by: Jamie Dupree
As a GOP plan to overhaul the Obama health law foundered in the U.S. Senate, Republicans in Congress quickly shifted their focus in recent days to a new goal, getting a major tax reform to the President’s desk, though many on Capitol Hill believe the undertaking could be more complicated – and includes more political pitfalls – than the derailed debate on Obamacare.
“We want a tax code that is more simple, affordable, and competitive,” said Speaker Paul Ryan. “And we want to get this done in 2017.”
What are the chances of that happening, and when will see the details on the GOP plan?
1. GOP still figuring out the details of tax reform. While you will hear a lot in coming weeks about how Republicans are focused on tax reform, there is still no actual bill to look at. There are trial balloons being floated. There have been bullet points issued. But there is no bill that you can look at right now, and it’s not exactly clear when we will see something introduced. Lawmakers on the House Ways and Means Committee – which is in charge of tax issues – are at work on the plans, but Republicans have said they want to pre-clear a plan that the House, Senate and White House will be on board with. But the advertisements for it from the GOP are not about tax cuts, but about fundamental tax reform – no more 1040A, with all the complicated schedules. Just do it on a postcard.
2. Will tax reform go through budget reconciliation? This was the original plan, for the GOP to bring forward a bill that would be dealt with under reconciliation, in order to avoid the possibility of a Senate filibuster. That would mean you only need a bare majority to pass major changes to the tax code. But there have been conflicting signals in recent weeks from GOP lawmakers on this. The last time there was major tax reform legislation in 1986, the House approved it with 292 votes, the Senate with 74 – both were veto proof margins. That process was not done through reconciliation, so it had to be bipartisan to work. The budget resolution in the House – which has yet to be voted on by the full House – calls for budget reconciliation. But some key Senators have been making noise about a regular tax bill. We’ll see.
3. One of the trial balloons – limit the mortgage interest deduction. One idea that was floated last week was not eliminating the mortgage interest deduction – frankly, that seems impossible – but limiting it, maybe to no more than $500,000 loans. Under current law, taxpayers can write off the interest they pay on mortgage loans of up to $1 million – that would include first and second mortgages. That has drawn the expected reaction from the National Association of Realtors: “Proposals that repeal or weaken tax incentives to encourage homeownership must be rejected,” the group said in their ‘August Recess Talking Points.’ “We need tax reform, but it must first do no harm.”
4. Also maybe on the chopping block – state and local tax deduction. This is an issue that doesn’t really hit much of Red State America, because high state and local taxes are more often linked to states on the East Coast, along with California. The problem for Republicans though is that there are a decent chunk of GOP lawmakers – maybe around 20 to 30 – who could feel the heat from voters about any major changes on that front. Like the mortgage interest deduction, this is one that might not be abolished, but maybe there would be limits placed on how much you can write off on your federal return. The top ten spots to be hit by any changes – New York, Connecticut, New Jersey, California, DC, Massachusetts, Illinois, Maryland, Minnesota and Rhode Island. There are 34 GOP lawmakers in those ten states.
5. The work of 1986 has not been replicated in 2017. I keep reading all these optimistic forecasts about getting tax reform done this year. But all I keep thinking is that the groundwork has not been laid like it was in the Reagan Administration. As for the Congress, when you look back on that legislative endeavor, there were some heavy hitters involved in this legislation, as the lineup was notable at both ends of Pennsylvania Avenue. Dan Rostenkowski, Bob Packwood, Tip O’Neill, Bob Dole, and James Baker. Nothing against those in charge now, but as a group, Kevin Brady, Orrin Hatch, Paul Ryan, Mitch McConnell and Steven Mnuchin, probably don’t have the edge on their 1986 counterparts. Mnuchin said earlier this year that tax reform would be done by August. Reporters laughed at that prediction. Click here to read more about the work that went on for the 1986 Act.
6. Gucci Gulch isn’t even in high gear yet. Gucci Gulch is the name that was given to the area outside the House Ways and Means Committee, where well-heeled lobbyists roamed the halls, waiting for news about the 1986 Tax Reform Act. If you think there was lobbying involved in the health reform effort by Republicans, that will be dwarfed by what goes on around any tax bill. All sorts of businesses would be impacted by major changes. This was a giant legislative undertaking. It wasn’t done in a few months. And many believe it has little chance of getting done this year, no matter the optimistic statements of supporters. There aren’t many people who were around for the 1986 tax bill. It’s difficult to describe to my colleagues just how big of a deal that was – and still is. I feel like the old curmudgeon in the press gallery talking about the glory days of old, when it comes to tax reform.
Have you read anything about the Tax Reform Act of 1986? Most people haven’t, so amaze your friends and family by leafing through the 902 page Joint Committee on Taxation report from 1987 about the law.