WASHINGTON — Republicans muscled the largest tax overhaul in 30 years through the Senate early Saturday. Senator Joe Donnelly (D) voted against the tax bill as presented.
“Just what the country needs to get growing again,” Senate Majority Leader Mitch McConnell, R-Ky., said in an interview after a final burst of negotiation closed in on a nearly $1.5 trillion package that impacts the breadth of American society.
He shrugged off polls finding scant public enthusiasm for the measure, saying the legislation would prove its worth. “Big bills are rarely popular,” he said. “You remember how unpopular ‘Obamacare’ was when it passed?”
Presiding over the Senate, Vice President Mike Pence announced the 51-49 vote to applause from Republicans. Sen. Bob Corker, R-Tenn., was the only lawmaker to cross party lines, joining the Democrats in opposition. The measure focuses its tax reductions on businesses and higher-earning individuals, gives more modest breaks to others and offers the boldest rewrite of the nation’s tax system since 1986.
Republicans said the package would benefit people of all incomes and ignite the economy. Even an official projection of a $1 trillion, 10-year flood of deeper budget deficits couldn’t dissuade GOP senators from rallying behind the bill.
Senator Joe Donnelly disagreed.
In a statement issued Saturday, Donnelly explained his decision to vote in opposition to the tax reform bill’s passage.
“From the beginning I’ve been willing to partner with Republicans, with Democrats, with the president, with this Administration,” Donnelly said, “I agreed with President Trump’s stated goals of supporting the middle class and keeping jobs here in America…Here’s the bottom line: I opposed Mitch McConnell’s bill because it is not tax reform, it’s a partisan tax hike on Indiana’s middle class, it does nothing to prevent outsourcing of US jobs to foreign countries, and it’s a giveaway to Wall Street and other big money interests.”
Democrats dismissed the bill as a gift to its wealthy and business backers at the expense of lower-earning people. They played up the fact that the bill would permanently reduce corporate tax rates, from 35 percent to 20 percent, while offering only temporary tax cuts to individuals, lasting until 2026.
Congress’ nonpartisan Joint Committee on Taxation has said the bill’s reductions for many families would be modest and by 2027, families earning under $75,000 would on average face higher, not lower, taxes.
“It results in a tax hike for nearly a million middle class Hoosier families in the coming years and it fails to address the outsourcing of jobs to foreign countries,” Donnelly said. “In addition, this bill takes away health care and raises costs for millions of families.”
The bill is “removed from the reality of what the American people need,” said Senate Minority Leader Chuck Schumer, D-N.Y. He criticized Republicans for releasing a revised, 479-page bill that no one could absorb shortly before the final vote, saying, “The Senate is descending to a new low of chicanery.”
“You really don’t read this kind of legislation,” Sen. Ron Johnson, R-Wis., told home-state reporters, saying senators focus on the major provisions as opposed to the “mind numbing” comparisons to current law.
The bill hit rough waters after the Joint Taxation panel concluded it would worsen federal shortfalls by $1 trillion over a decade, even when factoring in economic growth that lower taxes would stimulate. Trump administration officials and many Republicans have insisted the bill would pay for itself by stimulating the economy. But the sour projections stiffened resistance from some deficit-averse Republicans.
But after bargaining that stretched into Friday, GOP leaders nailed down the support they needed in a chamber they control, 52-48. Facing unyielding Democratic opposition, Republicans could lose no more than two GOP senators and prevail with a tie-breaking vote from Vice President Mike Pence, but ended up not needing it.
Late changes introduced by GOP leaders included helping millions of companies whose owners pay individual, not corporate, taxes on their profits by allowing deductions of 23 percent, up from 17.4 percent. That helped win over Wisconsin’s Johnson and Steve Daines of Montana.
People would be allowed to deduct up to $10,000 in property taxes, a demand of Sen. Susan Collins of Maine. That matched a House provision to keep some GOP votes from high-tax states like New York, New Jersey and California.
The changes added nearly $300 billion to the tax bill’s costs. To pay for that, leaders decided not to erase the alternative minimum tax. Instead, they reduced the number of high-earners who must pay it. They also increased a one-time tax on profits U.S.-based corporations are holding overseas and they would require firms to keep paying the business version of the alternative minimum tax.
Sen. Jeff Flake, R-Ariz. – who like Corker had been a holdout and has sharply attacked Trump’s capabilities as president – voted for the bill. He said he’d received commitments from party leaders and the administration “to work with me” to restore protections, dismantled by Trump, for young immigrants who arrived in the U.S. illegally as children. That seemed short of a pledge to actually revive the safeguards.
The Senate bill would drop the highest personal income tax rate from 39.6 percent to 38.5 percent. The estate tax levied on a few thousand of the nation’s largest inheritances would be narrowed to affect even fewer.
