WASHINGTON – The Senate Finance Committee approved a tax reform plan Thursday night that would lower rates for corporations and individuals and pay for that partly by repealing the state and local tax deduction and terminating advance refundings after Dec. 31.
The 14-12 party line vote by Republicans sends the bill, which also would produce $1.4 trillion in new deficits over 10 years, to the Senate floor for a vote early next month after it is put into legislative language. Republicans plan to use a reconciliation process that limits the time for debate and allows passage by a simple majority vote.
The House approved its version of tax reform earlier in the day 227-205 without any support from Democrats.
The bill pending in the Senate, which unlike the House bill does not terminate private activity bonds, worked its way through committee over four consecutive days of deliberations, with Republicans defeating more than four dozen amendments from Democrats.
A final manager’s amendment shown to Democrats minutes before it was approved by Republicans in another party line vote, made several eleventh hour changes. Among them was a modification of a new excise tax on certain university endowment funds and a new provision to allow early distributions from retirement plans for people affected by flooding in the Mississippi Delta.
Democrats received a pledge from Chairman Orrin Hatch, R-Utah, to work with them to add victims of other recent disasters to the Mississippi Delta provision.
Some of the Democrats' amendments rejected by Republicans normally would have had widespread bipartisan support.
“At the right time, you will have a lot of support,” Hatch said told Sen. Ben Cardin, D-Md., in regard to an amendment that would have made improvements to the low-income housing tax credit.
Sen. Johnny Isakson, R-Ga., also expressed support for improving the low-income tax credit during the debate.
Sen. Mike Crapo, R-Idaho, said the issue will be handled in a separate tax extenders bill.
Cardin packaged his low-income housing tax credit amendment with the restoration of advance refundings, improvements to the Historic Tax Credit and making the New Markets Tax Credit permanent and offsetting the cost by cancelling Republican plans to double threshold for the estate tax.
Republican senators did not comment on advance refundings, which also would be terminated by year-end in the House bill.
Sen. Maria Cantwell, D-Wash., suggested allowing foreign banks to claim the low-income housing tax credit as a way to help offset the reduced interest domestic banks will have when the corporate tax rate is reduced to 20%.
Cantwell said the lower corporate rate also could affect interest in wind and solar tax credits, which drew the interest of Republican Sens. Charles Grassley of Iowa and Rob Portman of Ohio, who indicated they would work with her in the future if it becomes a problem.
Republican senators weren’t sympathetic, however, to the Democratic effort to prevent a repeal of the SALT deduction or enact a snap back provision to reinstate SALT at a later date if real estate values drop or cuts are made the police, fire and emergency responders.
Hatch complained that the SALT amendments were repetitive. Democrats withdrew a couple of their proposals and agreed to a stacked vote on three of the amendments.
“This is enormously important subject,” the committee’s ranking Democrat, Sen. Ron Wyden of Oregon said as he pleaded with Hatch for more time to debate SALT.
“You will drive a stake in the heart of the Florida economy which is built on real estate,” said Sen. Bill Nelson, D-Fla., who predicted the loss of the deductibility of real estate taxes will drive values down.
In Missouri there are 225,000 people making between $100,000 and $200,000 who itemize their tax returns, said Sen. Claire McCaskill, D-Mo. “The standard deduction doesn’t work for them,” she said, asking why Republicans are maintaining the SALT deduction for businesses but not homeowners.
“The tax system we have has always been conceived as different for business,’’ responded Sen. Pat Toomey, R-Pa. He said businesses are taxed on net income instead of gross income.
Cardin asked why the Senate Finance Committee has considered a repeal of the SALT deduction without even holding a hearing on the issue. “This is extremely, I think dangerous, to the notion of federalism,” he said.
Cardin proposed another unsuccessful amendment that would have directed that the tax revenues derived from the repatriation of overseas corporate profits be used for infrastructure investments.
Another infrastructure proposal was offered by Sen. Bon Casey, D-Pa., who proposed creating $500 million in 100% tax credit bonds. He said they could be used to repair structurally deficit bridges, roads, and water resources projects and to help rural areas gain access to high speed internet.
“You cannot have big league economic growth with Little League infrastructure,” said Wyden, adding that Republican Sen. John Hoeven, R-N.D. also wants to authorize tax credit bonds.
“We’re gonna have to wait on that, not in this tax bill,” Hatch said as he advised fellow Republicans to vote no. The House bill would terminate tax credit bonds after the end of the year.