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Reading Between the Lines: More Tax Changes in 2018


Editor’s Note: Sandra Swirski and Sara Barba of the Washington, D.C., advocacy firm Urban Swirski & Associates offer regular analysis of public policy developments of interest to Southern grantmakers – reading between the lines so you don’t have to.

Republican lawmakers notched a much-needed win at the end of 2017 – a tax overhaul that had been in the works for many years. There was a quick feeling of relief among Republican lawmakers – who had failed to pass a repeal of the Affordable Care Act and still wanted a victory for President Trump’s first year in office – followed by a lot of speculation about the tax bill being rife with loopholes, omissions and mistakes.

Given this, we expect the 2018 legislative agenda to include a tax bill which will pull from three buckets of items.   

Bucket 1: Cleanup and Corrections 

The tax overhaul bill is 503 pages long, which means there was plenty of room for errors. That’s what technical corrections are for – they make tweaks to the bill to bring it in line with the intent of Congress. However, it’s a politically heavy lift considering the Senate will need the support of Democrats, who were notably missing from the tax reform negotiations, to get the tweaks over the finish line. 

Given the partisan nature of these changes, they would need to be included in a must-pass bill, such as one to increase the debt limit that could come as early as March. 

Bucket 2: Making the Bill Better

By passing the tax overhaul through the “budget reconciliation” process, Republicans avoided needing support from Democrats. However, that also means a lot of provisions had to be dropped because of the “Byrd Rule,” which defines what provisions can and can’t be included in a budget reconciliation bill. Now, lawmakers see 2018 as an opportunity to start the conversation again. 

For example, Sen. Ted Cruz (R-TX) has a proposal that would make permanent the newly enacted individual tax brackets that are set to expire in 2025. Other members, mostly Democrats in high-tax states, want Congress to reconsider the cap on the State and Local Tax Deduction (SALT) that was set at $10,000. 

Of note, this is the bucket where some charitable legislation could land, such as the Universal Charitable Giving Act or the CHARITY Act

The items in this bucket that have bipartisan appeal have a much stronger chance of passage before the election. The others will likely have to wait until after the midterms. 

Bucket 3: The Left Behinds

Now we’re to how Republicans will manage to get the first two buckets over the finish line. Democrats aren’t eager to help Republicans, so they need a bipartisan draw: tax extenders. There are about three dozen of these in a bill Senate Finance Chairman Orrin Hatch (R-UT) introduced last December.  

These provisions are lawmakers’ best bet for tax bipartisanship in 2018. Interestingly, they were left behind and not extended in last year’s bill – perhaps because of their high cost, or perhaps because Republicans need a big, compelling bucket of items that could carry their less appealing, partisan priorities. 

If Republicans can slip the more partisan provisions into a bipartisan extenders package, they may just get everything they want. 

Timing 

There’s a limited number of legislative days remaining with the midterm elections looming and more time devoted to campaigning. The midterms also mean lawmakers don’t want to take tough votes, such as increasing spending levels, raising the debt ceiling, and many others. So how can leaders make these tough votes easier to swallow? Sweeteners. And don’t be surprised if they sweeten them with tax items, all the way up until Election Day in November.

Sandra Swirski is a partner at Urban Swirski & Associates; Sara Barba is assistant vice president at the firm.

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