Last Thursday, October 19, Congressional Republicans in the Senate approved a budget resolution for the 2018 fiscal year. This is the first in a long line of hurdles that must be overcome for there to be a tax bill this year. Congressional Republicans hope to have a tax bill signed into law by Christmas, but the road in front of them is laden with traps and potential roadblocks. This is especially true in the Senate, where Republicans can only afford to lose two votes if they want to pass a bill without Democratic help. Here is my take on some of the issues facing a 2017 passage.
Timing
House and Senate Republicans have each approved budgets, but they differ significantly over how much of an increase in the deficit will be permitted over the next ten years. This decision alone could take weeks have negotiation in a formal conference committee. One way the bill could move faster is if the House just approves the Senate version, which could happen before the end of October.
How Comprehensive will a Final Bill Be?
The nine-page tax plan "framework" that was released a few weeks ago includes targets for reductions in both corporate and individual tax rates. Unfortunately, the devil is in the details and there were virtually no details. The next major step in the process will be draft legislation from the House Ways and Means Committee, which could turn the nine-page framework into a thousand pages of legislation.
I would expect the draft to come out of the House by early November (any later will make it very difficult to get anything done this year). Republican members of Ways and Means will be meeting during the week of October 23 to work on final details. The Senate Finance Committee will then release it’s version, which is likely to have some significant differences from the House bill - especially with regard to international business taxation.
The Democrats Role
Once Ways and Means presents a bill, committee members will have a chance to mark it up. This is a process whereby representatives may offer amendments, and Democrats try to push the bill toward more cuts for the middle class, primarily by expanding the earned-income tax credit. Republican members will also offer amendments, including protection for taxpayers in high-tax states who claim large deductions for state and local taxes, which are eliminated in the Framework. Each amendment must be voted on and may be approved by a simple majority. Once the bill clears committed, the same process will play itself out on the House Floor, with the process repeating itself in the Senate.
What Happens Then?
The bill will be moved under a mechanism called "reconciliation," which will allow Republicans to pass the bill for no Democratic votes - only a simple majority will be needed, or, since Vice-President Pence is the Senate tiebreaker, 50 votes in the Senate. However, to proceed under Reconciliation, the bill must not increase deficits by more than the amount allowed in the budget resolution - $1.5 trillion over ten years in the Senate version - and it must not add to the budget deficit in the next decade.
The only way these deficit goals can be met is if games are played with some of the proposed cuts. For example, some of the cuts may be set to expire after a few years and other cuts could be phased in over time. Of course, the majority could just ignore the analysis of the Congressional Budget Office and the Joint Committee on Taxation and just rely on a more favorable analysis of the bill from the White House or elsewhere. Such a step would almost certainly result in a bitter fight over the bill, which could make it impossible to pass this year.
Even if both the House and Senate pass bills, they will likely have large differences. These will have to be worked out in Conference. Once the differences are worked out, a final bill will be sent to the President for signature.
At this point, there is no reason to believe that the Low-Income Housing Tax Credit will not be part of a final bill, but until its done, housing advocates need to continue to push their representatives on the importance of the program.