It’s been a tough year for Mitch McConnell.
His chamber failed to pass the long-promised repeal of the Affordable Care Act, which sparked some conservative cries for him to step aside. He’s endured, and avoided, questions regarding the daily chaos emanating from down Pennsylvania Avenue. And he now faces a political climate from Nevada to Alabama that imperils his grasp on the Senate.
But in the wee hours Saturday morning, in the 11th month of the Trump administration, the Senate majority leader finally claimed a major legislative victory when the Senate passed a sweeping overhaul of the tax code, setting up the prospect of a $1.4 trillion tax cut by Christmas and the most significant tax rewrite in a generation.
In a celebratory press conference after the vote, McConnell said the bill would “make America more competitive,” prevent jobs from being “shipped” overseas, and “provide substantial relief to the middle class.”
The bill cuts taxes for the majority of Americans through 2025, while permanently slashing taxes for corporations and other businesses. The bill now must be negotiated with the House of Representatives.
The bill represents a fundamental overhaul of the business side of the tax code. The core of the bill is cutting the corporate tax rate from 35 percent to 20 percent and reducing the tax burden on so-called “pass through” businesses—such as sole proprietorships, partnerships, and S-corporations—whose owners’ incomes are taxed at the individual rate.
It makes major changes affecting individual American taxpayers, expanding the standard deduction and child tax credits, but eliminating most of the state and local tax deduction that primarily affects blue, high-tax states. A number of provisions would benefit the wealthy, including dropping the top income-tax bracket from 39.6 percent to 38.5 percent and targeting the estate tax to hit fewer rich Americans. Many of the individual breaks are set to expire in 2025.
And it takes a shot at the Affordable Care Act, ending the individual mandate—a move that would increase the number of uninsured Americans by millions and increase premiums as healthier people choose not to purchase health care coverage without the threat of the penalty.
Overall, more than 60 percent of U.S. households would see a tax cut in 2019, while 8 percent would pay more, according to a recent Joint Committee on Taxation report. But by 2027, most individual-tax-reform provisions would expire. Most Americans—more than 60 percent—would see small changes to their paychecks, with tax decreases or increases of less than $100. But 23 percent would see a tax increase greater than $100, and the rest—16 percent—would get a tax decrease greater than $100.
After their disastrous attempt to “repeal and replace” the Affordable Care Act this summer, Republicans in Congress knew they needed to do something big to reward voters for sending them to the House, Senate, and White House for the first time in a decade. This fall, the House moved quickly to pass its tax-reform bill, and Senate Republicans unveiled and passed their tax overhaul in less than a month. Senate Democrats ridiculed the way in which the bill was deliberated, with substantial provisions tucked in just hours before it passed.
“You complain about process when you’re losing,” McConnell said on Saturday.
In the days before the Senate bill passed, Sens. Ron Johnson of Wisconsin and Steve Daines of Montana traded their votes for “pass-through” businesses to receive even deeper cuts. Sen. Susan Collins of Maine, a moderate Republican who helped doom the Obamacare-repeal bills, achieved a number of victories, including a property-tax deduction for up to $10,000, on her way to supporting the bill.
And Sen. Jeff Flake of Arizona claimed that he earned from the Trump administration a promise to work on a legislative fix to protect young immigrants who will be at risk of deportation if the president shuts down the Deferred Action for Childhood Arrivals program in March. Flake said he talked to Vice President Mike Pence “yesterday, today, the night before.”
While McConnell and his fellow Republicans were able to get Neil Gorsuch on the Supreme Court, they had not been able to score a significant legislative win. The frantic deal-making underscored Republicans’ view that tax reform is a political necessity, even though their bills are currently unpopular.
“What has helped keep the process moving is that every Republican member of the Senate and House understands that getting tax reform done is a matter of existential importance,” said Steven Law, the head of the Senate Leadership Fund, a super PAC affiliated with McConnell. “All of the intricate, behind-the-scenes maneuvers of the last 72 hours show once again why you want Mitch McConnell at the center of the action.
“It’s a huge personal win for him,” he added.
Republicans said that they were able to get a tax bill through the Senate, where the health care overhaul failed, for a number of reasons. They said that tax reform is a less easily demagogued issue than health care, they were better organized, and they didn’t make public-relations errors like announcing a working group that didn’t include any women.
“Health care got off to a rocky start because there had not been appropriate outreach to conservative groups,” White House legislative affairs director Marc Short told National Journal.
“And with the tax-relief debate, we worked hard to make sure that a lot of our allies on the outside were informed and supportive.”
But the two biggest reasons why the Senate succeeded may be that it had failed to repeal Obamacare, and that McConnell dropped his desire to pass revenue-neutral tax reform in favor of a huge net tax cut that could include something from almost every Republican’s wish list. (On Saturday, McConnell claimed that he’s “totally confident” the tax cuts will pay for themselves due to economic growth, but the government’s own number crunchers said it would add over a trillion dollars in debt over the next decade.)
“I credit success to the work done by the Big Six this spring and summer, the fact that ACA efforts failed—which meant additional pressure to succeed on tax—and the fact that when you're enacting a net tax cut it’s possible to have more winners than losers,” said Rohit Kumar, a principal at PwC LLP and former McConnell aide, referring to congressional leaders.
“I think there’s no doubt that repealing Obamacare—that effort not succeeding—put additional pressure on all of us to complete tax relief,” added Short.
No Democrat voted for the legislation, arguing it benefited Republican donors over the middle class.
“Without exaggeration, I believe that if this bill passes, it will be remembered as one of the worst pieces of public policy in decades,” Senate Minority Leader Chuck Schumer said on Thursday. “At a time of immense inequality, the Republican tax bill makes life easier on the well off and eventually makes life more difficult on working Americans, exacerbating one of the most pressing problems we face as a nation—the yawning gap between the rich and everyone else.”
The only Republican who voted against the bill was Sen. Bob Corker of Tennessee, who tried the night before the bill passed to include a provision raising hundreds of billions of dollars in order to avoid the trillion-dollar hit to the government’s coffers.
Though many of his fellow Republicans claimed that the bill would pay for itself through economic growth, Corker said it “could deepen the debt burden on future generations.” On Friday, Corker said that he felt like a “dinosaur” for still caring about fiscal responsibility.
The other 51 Republicans in the Senate voted for it, and even some occasional conservative critics praised McConnell.
“If we get it done, and I believe we will, then leadership can quite rightly take considerable credit,” Sen. Ted Cruz said before the vote.