Tax reform state of play: Markup day

But the most important happenings in tax reform will be behind the scenes, as Republicans continue to negotiate/tweak/revise a proposal scheduled to hit the House floor next week.

Last week was all exuberant fanfare and rollouts. Monday, the real work begins.

The ways and means committee will begin marking up the GOP tax bill at noon ET. This will be a long, arduous process expected to last until Thursday. Democrats will ensure really difficult votes and a few fireworks.

But the most important happenings will be behind the scenes, as Republicans continue to negotiate/tweak/revise a proposal scheduled to hit the House floor next week.

What to watch:

What Ways and Means Chairman Kevin Brady introduces as the chair’s substitute amendment. That will contain the major changes of the day — and sources say they could, indeed, be major. There’s a good chance this happens multiple days this week, as agreed upon changes are ready to be incorporated.

How this is all going to work:

The markup will start with opening statements; then the legislative work will begin. Of note here: Republicans are not expected to be firing out amendments — this is a committee that is run very tightly by Brady and, to some extent, leadership.

Don’t be surprised if the only GOP amendments throughout the week are offered by Brady, with rank-and-file GOP committee members angling behind closed doors to get their preferred provisions included in whatever Brady proposes.

Democrats are under no such restrictions however, and the floor is wide open for Rep. Richard Neal of Massachusetts, the panel’s top Democrat, and his colleagues to try and create as many political problems as possible. Rarely do these amendments threaten to split off Republicans, but they will be taking no shortage of painful votes, no doubt about it. The goal for Brady is to have most of this effort throughout the week take place during daylight hours, but Monday is likely to go well into the evening.

The analysis so far:

The Joint Committee on Taxation released its analysis of the GOP plan on Friday. On net, the cuts on the individual side are very real in the first few years of the plan. But after that? Problems arise. As inflation indexing kicks in and the $300 family credit expires, the cuts lean heavily toward to the wealthy (and, of course, corporations due to the permanence of those provisions.) According to JCT, that would mean an actual tax increase for many lower income and upper middle class taxpayers starting in 2023.

Full analysis here, but note that changes have already been made and more are coming.

The plan is heavily weighted toward corporate cuts (around $1 trillion) over individual cuts (in the neighborhood of $220 billion) by design. The current corporate code is considered a significant drawback for US business and Republicans point to corporate benefits as directly affecting individual wages.

The GOP’s ability to sell the plan as an entire package — with economic growth that will result in direct wage increases — as opposed to just individual cuts, something that remains a big question — will be crucial to whether or not this can actually move forward.

Hot-button issues:

Some are well worn (the repeal of the deduction for state and local taxes, the home mortgage deduction), some are really complex (passthroughs) and some are just starting to bubble (repeal of the adoption credit), but regardless, keep a close eye on these.

State and local tax deduction. The compromise — allowing the property tax deduction to remain, capped at $10,000 — isn’t enough to secure the votes from high-tax state GOPers. More work needs to be done here, and GOP leaders know it. Capping the home mortgage interest deduction at $500,000 for new mortgages. The housing industry is already howling because of the doubled standard deduction. Limiting the actual mortgage deduction (and eliminating the deduction for second mortgages) has them furious. Passthrough guardrails: the long-standing question has been how the bill will calculate who does (and doesn’t) get access to the new 25% pass through rate (and how much of that rate they get access to). The solution in the GOP bill falls short for many members (and no shortage of powerful outside interests). Expect changes here. The global minimum tax for corporations with high revenue subsidiaries overseas. Shifting to a territorial system was always going to happen — and is a necessity for any overhaul. But that doesn’t mean corporations aren’t going to fight various pieces. This will definitely be one. The elimination of the adoption tax credit. The faith community has raised no shortage of concerns about this issue, particularly since it doesn’t create a huge amount of revenue. Brady — himself an adoptive father — addressed this in a Politico panel last week, noting that it was an example of him taking the tough medicine that comes with trying to do a tax overhaul. But given the outcry and the power and presence of the groups driving it, don’t be surprised if this has to change at some point. Phase out of tax credits. This is done purely for budget reasons — to keep the bill within the reconciliation instructions that require no more than $1.5 trillion added to the deficit inside of 10 years. Yet it also creates a cliff of sorts, per the JCT analysis, whereby if the credits aren’t extended by a future Congress, people may end up paying more. This is where the rubber hits the road — the trade-offs necessary to make this work math-wise. But it’s a rough political point to face: that corporate cuts are permanent and help on the individual side phases out. The repeal of the deduction for medical expenses. The horror stories of families who rely heavily on this being left in awful situations are already popping up. Again, getting rid of deductions of all kinds is central to a true overhaul. But expect to hear a lot about this one before it’s all said and done.

There will be others that crop up. Just wait.

Keep an eye on:

In the past few days, Speaker Paul Ryan and Brady have left the door open to including a repeal of Obamacare’s individual mandate in the bill.

Why? Revenue.

Due to decreased government insurance subsidies and a reduction in those who would sign up for Medicaid, the repeal would reduce federal deficits by hundreds of billions of dollars. (The Congressional Budget Office also estimates 15 million fewer would have health insurance).

Brady, at the Politico event, said his committee has asked CBO for an updated savings estimate, which is expected as soon as Monday. That’s a sign that this is something that has life, and it certainly is popular among some of the rank-and-file members (not to mention Sen. Tom Cotton in the Senate, who has been touting this idea publicly and privately for weeks).

But to make this abundantly clear: this is not something GOP leaders want to do.

Mixing health care policy and tax policy is a recipe for disaster — like epic disaster. But revenue raisers are desperately needed right now, and the President certainly has made his position known.

What’s already changed:

The ways and means committee announced it would change how it calculates inflation in the bill for adjustments in the tax code, starting in 2018.

The bill now shifts the measure to chained consumer price index, from regular consumer price index in 2018 instead of 2023, as originally drafted.

Why? Money. It adds roughly $90 billion in revenue to the proposal. But it also cuts down on the overall cuts on the individual side. Again, the tradeoffs. They ain’t easy.

Oh, by the way:

The Senate finance committee is expected to release its bill later this week. While it will hit the similar benchmarks laid out in the nine-page framework, it will diverge in several ways in terms of how it gets there, according to sources involved in the process.

Required reading

CNN’s Jeanne Sahadi’s great breakdown of the winners and losers (so far) in the House GOP bill.

And here’s Jeanne on what’s actually in this bad boy on the individual side. And the corporate side.

Kathryn Vassel on what is undoubtedly a huge flash point: mortgages.

Julie Rovner on something that will absolutely rear its head in the days ahead: the scrapping of the medical expense deduction.

Watch this space: the scrapping of the student loan interest deduction, via CNN’s Katie Lobosco.

But unborn children will now have a chance to have college savings accounts.

The looming death of the alimony tax break, via CNN’s Jackie Wattles.

Lauren Fox on Paul Ryan’s baby — and all that rests on his ability to get this across the finish line.