By Sahil Kapur and Anna Edgerton
Senate Republicans passed the most extensive rewrite of the U.S. tax code in more than 30 years, a bill that delivers a deep, permanent tax cut for corporations and shorter-term relief for individuals.
The chamber’s 51-48 party line vote just before 12:45 a.m. Wednesday in Washington brought President Donald Trump to the brink of his first major legislative victory. The bill -- which has scored poorly in public opinion polls -- promises to become one of the biggest issues in the 2018 elections that will determine whether the GOP retains its majorities in Congress.
Trump marked the occasion on Twitter, calling the legislation “the biggest in history Tax Cut and Reform Bill” -- though experts have said that’s not the case. Before reaching his desk, the bill must return to the House for one final vote Wednesday. After that, the president said, he’ll hold a news conference at the White House.
“Tonight’s vote in the Senate marks a pivotal moment in American history,” said Senator Orrin Hatch, the Utah Republican who chairs the tax-writing Finance Committee. “For the first time in more than three decades, we cleared a comprehensive overhaul of the nation’s tax code and delivered on our promise of creating and advancing pro-growth policies.”
Vice President Mike Pence presided over the Senate vote, which was interrupted repeatedly by protesters, some of whom chanted, “Kill the bill, don’t kill us!”
The bill slashes the corporate tax rate to 21 percent from 35 percent, enhancing the U.S. position against other industrialized economies, which have an average corporate rate of 22.5 percent. It offers an array of temporary tax breaks for other types of businesses and for individuals -- including rate cuts that will tend to favor the highest earners. Most middle-class workers will also get short-term relief, but independent analyses show the amounts aren’t large.
Back to House
The average tax cut for the bottom 80 percent of earners would be about $675 in 2018, according to an analysis by the Urban Brookings Tax Policy Center. The top 1 percent of earners would get an average cut of about $50,000 that year, and the top 0.1 percent would get an average of $190,000, according to the group’s analysis.
Senate Majority Leader Mitch McConnell predicted that the changes would gain favor with voters who have so far been cool to the legislation in polls.
“If we can’t sell this to the American people, we ought to go into another line of work,” he said during a news conference after the vote.
The changes would reduce federal revenue by almost $1.5 trillion over the coming decade -- before accounting for any economic growth that might result, according to Congress’s Joint Committee on Taxation, which analyzes tax legislation. Earlier versions were forecast to increase deficits by roughly $1 trillion even after any growth effects.
The bill now heads back to the House, which approved it earlier Tuesday on a 227-203 vote. The do-over became necessary Tuesday evening after Senate Democrats forced their GOP counterparts to make three relatively minor changes to the bill -- including dropping a provision that had named it the “Tax Cuts and Jobs Act.”
That move was little more than a procedural hiccup; it also forced the removal of a provision that would have allowed parents to use 529 educational savings accounts to cover expenses of home-schooling their children. Another required change was related to an exemption from a new excise tax on private universities’ endowments above a certain threshold.
The House will pass the bill again with ease, said Representative Kevin Brady, who chairs the tax-writing Ways and Means committee.
“The only thing better than voting on tax cuts once is voting on tax cuts twice,” Brady said with a smile.
The Senate’s vote -- which came after a six-week sprint marked by marathon meetings, late-night votes and hasty rewrites of key provisions -- represented a triumph for McConnell, who in September had failed to secure another major GOP priority: repealing the 2010 Affordable Care Act that’s known as Obamacare.
In ushering the tax bill to passage, McConnell was able to revisit that failure. In one of the tax measure’s most controversial provisions, GOP senators attached language that repeals a major piece of the health-care legislation: the individual mandate that requires people to have insurance coverage.
“It’s not a total replacement, but it takes the heart out of Obamacare,” McConnell said in an interview Tuesday before the Senate vote.
GOP leaders say the Obamacare mandate’s penalty -- $695 for individuals -- falls disproportionately on lower- and middle-income people. Repealing it is estimated to generate roughly $300 billion over 10 years, helping to keep the tax bill from creating even larger potential deficits. But at the same time, about 13 million people are expected to drop their insurance coverage over that decade, according to the Congressional Budget Office’s estimate.
Some health economists say the change would lead to higher health-coverage premiums, perhaps canceling out the effect of the individual tax cuts for many. Some GOP lawmakers, including Senator Susan Collins of Maine, are seeking legislation to help stabilize the situation, but the fate of those efforts remains unclear.
McConnell said Tuesday he would offer such provisions in a spending bill “later in the week.”
Collins, a moderate, also won concessions that expanded a deduction for medical expenses for two years and preserved a partial individual deduction for state and local taxes.
The so-called SALT deduction, which provides a tax break on state and local property taxes as well as income taxes or sales taxes, will be capped at $10,000 -- a change that will mostly hurt people who make relatively high incomes in high-tax states that tend to vote Democratic. GOP lawmakers in New York, New Jersey and California have objected to limiting the deduction, saying it might hurt them politically.
In the House, only 12 Republicans -- all but one of them from those three states -- voted against the measure.
Overall, the bill has failed to win broad popularity in public opinion polls. Despite Trump’s repeated attempts to sell it as a boon for the middle class, half the public thinks they’ll pay higher taxes under the bill, according to a Monmouth University poll that was released Monday. Democrats say they’re eager to make the tax bill a major issue in next year’s congressional elections.
“The bill provides crumbs and tax hikes for middle-class families in this country and a Christmas gift to major corporations and billionaire investors,” Senate Minority Leader Chuck Schumer, a New York Democrat, said Tuesday. “Republicans will rue the day they passed this bill and the American people will never let them forget it.”
To contact the reporters on this story: Sahil Kapur in Washington at [email protected]; Anna Edgerton in Washington at [email protected]. To contact the editors responsible for this story: John Voskuhl at [email protected]; Alexis Leondis at [email protected]