The Republican effort to overhaul the tax code suffered serious setbacks Wednesday after a conservative senator unexpectedly said he opposed the Senate plan and a GOP moderate raised major concerns about it. The announcements cast doubt whether Republicans would be able to quickly pass what would be their first significant legislative achievement under President Trump.
Sen. Ron Johnson (R-Wis.) said he opposed both the Senate and House versions of the tax legislation because they benefited corporations at the expense of other, typically smaller companies. Earlier in the day, Sen. Susan Collins (R-Maine) said Republicans had erred when they changed their tax bill this week to include a repeal of the Affordable Care Act’s individual mandate, which requires every American to have health insurance or pay a fine.
“This bill is a mixture of some very good provisions and some provisions I consider to be big mistakes,” said Collins, one of three Republicans who joined with Democrats this summer to vote down a Senate effort to scrap much of the health-care law.
Without Johnson and Collins, Republicans would need every other member of their caucus to vote for the plan — far from a guaranteed outcome. And neither senator’s concern can be easily addressed without changes that could drive other Republicans to oppose the bill.
Adding additional tax breaks for smaller businesses could appease Johnson, but it could force the GOP to raise taxes elsewhere. Leaving the Affordable Care Act alone could make the measure more attractive to Collins and other moderates. But it would run against the wishes of many conservatives and Trump and create other challenges in making the bill comply with Senate rules allowing passage with fewer than 60 votes.
The opposition to the $1.5 trillion tax-cut bill threatened what had been growing momentum for the tax overhaul. The House is expected to pass its own tax overhaul Thursday. And the Senate Finance Committee hopes to do the same this week, with the full Senate voting after Thanksgiving.
Senate leaders made last-minute changes to their bill Tuesday to solve several problems, including that it would run afoul of Senate rules known as “reconciliation” that allow legislation to pass with only a simple majority if it doesn’t raise the deficit after a decade.
Changes made Tuesday included removing the individual mandate, which would save the government $300 billion over the next decade as it paid out less in insurance subsidies for low- and middle-income Americans, according to the nonpartisan Congressional Budget Office. The change would also, according to the CBO, result in 13 million more Americans going without coverage.
Senate leaders also changed their bill to make tax cuts for corporations permanent, but let individual tax cuts sunset at the end of 2025. The expiration would also affect small businesses whose owners use tax law to pay some of their income at the individual rate, a change Johnson said would unfairly penalize small businesses.
Allowing those tax deductions to expire would increase taxes these companies pay by around $45 billion per year in 2026 and 2027, according to a forecast put out by the Joint Committee on Taxation. House Republicans’ version of the tax legislation contains more generous, and permanent, tax cuts for these businesses, but Johnson said neither was sufficient in its current form.
“These businesses truly are the engines of innovation and job creation throughout our economy, and they should not be left behind,” Johnson said in a statement. “Unfortunately, neither the House nor Senate bill provide fair treatment, so I do not support either in their current versions.”
The companies Johnson is referring to are often small businesses, but they can also be companies such as hedge funds, law firms, real estate companies and other large companies.
President Trump called the Wisconsin Republican on Wednesday evening to discuss the concerns. It was not immediately clear whether Trump eased any of Johnson’s worries, but the senator said earlier Wednesday that he held out hope of voting for the bill if it was fixed.
Several other critical Senate Republicans who might have reservations about the bill have not said how they will vote. They include Sen. Bob Corker (R-Tenn.), who has previously expressed concern about the tax bill’s potential impact on the deficit and said he would not support a bill whose provisions had an expiration date. Corker said Wednesday he was still reviewing the bill.
Another potential holdout, Sen. John McCain (R-Ariz.), repeatedly declined to say whether he would vote for a tax bill that includes the proposed change to the Affordable Care Act. McCain, who voted against a previous attempt to repeal the ACA, said he wanted to review the tax bill as a whole.
The GOP unrest comes as Senate Democrats exploded over the late-night changes that Republicans made to the bill, saying the new GOP plans would further punish the middle class.
