of brackets and the rates applied.
All of this is imminently doable, and is in fact a healthy process for the chambers to go through in order to get feedback from every stakeholder to make sure they’re advancing the best bill possible.
“Both the House and Senate bills achieve the same goal: more jobs, fairer taxes, and bigger paychecks,” Speaker Ryan said. “Both bills will cut taxes, raise wages, and boost economic growth. We look forward to the Senate advancing this plan so that we can reconcile our two bills and get tax cuts enacted for American families. The time for historic tax reform is now—and we are getting the job done.”
As young adults struggling through slow economic growth and stagnant wages, we cheer the thought.