It increasingly appears the Senate will pass a tax reform bill in an upcoming vote, leaving a reconciliation between the Senate and House versions as the last meaningful obstacle on the bill’s path to President Donald Trump’s desk.
The two versions of tax reform legislation differ on a number of points, but three issues stand out as particularly consequential.
1) Individual Mandate Repeal
The Senate bill eliminates an Obamacare tax levied against individuals who choose to go uninsured, yet the House version leaves the measure intact. This provision has been sold as a revenue saving measure by GOP leaders in the Senate. The tax drives consumers into government subsidized coverage so eliminating it will result in reduced demand for those programs.
House Speaker Paul Ryan has hinted the House would adopt the individual mandate repeal if the Senate successfully added the provision. Should the House do so, Republicans risk reopening the divide exposed in August between centrists concerned about the impact on premiums and staunch conservatives eager to reign in Obamacare.
2) State and Local Deductions
The bill produced by the upper chamber completely eliminates the state and local deduction — a valuable tax break for residents of high tax states like New York and New Jersey — and the House plan diminishes the deduction by capping it at $10,000.
The Senate’s complete elimination of the deduction will further alienate Republican representatives from New York, New Jersey and California, almost all of whom voted against the House bill the first time around. Should the House adopt the Senate’s version in its entirety, an option that some GOP lawmakers have publicly advocated for as the most politically expedient option, the House risks more defectors.
3) Budget Impact
The Senate version will add $1.4 trillion to the deficit over the next decade, without accounting for economic growth, however, the House bill is projected to increase the deficit by $1.7 trillion over same period.
Budget resolution rules constrain the legislation’s budgetary impact, allowing for a $1.5 trillion deficit increase over the next decade, leaving the House no choice but to reduce their version’s budgetary impact. Exactly how the lawmakers will accomplish this remains unclear.
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