The tax overhaul bill the Senate released Thursday could create problems in negotiations with the House, given its divergence on key areas like the estate tax and the state and local tax deduction.

House conservatives are already firing warning shots that some aspects of the Senate bill are unacceptable, like a one-year delay in the corporate tax rate cut and preservation of the estate tax.

House Freedom Caucus Chairman Mark Meadows called those proposals nonstarters, and Republican Study Committee Chairman Mark Walker said they are problematic.

“If there’s one or two things that we’ve been able to work through and get past and they take out, I think we can live [with] that,” Walker said Wednesday. “If it’s a complete overhaul, then I think all bets are off.”

Interviews with Walker, Meadows and other members mentioned in this story were conducted before the Senate Finance Committee released highlights of its tax proposal and were based on reports of what was expected to be in the legislation. By the time the Senate plan was unveiled Thursday, the House had already adjourned for the week. The House measure was approved by the Ways and Means Committee earlier in the day.

The estate tax, which Republicans call the death tax, is universally hated among conservatives, and repealing it has long been considered part of any GOP effort to rewrite the tax code.

While House GOP members appear willing to accept their leadership’s decision to postpone full repeal of the tax to limit the cost of the overall bill, they’re less likely to accept the Senate’s plan to keep the estate tax with higher exemptions. 

“That saddens me,” Freedom Caucus member Scott Perry said upon learning that the Senate did not plan to repeal the estate tax.

“There are things that we absolutely object to, and that’s probably going to be one of them for many of us, but we’re going to have to look at it in the totality and say, ‘Yeah, I don’t like it, but I’ve got a binary choice,’” the Pennsylvania Republican said.

The House bill originally repealed the estate tax after six years, but an amendment the Ways and Means Committee adopted to the bill Thursday would delay the repeal an additional year to start in 2025. 

SALT Showstopper

The Senate’s decision to fully repeal the deduction for state and local tax, or SALT, is another potential showstopper for House Republicans, who struggled for weeks to find a compromise that would placate members from high-tax states like New York and New Jersey.

House GOP leaders and tax writers agreed to keep the property tax deduction with a $10,000 cap, which won over some wavering Republicans.

But there are still at least nine Republicans who are opposed to the House tax bill because of its treatment of SALT: New Jersey Reps. Leonard Lance, Frank A. LoBiondo and Christopher H. Smith; New York Reps. Peter T. King, Lee Zeldin, Elise Stefanik and Dan Donovan; and California Reps. Darrell Issa and Tom McClintock.

A full repeal of SALT, as the Senate is proposing, would likely lose more than 22 Republicans — the maximum number that could vote “no” and the bill still pass without any Democratic support.

“I think there’s broad recognition that you cannot repeal state and local taxes in its entirety and expect tax reform to get to the president’s desk,” Ways and Means Committee member Tom Reed, who is supporting the House bill, said. “I will tell you I can’t support that.”

The New York Republican said there are 73 House GOP members from high-tax states and it is “pure math” that full repeal of SALT would cause the bill to fail.

Ways and Means Chairman Kevin Brady had said two weeks ago as he was negotiating with House members on the SALT provision that he expected Senate Finance Chairman Orrin G. Hatch to take whatever compromise the House reached on the issue.

“He’s fully aware that this is an important issue for House members in that we are taking a lead to find a solution,” the Texas Republican said at the time. “I’m confident that that will be honored.”

On Wednesday when asked about the emerging Senate plan, Brady was not critical of Hatch’s apparent reversal. 

“Well, they are writing to the framework in that sense, as we agreed with the president and the House and Senate that those deductions would be limited or eliminated in the final bill,” he said, referring to the tax principles released in September by congressional Republicans and the White House.

Brady said he’d let the Senate do its work and expressed confidence that the House members from high-tax states would get on board with his bill.

“I think for us addressing this with the state and local property deduction and really muscling up the family credit is helping a lot of a families in SALT states,” he said.

Crowley: Tax Bill Should Be Called ‘HR 1 Percent’

Going to Conference?

Speaker Paul D. Ryan on Thursday dismissed concerns about differences between the House and Senate bills, saying they would be reconciled after each chamber passes a bill. A floor vote on the House version is expected next week. 

The speaker promised there will be a conference committee, and he dismissed criticism from a Democratic aide who overheard him and Senate Majority Leader Mitch McConnell laughing after Ryan told the Kentucky Republican, “We’re definitely going to conference.”

“Put the political hack aside; we are going to conference,” Ryan said when asked about the exchange at his weekly news conference. “And that’s the point I’ve been making, is we’re going to conference. That wasn’t a joke. The person, I don’t even know which hack did that, but if you were there it’s, ‘We’re going to conference.’ Why are we going to conference? Because we’re doing this [the] right way. We’re doing this regular order.”

But some members, like Perry, are skeptical that a conference committee will materialize.

GOP leaders also said the House would go to conference with the Senate on their differing budget resolutions but ultimately cut a deal that allowed them to take up the Senate resolution. They sold it to their members as a way to speed up the tax overhaul process, and it has kept them on track for a House floor vote before Thanksgiving.

With President Donald Trump wanting a tax bill to sign by Christmas, GOP leaders might face pressure again to skip a conference committee, which would require a second round of votes in each chamber, and try to reconcile their differences before the Senate passes its version so that the upper chamber can pass a measure the lower chamber can accept.