Key Differences Between the Senate and House Tax Reform Plans Could Set Up a Battle Within the GOP - Pacific Standard

Key Differences Between the Senate and House Tax Reform Plans Could Set Up a Battle Within the GOP

It's unclear how the GOP will bridge the gap between the two chambers' plans.
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Senate Majority Leader Mitch McConnell.

Senate Majority Leader Mitch McConnell heads to his office after leaving the Senate floor on November 9th, 2017, in Washington, D.C.

As Republicans in the House of Representatives continue marking up the Tax Cuts and Jobs Act and scrambling to fill a revenue gap in their plan, their colleagues on the Senate Finance Committee introduced their own tax reform plan to the GOP caucus on Thursday. While the official legislative text of the bill has not yet been released, reporting from a number of news outlets suggests it contains several important deviations from the House's version:

  • The Senate bill would delay the corporate tax rate cut until 2019 (for cost-saving reasons). The Senate bill still aligns with the House plan in ultimately cutting the rate to 20 percent.
  • Under the Senate version, the individual tax code would have seven tax brackets (the House bill has only four). Tax rates for both the lowest and highest income brackets would be slightly lower under the Senate bill (10 percent for the lowest-income earners; 38.5 percent for the wealthiest Americans).
  • The Senate bill would keep the medical expenses deduction, which advocates have argued is less skewed to the wealthy and protects middle-income people. The Senate bill would also keep the mortgage interest deduction in its current form (the House bill would have capped the deduction), the adoption tax credit, and the student loan interest deduction.
  • The Senate bill reportedly completely eliminates the state and local tax deduction (SALT), which is sure to cause problems in the House, where a number of Republicans represent high-tax districts and have lobbied against changing the deduction.
  • Unlike the Tax Cuts and Jobs Act, which eventually repeals the estate tax entirely, the Senate bill would keep the estate tax but reduce the number of estates to which it applies.

It remains unclear how the GOP will bridge the gap between the two chambers' plans; several House Republicans have said that fully eliminating the SALT deduction, as the Senate bill does, will not fly in the House. "Repealing the state and local tax deduction is just not a policy that will make its way through the House side," Tom Reed (R-New York) told CNN. "The Senate indications that they may potentially do that, I just don't see how that math works to get to tax reform."

Also unclear is the extent to which Tuesday's elections, in which Democrats displayed unusual strength across the country, will help or harm the GOP's tax reform efforts. Some in the party have argued that voters on Tuesday were sending Republicans a message that they needed to, in Speaker of the House Paul Ryan's words, "get our job done."

Others, however, have argued that the Democrats' performance this week in suburban districts with large percentages of white college-educated voters should make the GOP think twice about passing tax reform legislation that could hurt those same voters. White, college-educated voters have historically voted Republican—Donald Trump actually carried these voters in 2016—and they're viewed by both parties as crucial to control of the House in 2018. On Tuesday, Democrat Ralph Northam won 51 percent of white, college-educated voters; Gillespie earned 48 percent.

A number of features in both the House and Senate tax plans could disproportionately harm upper-middle-class voters in these types of high-tax suburban districts, chief among them the proposed changes to the mortgage interest deduction and the elimination of the SALT deduction. For example, almost half of the residents of Barbara Comstock's (R-Virginia) suburban district, which Democrats are aggressively targeting, claim the SALT deduction. Comstock's district went for Northam by a 13-point margin on Tuesday. Representative Darrell Issa (R-California), who represents another suburban district Democrats are eagerly targeting in 2018, came out against the bill on Tuesday, arguing it would hurt his constituents.

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