Deductions for state and local income taxes, moving expenses and other items would vanish, the standard deduction – used by most Americans – would nearly double to $12,000 for individuals and $24,000 for couples, and the per-child tax credit would grow.
The bill would abolish the “Obamacare” requirement that most people buy health coverage or face tax penalties. Industry experts say that would weaken the law by easing pressure on healthier people to buy coverage, and the nonpartisan Congressional Budget Office has said the move would push premiums higher and leave 13 million additional people uninsured.
Drilling would be allowed in the Arctic National Wildlife Refuge. Another provision, knocked out because it violated Senate budget rules, would have explicitly let parents buy tax-advantaged 529 college savings accounts for fetuses, a step they can already take but which anti-abortion forces wanted inscribed into law. There were also breaks for the wine, beer and spirits industries, Alaska Natives and aircraft management firms.
Two weeks ago the House passed its version of the tax reform bill. Congressional Republicans now will work quickly on a compromise measure to send to President Donald Trump by Christmas.
In a statement released after the Senate vote, Congresswoman Jackie Walorski said:
“Hardworking Hoosiers send too much of their hard-earned money to Washington and spend too much time figuring out their taxes. That’s why the House passed historic tax reform legislation that would boost our economy, simplify the tax code, level the playing field for American workers, and let middle-income families keep more of their paychecks. Now the Senate’s action has brought us yet another step closer to getting tax reform across the finish line, and I look forward to working together to send President Trump a bill to sign.”
The House on Monday will vote on a motion to go to conference, the next step in the process of reconciling differences between the House and Senate versions of tax reform legislation and sending a final bill to the president’s desk.
n Personal income tax rates: Senate bill retains the current number of brackets, seven, but changes them to 10, 12, 22, 24, 32, 35 and 38.5 percent. Under current law, the top bracket for wealthiest earners is 39.6 percent. The House measure condenses seven brackets to four: 12, 25, 35 and 39.6 percent. Under the Senate bill, the reductions in personal income tax rates are temporary, ending in 2026. They’re permanent in the House bill.
n Standard deduction: Used by about 70 percent of U.S. taxpayers, currently $6,350 for individuals and $12,700 for married couples. Senate, House bills both double those levels to $12,000 for individuals and $24,000 for couples.
n Personal exemption: Both bills eliminate the current $4,050 personal exemption.
n State and local taxes: Senate, House bills end federal deductions for state and local income and sales taxes, but they allow the deduction for up to $10,000 in property taxes.
n Tax credits: Senate doubles per-child tax credit to $2,000. House raises per-child tax credit from $1,000 to $1,600, extends it to families earning up to $230,000. Creates a $300 tax credit for each adult in a family, which expires in 2023. Both bills preserve the adoption tax credit.
n Home mortgage interest deduction: Senate retains the current limit for the deduction to interest paid on the first $1 million of the loan. House reduces the limit to $500,000, for new home purchases.
n Other deductions: Senate bill preserves deduction for medical expenses not covered by insurance but ends deductions for moving expenses and tax preparation. House eliminates medical expense deduction.
n Individual insurance mandate: Senate bill repeals the requirement in Democrat Barack Obama’s health care law that people pay a tax penalty if they don’t purchase health insurance. House bill does not.
n Alternative minimum tax: The AMT is aimed at ensuring that higher-earning people pay at least some tax. Senate bill doesn’t repeal it but reduces the number of people who have to pay it. House measure repeals the tax.
n Inheritance tax: Currently, when someone dies the estate owes taxes on the value of assets transferred to heirs above $5.5 million for individuals, $11 million for couples. Senate bill doubles those limits but does not repeal the tax. House initially doubles the limits and then repeals the entire tax after 2023.
n Corporate taxes: Senate, House bills both cut current 35 percent rate to 20 percent, but Senate has one-year delay in dropping the rate.
n Pass-through businesses: Millions of U.S. businesses “pass through” their income to individuals, who then pay personal income tax on those earnings, not corporate tax. Senate bill lets people deduct 23 percent of the earnings and then pay at their personal income tax rate on the remainder. House measure taxes many of the pass-through businesses at 25 percent, plus creates a 9 percent rate for the first $75,000 in earnings for some smaller pass-throughs.
n Businesses: Senate, House bills both expand write-offs allowed for companies that buy equipment.
n Multinational corporations: Senate, House bills impose a one-time tax on profits that U.S.-based corporations are holding overseas. Senate bill also ends tax advantages for firms moving overseas, and requires corporations to continue paying the business version of the alternative minimum tax. House measure seeks to eliminate tax incentives that encourage some U.S. companies to move overseas.