Tony Eberhard, IDFA Vice President of Legislative Affairs
By Tony Eberhard, IDFA Vice President of Legislative Affairs
Welcome to “Hill of Beans,” a periodic update by Tony Eberhard about the association’s work in the U.S. House of Representatives and the U.S. Senate to advance dairy industry priorities. After working on the Hill for various members of Congress and senators since 2001, Eberhard gives IDFA readers a former Hill staffer’s take on what is going on and how it affects our priorities.
“There is a lot of work being done in the House and Senate that never makes the headlines but affects members’ bottom lines, and I’m hoping these updates will prove useful to you and your organization,” Eberhard said. “I’m titling these updates ‘Hill of Beans’ because to many in national media this information might not amount to much, but to our industry’s agenda in Congress, it is critical.” Read the update below.
After watching this week’s Monday Night Football game between the Atlanta Falcons and the Seattle Seahawks, I can’t help but think that the Falcons are in a similar place as Congressional Republicans as they try to pass their tax reform legislation. The Falcons are on the playoff bubble, a spot they share with the Seahawks and Lions, and their schedule for the rest of the regular season includes strong teams like the Panthers, Vikings, and Saints. For the Falcons, every game counts. There are no guarantees they will make the playoffs, but they know they can’t afford to lose big games like Monday night’s.
With the pressure on, the Falcons dug in and delivered in a hard fought 34-31 win over the Seahawks. Likewise, House Republicans pulled out a narrow victory on the House floor when they passed their tax reform bill on November 16 by a vote of 227-215. Republicans needed this win. There is a common refrain heard on the Hill that Republicans need to pass tax reform to show that they can govern and deliver on their priorities. Often unsaid is that without passage of tax reform, many Republicans fear they will not do well in the 2018 elections that are right around the corner. Tax reform is the trophy Republicans need, from a policy and political standpoint, to perform well in 2018. The House floor vote was a big game.
Other big games are coming up quickly. Though the Senate Finance Committee approved the Senate version of tax reform on the same day as the House version was passed on the floor, it was a 14-12 partisan vote that foreshadows a partisan vote on the Senate floor. The Senate is looking to take up its version of tax reform on the Senate floor when Congress comes back from Thanksgiving (the week of the 27th). To consider tax reform, Republicans are using a unique parliamentary process known as budget reconciliation, which will require only a majority vote to pass this bill, and Vice President Mike Pence will be available to break a possible tie. However, with only 52 Republicans in the Senate and memories of the failed Obamacare repeal and replace effort still fresh, this vote will be a nail biter.
Assuming the Senate passes a bill, the two legislative bodies have to resolve their differences -- another big game. While there are a number of ways the two bodies can do this, many members will want to do it in a House-Senate conference committee. This is a delicate process and requires the leaders of each body to negotiate language that can guarantee passage in both the House and Senate. A successful conference sets up passage of the conference report in the House and Senate, and if they can get there, this is the championship game for Republicans. The pressure will still be on because even if you have a great season, you can still blow it in the final game -- just ask the Falcons about last year.
Given that so much will rely on a well-negotiated conference agreement, it is worth evaluating how difficult it will be to reconcile the House and Senate versions. The first thing to recognize is that both the House and Senate tax reform bills have a lot in common. They are both based on the same framework outlined on September 27, and, among other things, they both cut the corporate tax rate from 35 percent to 20 percent, include repatriation proposals, and simplify the tax code for individuals. Individual filers would get a doubling the standard deduction, while many of the current tax credits, deductions, and income exclusions would be eliminated.
Both plans get rid of the Alternative Minimum Tax (AMT) while keeping 401(k) contribution limits, the charitable giving deduction, the child and dependent care deduction, and the adoption tax credit. Meanwhile, both plans eliminate the Domestic Production Activities Deduction, allow for full and immediate deduction of capital investments, and make changes to business deduction of interest payments.
Just as there are too many similarities between the two bills to list them all in this column, there are also too many differences. Among the more high-profile areas of disagreements are the Senate’s repeal of the individual Obamacare mandate, the Senate providing seven individual tax brackets while the House goes to four, the House allowing up to $10,000 in local property tax deduction while the Senate eliminates state and local tax deductions altogether, Senate retention of the mortgage interest deduction which the House limits to $500,000 mortgages, eventual repeal of the estate tax by the House but not in the Senate, and Senate retention of the medical expenses deduction that the House eliminates. There are also important differences in the treatment of pass-through businesses and international taxation. Finally, the timing and duration of the tax cuts differ in important ways as the corporate tax rate is cut in 2018 in the House bill and 2019 in the Senate and the House makes tax cuts permanent while individual tax cut provisions expire after 2025 in the Senate.
Clearly, Congressional Republicans will have their work cut out for them if they want to deliver a tax reform bill to the President’s desk by year’s end. A lot of folks are pointing to the failure of the Obamacare repeal and replace efforts and assigning a well-deserved dose of skepticism to the current drive for tax reform, and the skeptics may be right. Yet, as I try to calculate the odds of tax reform passing, I’m keeping in mind the natural human instinct, whether you’re a NFL quarterback or a member of Congress, to focus and rise to the occasion when your back is up against the wall. As I’ve listened to Republicans over the last couple of months, I’m hearing a focused, determined group of lawmakers who know they need to win on tax reform. I have no idea about whether the Falcons will make the playoffs, but I do know that when it comes to tax reform, love it or hate it, Republicans will leave it all on the field.