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Obamacare Drama, Disagreements Engulf GOP Tax Plan

House Republicans are pressing ahead with the announcement of their sweeping rewrite of the tax code Thursday morning. But with just hours to go, there are major questions still in limbo.
Image: House Speaker Paul Ryan Holds Weekly Press Conference At U.S. Capitol
Speaker of the House Paul Ryan (R-WI) answers reporters' questions during his weekly news conference at the U.S. Capitol on October 26, 2017 in Washington.Chip Somodevilla / Getty Images

WASHINGTON — House Republicans are pressing ahead with the announcement of their sweeping rewrite of the tax code Thursday morning.

But with just hours to go, there are major questions still in limbo and disagreements within the Republican conference as lawmakers grapple with the president's latest demand: whether to repeal the Obamacare mandate to buy insurance as part of tax reform.

Rep. Kevin Brady, R-Tex., chairman of the House Ways and Means Committee, insisted Wednesday night that everything was "on target."

"We’re very close. With some final tweaks in this thing, and we're ready to go live tomorrow," he said.

But lawmakers could still make major changes to the bill before they start discussing it in committee, which is expected next week.

Brady said including the elimination of the Obamacare mandate was still "to be determined," threatening to inject a divisive political problem into an already thorny debate.

The key issue for the GOP is making the math work. President Donald Trump has made it clear he doesn't want to hit middle-class families with tax hikes, but he also won't compromise on the 20 percent corporate tax rate. In order to make the accounting work, the corporate tax rate cut is only temporary and will expire within ten years, according to a lobbyist familiar with the details of the bill.

Many Republicans don’t want to raise the deficit — and the tax plan's total pricetag can't exceed $1.5 trillion over the next 10 years, according to the budget rules.

It’s all led to the last-minute scramble to find more money.

Also still unresolved: how to handle possible changes to state and local tax deductions for families.

Rep. Peter King of New York said he wasn’t satisfied with a compromise that allowed people to deduct property taxes but not state and local income taxes. And fellow New York Republican Rep. Lee Zeldin called eliminating the state and local tax deductions a "redistribution of wealth."

One member familiar with the new draft said a further compromise — still in progress — could involve eliminating the local tax deduction while preserving the state deduction.

"The answer is, I think we made progress on restoring the property tax deduction on state and local. Many members feel this really provides them that middle-class tax cut and other family relief they’re looking for," Brady said.

Meanwhile, it was looking increasingly likely there would be no changes to 401 (k) plans for middle-class families.

"Anything is possible, but I would not bet on it," said Rep. Lynn Jenkins, R-Kan., when asked about any retirement plan changes.

Instead, bringing in enough money to make the plan work would come in part from raising the tax rates on corporate money repatriated from overseas in a one-time tax break holiday. Those rates have been creeping upward throughout the negotiations, to potentially as high as 12 percent on cash returns and five percent on non-cash.

That's an easier sell with members worried about their individual districts, but risks a backlash from Fortune 50 companies and potentially in the Senate, which is more sensitive to this issue than the House.

Also on the corporate side it creates a 15 percent minimum tax on profits brought back to the U.S., according to a lobbyist familiar with the contents of the yet-to-be-released bill. That is much lower than the current 36 percent and is intended to incentivize companies against hiding profits in off-shore tax havens.

It would instate a 70/30 split — a guardrail on the lower pass-through rate for owners of companies who are also employees. If the business is paying them $100,000 then only $30,000 would be be categorized as business profits and the other $70,000 as wages. It also attempts to addresses potential abuses of business interest deductions by creating a 30 percent hair cut, according to a lobbyist source.

Also still unresolved is the question of the bill's top tax bracket, 39.6 percent. A source for a conservative organization who attended a meeting with House Speaker Paul Ryan, R-Wis., on Tuesday, said Republicans were aiming for the income level to start somewhere between $750,000 and $950,000.

New York, New Jersey and California delegations were concerned because of the higher cost of living in their states, where many residents have high incomes, and members were concerned about them getting penalized twice.

"The big issue that we're waiting for is what’s going to be the bracket — where the rates are going to kick in," said Rep. Claudia Tenney, R-N.Y.

Thursday will represent a major test for Ryan, who has staked much of his reputation on being a conservative policy wonk devoted to curbing the country’s spending habits.

He’s had to balance intense divisions among GOP members, especially with the Freedom Caucus, whose chairman, Mark Meadows of North Carolina, has threatened in recent days to pull support for the bill if the corporate tax rate goes above 20 percent.

And frustration has been growing with the process. Rep. Mark Walker, another North Carolina Republican, said there is a "tension" growing in the conference as Republican leaders have been tight-lipped about why the tax legislation was delayed and what provisions are in the bill.

That could get worse after the legislation's release. Some members are demanding more time to look at the particulars — and there won’t be much of it if leadership stays on the ambitious timetable. They’re planning a vote before Thanksgiving.