“Why do people think this is a swamp?” Sen. Mark R. Warner (D-Va.) said. “This is Swamp 101.”
Treasury Secretary Steven Mnuchin, meeting with lawmakers, said the bill would make business cuts permanent because companies needed long-term assurances of their tax rates for planning purposes.
He also shrugged off concerns that the public would balk at a bill that would provide only temporary tax cuts to individuals. Mnuchin, echoing other Republicans, predicted the individual tax cuts would eventually be extended or made permanent.
“I don’t think it’s an optics issue,” Mnuchin said. “I think people understand that we’ll fix the personal side.”
The House, meanwhile, cruised toward passage of their own version of the Tax Cuts and Jobs Act, which differs significantly from the Senate version.
The House legislation does not touch the ACA, and only a small portion of the individual tax code would phase out. The bill, however, appears to violate Senate budget rules because it would add to the deficit after a decade. If different House and Senate bills pass, they will have to be reconciled in a way that ultimately complies with Senate rules.
Still, House Republicans seemed largely ready to pass the bill and notch a legislative win. As of Wednesday evening, fewer than a dozen GOP members had come out against the bill — most of them from the high-tax states of New York, New Jersey and California, where the bill’s partial elimination of a tax deduction for state and local taxes is controversial.
But other members from those states, including Reps. Jeff Denham (R-Calif.), John Katko (R-N.Y.), Claudia Tenney (R-N.Y.) and David Valadao (R-Calif.), said in recent days they are supporting or leaning toward supporting the bill.
House Majority Whip Steve Scalise (R-La.) said the vote count was “looking real good” in an interview. “I think most people know how important it is to cut taxes and get the economy moving again, and this bill does that,” he said.
Trump is expected to visit Capitol Hill on Thursday morning and deliver a pep talk to House Republicans moments before they go to the House floor to advance the legislation.
Scalise said a conference committee would likely be needed to bridge differences with the Senate. The Senate version of the bill, for instance, eliminates the state and local tax deduction, also known as “SALT.”
“We have a lot of good members who are for this bill only because we addressed and fixed the SALT problem,” Scalise said. “No knock on their bill, but it’s not something they had to focus on, and it will have to be in a final product.”
In the upper chamber, the debate over the Republican bill grew heated Wednesday in the Senate Finance Committee.
Committee Chairman Orrin G. Hatch (R-Utah), typically one of the chamber’s most collegial members, bristled at attacks from Democrats.
At one point, Hatch said he was sick of Democrats pursuing ways to add government spending while simultaneously lecturing Republicans about adding to the debt.
“I’ve had enough of that to last me the rest of my life,” he said.
Sen. John Thune (R-S.D.), a member of the Finance Committee and the GOP Senate leadership, raised the possibility that Republicans could hold a vote once the bill comes to the Senate floor to waive the budget rules and allow the individual cuts to be permanent. That would require 60 votes, forcing Democrats to decide whether to hold firm in opposition or vote to ensure middle-class tax cuts are kept for the long term.
“All we need is a few Dems to help us,” Thune said.
Republican leaders worry that more GOP lawmakers could join Johnson and Collins in raising major objections to the bill.
Sen. Lamar Alexander (R-Tenn.) said Wednesday that he would support the tax bill as currently designed, but that it was unclear if the changes to the ACA would be allowed to remain.
“That’s yet to be determined, whether that will be in the final bill,” he said.
Alexander said he favored passing the tax-cut bill with the provision that repeals the individual mandate and then hold a vote on a separate, bipartisan measure that he has worked on with Sen. Patty Murray (D-Wash.). That provision would resume funding of federal subsidies to help people afford health insurance after the Trump administration halted those payments in October.
Democratic support, however, remains elusive. Sen. Joe Manchin III (D-W.Va.), a key moderate broker, said he has been in touch with White House aides in recent days about supporting the plan, but “I don’t see it improving.”
“Between the debt and the insensitivity of this doing whatever they can to make sure that people at the top of the food chain are getting the tax breaks and the people who benefit the most are the people who need it the least — it makes no sense,” Manchin said.