GOP tax bill passes House as Senate plans late vote Tuesday

House Speaker Paul Ryan, R-Wis., listens during a news conference after a GOP conference meeting at the Capitol on Tuesday. CREDIT: Bloomberg photo by Andrew Harrer

Bloomberg

WASHINGTON - The House on Wednesday approved a massive Republican plan to overhaul the tax code, clearing the bill's final hurdle in Congress and sending it to President Donald Trump to be signed into law.

The House vote comes after the Senate approved an identical measure early Wednesday morning. In a 51 to 48 vote, Democrats unanimously opposed the bill while all Republicans present supported it. Sen. John McCain, R-Ariz., supports the plan but was unable to attend the vote as he is being treated for brain cancer.

The plan would permanently drop the corporate tax from 35 percent to 21 percent, while also rewriting the individual tax rules to lower rates and restructure deductions. The plan would cut taxes in 2018 for the vast majority of households, with by far the largest benefits going to the wealthy. Many of the tax breaks are set to expire at the end of 2025, leaving a large section of the middle class to pay more in taxes. But Republicans promise a future Congress will intervene to prevent that tax hike from happening.

Congressional Republicans plan to go to the White House to celebrate the bill's passage Wednesday afternoon. Trump pushed Republicans to send him a tax overhaul by Christmas, and he touted the measure Wednesday.

"This bill means more take-home pay," Trump told reporters at the White House. "It will be an incredible Christmas gift for hardworking Americans."

Trump may wait until January to sign the tax bill into law, according to Gary Cohn, director of Trump's National Economic Council.

Waiting until January could help the White House avoid triggering a 2010 law known as "PAYGO," or "pay-as-you-go." The budget law requires spending cuts to Medicare and other programs if legislation is approved that's projected to add to the deficit.

If Trump signed the tax bill into law before Congress adjourns in December, lawmakers could be forced to vote on the PAYGO waiver measure as soon as next month in order to avoid allowing the spending cuts to kick in. The reductions would cut spending on Medicare by $25 billion in 2018, according to the Congressional Budget Office.

Signing the tax bill into law in January would likely defer those spending cuts until 2019, giving Congress almost a year to come up with a solution.

The PAYGO rules can be waived if 60 senators vote in favor, but Republicans will only control 51 Senate seats next year and all Democrats voted to oppose the tax bill.

And with a year to work on a waiver, Democrats could use these spending cuts as a political cudgel for much of 2018, as they square off with Republicans over the federal budget.

The tax plan will lead to a number of changes next year, though the impact will not be clear for months.

The White House believes most Americans will begin seeing higher paychecks in February, once employers have adjusted the amount of money that is withheld from paychecks.

In April, Americans will file their taxes for the last time under the old rules, as they will be accounting for income they earned before the tax changes went into effect.

The White House and Republicans have promised the tax cuts will lead to more hiring and higher wages. They have also said the tax changes will lure many corporations back to the United States, incentivize them to manufacture more goods domestically and make U.S. companies more competitive with foreign firms.

U.S. companies are expected to react in many different ways under the new tax regime. Some have already announced plans to use excess cash to repurchase stock, a boost for shareholders. Others have announced plans to expand and hire more workers.

Trump said Wednesday that the vast tax cut for corporations is "probably the biggest factor in our plan."

The scope of these changes could determine whether the tax bill is seen as a benefit for the U.S. economy or a windfall for the wealthy, a narrative that will attract more attention as the November midterm elections near.

The Joint Committee on Taxation estimates that the tax cuts in 2018 will amount to $135 billion, a change that many economists believe will boost growth, at least temporarily.

But it will also add to the deficit, which was projected to be $563 billion next year without factoring in either the revenue loss or the economic growth from the plan. Multiple nonpartisan analyses have found the plan would add up to $1 trillion to the deficit over a decade, and far more if the individual tax cuts are extended.

Democrats have pilloried the plan throughout the process, saying it gives only limited benefits to the middle class while favoring the wealthy and corporations.

In 2018, taxpayers earning less than $25,000 would receive an average tax cut of $60, the nonpartisan Tax Policy Center found. Those earning between $49,000 and $86,000 would get an average cut of about $900; those earning between $308,000 and $733,000 would receive an average cut of $13,500; and those earning more than $733,000 would receive an average cut of $51,000.

The bill also would reduce the estate tax, a levy on inheritances charged only to the wealthiest Americans. Under the bill, a couple could pass on up to $22 million in assets without their legatees having to pay the tax.

The plan extends beyond taxes and into health care by scrapping a central part of the Affordable Care Act, which the Congressional Budget Office has estimated would result in 13 million fewer Americans having health insurance.

The repeal of the financial penalty for not purchasing health insurance does not go into effect until 2019. Projections vary on how the mandate's absence will affect the health care system, but the Congressional Budget Office estimate it will result in 13 million fewer people having health insurance after a decade.

Trump heralded this aspect of the bill on Wednesday.

"When the individual mandate is being repealed that means Obamacare is being repealed," he said.

Many Democrats and Republicans have said this is not true, though the change would mark the most substantial GOP step so far in dismantling President Barack Obama's signature law. All other aspects of the health care law would remain intact, and some Republicans have said they want to pursue new legislation that would lessen the impact of repealing the individual mandate.

House Republicans thought they had finished their tax work on Tuesday afternoon when they passed a version of the bill. But the effort hit a snag Tuesday afternoon when the Senate parliamentarian ruled that three of its provisions violated that chamber's Byrd Rule - guidelines on what types of legislation can pass with a simple 50-vote majority. To comply with the Byrd Rule, the Senate made minor tweaks to the bill before passing it, requiring the House to vote again as the two chambers must pass identical versions.

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