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Byrd Rule Rattles Senate as House Nears Tax Bill Vote

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The Senate tax-writing committee is continuing to hammer out the details of its tax cut proposal today, while the House may vote on H.R. 1, its version of the Tax Cuts and Jobs Act bill, as soon as Thursday.

The House’s chief tax writer says he’s confident its tax bill will pass, but a major challenge continues to loom over Senate Republicans — the Byrd Rule, an arcane measure that says the final bill can’t add to the federal deficit after its first decade in place if lawmakers want to pass it with a simple majority.

The Senate Finance Committee is set to start debating the GOP tax proposal, which is estimated to cost $217 billion in the 10th year, with more red ink in subsequent years. That means there would have to be significant changes to avoid long-term deficits. Orrin Hatch, the panel’s chairman, acknowledged on Monday there’s still work to do. He’s expected to release a modified chairman’s mark on Tuesday that may aim for better numbers.

But how the revised version would bridge the gap remains a mystery.

(Related: Scott Kicks Off Battle Over Senate Tax Bill Life Provisions)

Even Hatch seems unsure: “I know what’s in it but they may change it on me,” he said after his committee recessed Monday evening.

Sen. Susan Collins of Maine offered some ideas for changes late Monday. They included setting the corporate rate at 21%, not 20, and keeping the current top individual rate of 39.6% for married taxpayers filing jointly who earn $1 million or more. The Senate bill proposes cutting that rate to 38.5%. The proceeds from those adjustments could go to providing a refundable childcare tax credit or preserving property tax deductions, according to Collins, who cast a pivotal vote to block an Obamacare repeal bill earlier this year.

The Senate proposal would limit its revenue losses in part by delaying a cut to the corporate rate — to 20% from 35% — until 2019, a year later than the House has proposed. It would also fully repeal all state and local tax deductions. The House wants to retain a break for state and local property taxes, capped at $10,000.

Across the Capitol, House Republicans were upbeat Monday night. Matt Gaetz, a Florida Republican who previously criticized the secret drafting of the bill, praised the way House leaders had educated members about the legislation and said he expects it to pass this week.

“After the cataclysmic stumble on health care I think people really are looking for a way to get to yes on taxes,” Gaetz said in an interview.

The Republican whip team reported that the tally for the tax bill was in a good place on Monday night, according to two House members briefed on the vote counting who were not authorized to speak publicly. Conservatives are mostly on board, and the focus is now on convincing members from high-tax states that the compromise to preserve the deduction for state and local property taxes will be included in the final bill, the two Republicans said.

The House has an easier task though, since it isn’t bound by the Byrd restriction on long-term deficits. As far as Ways and Means Chairman Kevin Brady is concerned, the ball is in the Senate’s court to find a solution.

“I assume the Senate will address it in their process,” Brady told reporters Monday. “At the end of the day the final bill has to comply with those Byrd Rules.”

House and Senate tax writers have been more concerned with meeting the first requirement of the Byrd rule — that the bill stay within the amount allotted in Congress’s 2018 budget resolution: $1.5 trillion. Each version just squeaks by — the House tax bill is estimated to add $1.44 trillion to the deficit, while the Senate proposal would add $1.496 trillion.

“We really haven’t analyzed it in the second decade,” Brady said.

If the Senate is able to fix its Byrd problem and approves tax legislation, the House and Senate versions will have to be reconciled in a conference committee. So eventually, Brady will have to deal with the long-term deficit issue and make sure his members support the potentially painful compromises that would stem the bill’s red ink. — Sahil Kapur, Anna Edgerton, Erik Wasson and Steven T. Dennis

With assistance from Anna Edgerton Erik Wasson and Steven T. Dennis.

—Read Two Big New House Tax Bill Changes Could Affect You on ThinkAdvisor.

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