Republicans Meet to Merge Tax Plans as Corporations Fret
WASHINGTON — Praise for the Republican tax plan gave way to concern on Monday as business groups and lawmakers scrambled to address a provision added to the Senate bill at the last minute that could undermine the ability of corporations to claim valuable tax credits.
House members gathered on Monday to begin aligning their tax bill with the $1.5 trillion package that passed the Senate early Saturday morning, a process that was always expected to be tricky given the differences between the two pieces of legislation. But the Senate’s change to the corporate tax system added another dose of uncertainty as lawmakers try to complete a bill that can pass the House and the Senate while staying in the strict budgetary parameters required to move legislation without support from any Democrats.
While the two bills have several important differences, the top priority that emerged on Monday was the fate of the corporate alternative minimum tax, which was reinstated in the Senate bill late Friday night in a last-minute scramble to raise money to pay for the tax cuts.
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Both the Senate and House bills cut the corporate tax rate to 20 percent from 35 percent. But the Senate’s version reinstates the corporate alternative minimum tax of 20 percent, which is intended to ensure that companies cannot use loopholes to avoid paying taxes. Currently, companies must calculate their taxes under both the corporate rate and the alternative minimum rate and pay the greater amount.
By lowering the corporate tax rate to 20 percent but keeping the alternative minimum tax, Congress is essentially setting a 20 percent floor. Companies that try to use tax breaks to lower their effective tax rate, like the research and development tax credit, would still have to face the 20 percent alternative minimum tax, nullifying the value of incentives that are supposed to promote research.
Retaining the alternative minimum tax “in reform is even more harmful than it is in its present form — among other things, it eviscerates the impact of certain progrowth policies like the R.&D. tax credit and exacerbates the international antiabuse rules,” Caroline L. Harris, the chief tax counsel at the United States Chamber of Commerce, said in a statement. “This cannot be the intended impact from a Congress who has worked for years to enact a more globally competitive tax code.”
The National Association of Manufacturers also voiced concerns about the tax, warning that Republicans were jeopardizing research and development, which they said fueled innovation and development among manufacturers.
Manufacturers are “working with key policymakers to ensure the final bill does not inadvertently harm manufacturing,” said Chris Netram, the vice president for tax and domestic economic policy at the manufacturers’ lobbying group.
A top House Republican agreed on Monday that the Senate’s handling of the tax was problematic.
“I think that has to be eliminated, because that would destroy R.&D.,” Representative Kevin McCarthy, Republican of California and the majority leader, said on CNBC.
Mr. McCarthy expressed optimism that the House and Senate would be able to bridge other gaps between the bills. House members voted Monday evening to form a conference committee that will work to resolve differences with the aim of getting final legislation to President Trump by Christmas.
In a last-minute dose of drama, the motion to go to conference unexpectedly appeared at risk of failing on Monday night because of a brewing rebellion from the conservative House Freedom Caucus over the length of a planned stopgap measure to fund the government beyond Friday.
The Freedom Caucus did not end up voting down the motion.
The proposed stopgap measure would keep the government funded through Dec. 22, requiring another spending measure to be passed just before Christmas. Representative Mark Meadows, Republican of North Carolina and the chairman of the Freedom Caucus, said there was concern about what legislation could be attached to that measure shortly before Christmas, when lawmakers would be eager to leave Washington and return home.
Instead, Mr. Meadows proposed that the stopgap spending measure stretch to Dec. 30 and warned of “bad decisions” being made in the days before the holiday.
“Having been here before, there is a rush to get home for Christmas,” he said. “In fact, there may even be a Christmas song that says, ‘I’ll be home for Christmas.’”
The House and Senate plans differ on both the number of individual tax brackets and the rates, as well as how they tax so-called pass-through businesses. They also have different international tax provisions and vary in how they treat the estate tax. The House bill fully repeals the so-called death tax, while the Senate bill raises the income threshold that determines who pays it.
The sensitivity surrounding the estate tax was on display over the weekend when Senator Charles E. Grassley, Republican of Iowa, made the case for scrapping it to The Des Moines Register. “I think not having the estate tax recognizes the people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies,” Mr. Grassley said.
On Monday, Mr. Grassley said his comments were taken out of context, explaining that he was trying to say that “government shouldn’t seize the fruits of someone’s lifetime of labor after they die.”
The Senate is also expected this week to name its members to the conference committee. Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee, is among those who will lead the conference committee.
The committee, which will be made up of Republicans and Democrats, will hold one public meeting. The real negotiating, however, will happen behind closed doors, and Democrats have said they expect to be shut out of this part of the process. Both the House and Senate tax bills passed along party lines, with no Democratic support.
Further adjustments to the bills could create new problems, including the need to find more revenue to ensure the package stays in the $1.5 trillion box that lawmakers have allowed for the legislation. Mr. Trump appeared to suggest on Saturday that he was open to raising the corporate tax rate slightly higher than 20 percent, perhaps to 22 percent, which could bring in some additional money. However, a senior administration official said on Monday that Mr. Trump wanted it to remain at 20 percent and that he was merely recounting what he was told about the process of combining the two bills.
While Republican lawmakers work to get their tax bill across the finish line, they will also have to focus on keeping the government open for business.
Mr. Trump is expected on Thursday to meet with congressional leaders from both parties. An earlier meeting was roiled after Mr. Trump posted on Twitter that he would not cut a deal with Democrats, whose leaders promptly pulled out of the meeting.
Congressional leaders are now in talks over raising caps on spending that were imposed in 2011. Once a deal is reached, lawmakers can work out the details of a long-term spending package.
As a short-term fix, the stopgap spending measure would only delay, rather than eliminate, the threat of a shutdown before the end of the year.
“This bill, one without any controversial policy riders, will continue government funding and give the House and Senate time to complete their work on a long-term solution,” Senator Mitch McConnell, Republican of Kentucky and the majority leader, said on Monday.