US: Crucial Tax Vote as Soon as Next Week

Published on October 12, 2017

President Trump’s “huge” tax plan promised to cheering truck drivers in Pennsylvania yesterday will go the way of replacing Obamacare unless the Senate can soon pass a budget resolution.

*** As of last night, we understand that Senate Majority Leader Mitch McConnell does not have the necessary Republican votes on a Senate budget resolution, with its essential reconciliation language to ensure a simple 51 vote majority on the eventual tax cut legislation. But McConnell is said to be confident he will win over at least four of the six Republican Senators objecting to the current FY2018 budget recently reported out of the Senate Budget Committee. ***

*** If he indeed gets the votes, McConnell intends to bring the budget resolution to a floor vote as soon as he can, possibly early next week. There is considerable time pressure to do so, in part because the GOP leadership is eager to pass the budget resolution before the CBO scores it, as there is a risk the CBO will conclude it is ineligible to proceed under reconciliation instructions because it would substantially add to the budget deficit. ***

*** If the Senate does pass its budget resolution next week, the pressure to keep the momentum going on tax cuts is so high the Capitol Hill Republican leadership is also weighing whether to press ahead without conferencing the two differing resolutions. Instead, the thinking is to proceed on separate legislative tracks through the rest of the year, then conferencing the massive appropriation and tax bills “down the road” if they do pass in both the Senate and House. ***

Six GOP Senators Balking

The House has already passed its version of the FY2018 budget resolution. And on October 5, the Senate Budget Committee under Chairman Mike Enzi passed its proposed FY2018 budget resolution. It now needs to go to a full vote on the Senate floor.

At least six Republican senators are resisting voting “aye” on the budget resolution, among them Arizona’s John McCain, South Carolina’s Lindsey Graham, Maine’s Susan Collins, Kentucky’s Rand Paul, Tennessee’s Bob Corker, and Alaska’s Lisa Murkowski.

McConnell can only lose two GOP Senators, assuming no Democrats cross the aisle on a tax cut vote. But McConnell is said to be confident he can win over all six of the wavering Republican Senators. He needs to win at least four of the six. McConnell is already negotiating with each one and we anticipate amendments to the proposed Senate Budget Resolution before the actual floor vote on the budget itself.

For instance, McConnell may see to it that more federal spending goes to Alaska in the FY2018 budget, perhaps through a clause allowing for more oil and gas drilling in Alaska, in the expectation that will secure Murkowski’s support. Collins, on the other hand, may be the most difficult to woo, as Maine has few residents who will benefit from tax cuts — most of the wealthy in the state are non-voting residents. Maine has the highest percentage of citizens who are dependent on federal spending programs in the Northeast.

Graham and McCain are mostly concerned with securing higher defense spending and are pressing for both jettisoning the Budget Control Act sequestered limit to defense spending increases and/or lifting the cap on the controversial, off-budget account to fund military missions — called Overseas Contingency Operations — that has been used in recent years to circumvent the sequester. Most Republicans will support an amendment by McCain and Graham to remove the two impediments to defense spending.

But the problem for McConnell is that doing so reduces the amount of revenue left in the pot to offset the tax cuts, meaning either deeper spending cuts in non-defense discretionary spending or entitlement spending cuts, both of which would probably lose any number of moderate Republican votes.

One alternative option — to widen the budget deficit beyond the ten-year baseline — is rather too complicated for quick adoption; moreover it risks losing the votes of the Senate deficit hawks, among them McCain, Paul, Corker, and even McConnell himself.

The other alternative is to narrow the scope of the tax cuts by lifting the new corporate tax rate from the current 20-23% being penciled into the current draft tax legislation by the House Ways and Means Committee. Paul is also demanding a side deal on changes to Obamacare.

Bypassing the CBO Scoring

The Enzi budget assumes $1.5 trillion over 10 years in tax cuts that would mean a substantial deficit, which would in theory preclude passing the actual tax cut legislation on a filibuster-proof, 51 vote majority because it is not budget neutral. And there may be enough Senators objecting to a resolution vote without the CBO scoring, which would mean the bill must go back to committee for revisions, or amendments on the Senate floor.

McConnell is said to be uncomfortable with such a scheme, but he is also a pragmatist, and may still push the bill to a floor vote without the CBO score to keep the legislative momentum going. The same logic applies to passing on conferencing the House and Senate resolutions to produce a joint budget resolution, normally done to ensure the appropriations and tax-writing committees are working from the same set of numbers.

But the time pressure to pass tax cuts is so severe that McConnell may again be willing to cut corners by skimping on the regular order process. So in the near term, the GOP Senate leadership is focused on getting the budget resolution through with as few changes as possible, and as soon as possible.

McConnell cannot afford to lose the upcoming first round on the high political stakes of the tax cut legislation, and so is in effect willing to cede principles in the tactical near term confident that fixes can be done down the road when it comes to the content of the actual tax cut bill, and when he will be on much stronger ground.

Indeed, if the Senate Budget Resolution does pass next week, with room for substantial tax reduction included, the proposal to reform the tax code, or perhaps just to cut rates, moves to the next phase — substantive and political challenges inside the two congressional tax committees and the threats from those whose effective rates go up to subsidize other rates going down.

In other words, its most difficult trials commence the week following next, through the end of the year, and we expect into the first quarter of 2018.

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