The biggest question in Washington over the next few weeks is whether Senate Republicans will hold up their end of the bargain in moving a tax reform package, or will the caucus fracture as it did with the failed Obamacare repeal.
The package passed by the House last week offers broad-based tax relief to both individuals and businesses and will make the tax code fairer and more competitive.
Certain improvements could make it better, and up its chances of passage. That should be the goal as Republicans negotiate with themselves. But the commitment to passage should be clearly stated from the start.
The GOP cannot withstand another major failure in carrying out the promises it made to the American people when they gave it full control of the governing process in Washington.
Mid-term elections likely will be a slaughter for Republicans if they go into 2018 with no major piece of legislation to show for their majorities. Tax reform could redeem what has been a disappointing year for the conservative agenda.
Credit the House for understanding the imperative for action. The package it passed this week should result in economic growth and more money in household budgets. The nonpartisan Tax Foundation has endorsed the plan, saying nearly every individual and business will benefit when the full impact of tax relief is taken into account.
For families, the package increases the Child Care Credit to $1,600 from $1,000, and adds a new $300 per-person family credit for non-child dependents. In the cause of a simpler code, it consolidates the current seven brackets into four, while lowering rates for everyone except top earners, who will continue to pay 39.6 percent. The standard deduction is doubled to $24,400 for joint filers. This amounts to substantial relief for most families.
In exchange for lower rates, some itemized deductions will either disappear or be capped. Included are deductions for mortgage interest and state income taxes. That’s raised objections from lawmakers from high tax states. But getting to a lower rate and broader base requires cutting out deductions that favor one set of taxpayers over another.
Business taxes will be restructured to make the corporate rate far more competitive with other nations, which should encourage development and job creation. It would also lure the repatriation of the foreign earnings of U.S. corporation by creating a 14 percent rate for that income.
The Senate could improve the package while wooing some GOP senators who are still uncommitted.
For example, Sen. Ron Johnson of Wisconsin wants the rate for small businesses to be dropped closer to the corporate rate. That would be a welcome change. The Senate version also cuts the repatriation tax rate on overseas profits to 10 percent. That, too, is a solid improvement.
The biggest sticking point for moderate Republicans is the attachment of the repeal of the Obamacare purchase mandate to the package.
Linking the two is not gratuitous. Repeal of the mandate is expected to save $338 billion over the next decade and is essential to meeting the requirement that the legislation not add to the deficit. Deficit hawks like Sen. Bob Corker of Tennessee should be assuaged by that. It also provides relief from the onerous fines faced by those who can no longer afford to purchase the increasingly expensive Obamacare policies.
The Senate should also make permanent provisions that allow for the immediate depreciation of business investment, which sunset under the House bill. Except for the Obamacare repeal, the two packages are close enough in substance that the differences should be easily resolved.
But the GOP needs to get to 50 votes. With 52 Republican senators, and Maine Sen. Susan Collins a consistent “no” vote on just about anything her caucus offers, negotiations must be flexible and creative enough to bring the rest of the Republican senators aboard. This is not the time for anyone to become entrenched.
This is fourth down and inches with no time left on the clock for Republicans.