Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

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Republicans Are Already Divided Over Big

Parts of Their Tax Plan
By Anna Edgerton , Erik Wasson, Sahil Kapur, and Laura Davison
November 03, 2017 1:00 AM

A handful of House Republicans already declared opposition

Other quiet whispers of concern question pass-through rules

GOP Faces Disappointment, Deadline on Tax Plan

https://www.bloomberg.com/news/articles/2017-11-03/gop-s-united-front-on-tax-cut-plans-masks-underlying-divisions[11/3/2017 8:02:29 AM]

Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

GOP Faces Disappointment, Deadline on Tax Plan

After a display of unity for the unveiling of an ambitious plan to slash individual and corporate
taxes, some House Republicans began late Thursday to pick out the parts of the tax legislation
they dont like.

The ink was barely dry on the frst draft when at least four Republicans declared they would vote
against the bill in its current form.While the early opponents represent high-tax states that
would get slammed by the plans elimination of state and local income-tax deductions, several
other areas began to emerge as points of contention as Republicans sifted through the 429-page
bill.

Im trying to get my arms around it, Mark Sanford, a Republican from South Carolina, said
Thursday night. He smiled and didnt respond when asked if he would vote for it.

The House GOP leadership team asked members over a barbecue dinner Thursday to
understand the whole package before passing judgment. They promised a tax calculator that
Republican lawmakers could use to show their constituents exactly how much they would save
under the new system.

It is not about individual provisions. It is about modeling how it all fts together and explaining
how the package works for their districts, Representative Patrick McHenry, the deputy GOP
vote-counter from North Carolina, said on his way into Thursday nights meeting.

Lobbyists Are Storming

President Donald Trump had his own warning for House Republicans Thursday night,tweeting,

https://www.bloomberg.com/news/articles/2017-11-03/gop-s-united-front-on-tax-cut-plans-masks-underlying-divisions[11/3/2017 8:02:29 AM]

Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

The lobbyists are storming Capital Hill, but the Republicans will hold strong and do what is
right for America!

The draft bill presented Thursday is sure to look quite different as it goes through the legislative
process. The bill is likely to be changed by Ways and Means Chairman Kevin Brady even before
the committee begins its consideration of it on Monday.

Its unclear how long it will take the committee to approve the bill; markups can last for hours or
days, as panel members debate and vote on amendments. Then the measure would be sent to
the House foor, where it could undergo additional changes. Republicans have said they hope to
pass the bill in the House before Thanksgiving.

But any changes could open the foodgates to others, and even slight tweaks couldadd to the
legislations defcit-busting math.

Here are fve of the biggest early sticking points.

State and Local Taxes

The provision to scrap most deductions for state and local taxes has been the most fercely
contested so far. Thats especially true of House Republicans from New York and New Jersey,
where such taxes are among the highest. The bill drafters offered a compromise by keeping the
deduction for property taxes, though it would be capped at $10,000.

"There is much to like in the legislation but the proposed cap on deductibility of state and local
taxes makes the bill unacceptable at this time," said Representative Leonard Lance.
"Eliminating or rolling back state and local tax deductibility will hurt New Jerseys hard-
working middle-class families and our state economy."

https://www.bloomberg.com/news/articles/2017-11-03/gop-s-united-front-on-tax-cut-plans-masks-underlying-divisions[11/3/2017 8:02:29 AM]

Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

Other Republicans saying theyll vote against a bill that eliminates SALT deductions include
Representatives Peter King of New York, Lee Zeldin of New York and Frank LoBiondo of New
Jersey. But New York Republican Chris Collins said hes satisfed with the compromise and will
"enthusiastically" support the bill.

Given that Republicans can only lose only 22 votes and still pass the bill, holdouts in those blue-
state delegations may need to be appeased if implacable opposition mounts in other factions of
the party. But the provision is one of the GOPs most signifcant revenue raisers to balance its
proposed cuts, and removing it could make the legislation breach the maximum $1.5 trillion
threshold for raising the nations debt.

