Tax reform is hard. Not just hard, nearly impossible. The tax code has been slowly turned into a minefield of competing credits, deductions and loopholes, essentially guaranteeing that any attempt at reform will have unintended side effects on one or another group of taxpayers.
For a while, it looked as though the Senate would not be able to navigate the minefield. Their attempts to reduce tax rates coupled with cleaning out the code from certain revenue-sucking loopholes created a careful balancing act. Leadership had to constantly weigh the sometimes competing interests of reducing rates generally and keeping some deductions that were critical to getting some members to a “yes” vote.
Despite the challenges Republicans got it done, passing a comprehensive tax reduction and reform bill in the early hours of Saturday morning. The vote followed a full day of Republican leadership working feverishly with a few on-the-fence members to make changes to the bill to secure the 51 votes necessary to pass the bill. Politico’s Seung Min Kim reports on how the deal got done:
McConnell and his leadership team ultimately secured passage of the tax code rewrite in the early hours of Saturday morning after weeks of methodically working each wavering vote, and by trying to learn the lessons of their Obamacare repeal failure.
It worked. By moving the tax bill through the committee process and letting more GOP senators give more input as they drafted the bill, the Kentucky Republican delivered a sorely-needed legislative achievement to his party in a year marked by turbulence on both ends of Pennsylvania Avenue.
“It’s been quite a year for Senate Republicans,” McConnell said in an interview with POLITICO as the chamber prepared to pass the bill. “We’ve changed the Supreme Court for a generation and done the first comprehensive tax reform in 31 years. Big year for us.”
But the successes didn’t come easy. With no margin for error, leadership worked hard to get Sen. Susan Collins (R-Maine), and Sen. Ron Johnson (R-Wis.) on board with the bill. With Democrats unified in opposition, both votes were absolutely necessary to securing passage.
Sen. Johnson desperately wanted larger tax breaks for businesses that file under the individual code—called pass-through entities—so that they would be on a more level playing field with corporations, whose top rate was dropping from 35% to 20%.
To successfully woo Johnson, the White House began working behind the scenes, promising Johnson that “this is a problem to be fixed and we’ll get it fixed.” Ultimately, they did, with Johnson securing a change to move the 17.4% deduction of income for those entities to 23%, paid for by an increase in the repatriation tax rate for foreign earnings.
“A seat at the table. Not just input. Not just consulting, but a seat at the table,” Johnson said when asked what leadership promised him in exchange for voting yes.
Sen. Susan Collins, a perennial swing vote in the caucus, also took effort to bring on board, but eventually got to “yes” after getting several of her amendments into the bill. Leadership, including President Trump, had several private meetings with Collins, listening intently to her concerns about the impact that the elimination of the State and Local Tax deduction and repeal of the individual mandate could have on her high-tax district. Ultimately, she was able to secure several amendments, including the restoration of a $10,000 deduction for property taxes, a lower threshold for deducting medical expenses, and a promise by leadership to support legislation to stabilize Obamacare marketplaces.
“Having secured these key improvements in the bill, as well as the commitments to legislation to help lower health insurance premiums, I will cast my vote in support of the Senate tax reform bill,” she said. “As revised, this bill will provide much-needed tax relief and simplification for lower- and middle-income families, while spurring the creation of good jobs and greater economic growth.”
The votes were enough to push the bill over the finish line, providing an enormous win, not just for Senate Republicans, but for Americans.
“We have an opportunity now to make America more competitive, and to keep jobs from being shipped offshore and provide substantial relief to the middle class,” McConnell told reporters after the vote. “At the end, there was not a single Democrat who thought this was a good idea, and so we’re going to take this message to the American people a year from now.”