Mortgage Interest Deduction

The concerns of Northeastern Republicans are exacerbated by the GOPs proposed cap on the
home mortgage interest deduction. Taxpayers would only be allowed to deduct interest on
mortgages up to $500,000 for any new primary home purchase, down from $1 million. That
fgure isnt indexed to infation.

Nobody knew that was in there. They kept that from us and I dont appreciate that, New
Jersey Representative Thomas MacArthur told reporters, saying that the cap is a setback for the
bill.

The issue for some lawmakers from Southern states, where the cost of living is lower, may be the
proposed elimination of the deduction for vacation homes. Mark Meadows, the head of the
conservative Freedom Caucus, said that the change would affect his North Carolina district
where such second homes are common. He listed that portion of the bill as a concern, but not a
"red line" that would cause him to vote against it.

The bills potential impact on homeowners has already sparked strong outside opposition.
William Brown, president of the National Association of Realtors, said in a statement that the
bill "appears to confrm many of our biggest concerns. He argued that eliminating or nullifying
the tax incentives for home ownership puts home values and middle class homeowners at risk."

https://www.bloomberg.com/news/articles/2017-11-03/gop-s-united-front-on-tax-cut-plans-masks-underlying-divisions[11/3/2017 8:02:29 AM]

Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

Pass-Through Restrictions

Helping small businesses has been a constant theme of the Republican sales pitch for tax cuts.
But there was signifcant concern from rank-and-fle lawmakers that rules meant to limit abuse
of a new 25 percent rate for companies that arent organized as "C" corporations could end up
limiting the boon for small businesses.

The tax bill draft has two formulas available for these closely held frms, which are known as
pass-throughs, as well as restrictions on what kinds of companies would qualify.

The National Federation of Independent Business said Thursday that it couldnt support the
current draft, saying its provisions wouldnt provide enough help to small businesses. The

nonpartisan Tax Foundation said the pass-through rules may not have the intended effect.

"Even with these guardrails, the provision is likely to create opportunities for tax arbitrage, and
it adds complexity to the tax code, the group said in a statement.

Republican Francis Rooney of Florida has previously expressed concern about the issue, along
with Sanford and Meadows, among others.

Interest Deductibility

The legislation would limit the corporate interest deduction at 30 percent of a companys
earnings before interest, tax, depreciation, and amortization. That would work for a lot of
businesses, Texas Representative Kenny Marchant said, but the Ways and Means Committee is
looking at a carve-out for high-inventory, low-margin businesses, such as car and tractor
dealers, he said.

Tom Reed, a New York Republican and member of the Ways and Means panel, acknowledged
that the proposed change has caused concern.

Its a major expense to a lot of companies, and businesses across America, he said. At the end
of the day I think what we landed on is something thats a reasonable target.

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Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

Senator John Thune of South Dakota, the No. 3

Republican, has said that corporate interest deductibility is important to many businesses and
thatll be a consideration for the Senate when it crafts its bill. Senate GOP opposition killed an
original proposal by Speaker Paul Ryan to eliminate interest deductions entirely for the purpose
of allowing full and immediate expensing, which raised hackles from debt-reliant companies.

Backdoor BAT

A fght could arise over a proposed 20 percent excise tax on payments, including royalty
payments, that U.S. companies make to their offshore affliates. That provision is aimed at
preventing companies from shifting their U.S. profts to offshore units in countries with lower
tax rates.

Americans for Prosperity, an infuential conservative group backed by billionaire industrialists

Charles and David Koch,is criticizing the proposal, saying it could increase consumer prices.

AFP sought to compare the provision to the much-reviled border adjusted tax, or BAT, which
Ryan pushed before a wave of opposition from retailers and others forced him to drop the
concept last summer. AFP opposed that provision as well, saying it would raise prices.

On Thursday morning, the group was already announcing its opposition to the excise tax -- and
labeling it a backdoor BAT -- before the tax bill was released.

The concern is this becomes a consumer tax on common products, Levi Russell, an AFP
spokesman, said in an email.

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Republicans Are Already Divided Over Big Parts of Their Tax Plan - Bloomberg

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