By Mike Debonis and Erica Werner, The Washington Post
WASHINGTON – In the days leading up to a critical Senate vote this month on the GOP tax plan, Republican Sen. Rob Portman, Ohio, met secretly with Sen. Joe Manchin III, W.Va., in the moderate Democrat’s hideaway office in the basement of the Capitol.
Manchin told Portman that he would consider joining the tax effort, if only for a few changes. Chief among them: Instead of cutting the corporate tax rate to 20 percent, a top Republican goal, reduce it to 25 percent – and use the proceeds for bigger middle-class tax cuts. Other Democrats, Manchin suggested, might follow.
Portman took the request to Republican leaders, who rejected it.
For Republican leaders, the prospect of a bipartisan deal that could have solidified public support for the tax plan was far outweighed by the imperative to keep the GOP unified and the belief that deep cuts in corporate taxes, more than anything else, were the recipe for economic and political success.
“I would have preferred for it to have been bipartisan,” Portman said. “There were certain things that he was looking for that didn’t fit with the consensus that we had reached with the Republican conference.”
The result is a bill passed along strict partisan lines that now awaits President Donald Trump’s signature – the GOP’s crowning legislative achievement in the first year of the party’s control of Washington.
The decision to spurn Democrats underscores the political risks undertaken by the GOP, which pushed forward on the tax bill despite polls showing that it is one of the most unpopular pieces of legislation in recent history and independent, nonpartisan analyses projecting that it will disproportionately reward the wealthy and corporations, offer only moderate benefits to the middle class, and substantially drive up the deficit.
Republicans argue, however, that the cuts will spur economic growth and that everyday Americans will reward the GOP for creating jobs, boosting their paychecks and simplifying the tax-filing process for millions of households.
“My view of this: If we can’t sell this to the American people, we ought to go into another line of work,” Senate Majority Leader Mitch McConnell, R-Ky., said after the final bill passed his chamber.
Republicans plowed forward even as foreboding political currents swirled: the Russia investigation pushing Trump’s approval ratings ever lower, a political upset in Alabama underscoring the fragility of the GOP’s majorities in Congress as midterms loom next year. The bill itself grew more unpopular in every successive poll, yet the outside threats seemed to sharpen the need to claim a political prize. Republicans dug in and stuck to their schedule, a nearly unheard-of achievement for a major bill.
The strategy was effective for several basic reasons, according to interviews with more than a dozen Republican lawmakers, aides and lobbyists.
After earlier efforts to repeal the Affordable Care Act collapsed, Republican leaders decided to abandon the GOP principle of making sure the tax bill would not add to the deficit and instead invested their faith in the view that tax cuts can pay for themselves.
They learned from the calamitous health-care efforts, deciding to keep the tax negotiations fluid until the very end, and used a variety of techniques to coax reluctant Republican lawmakers to support the legislation.
They managed to contain a volatile president, using his support where helpful but trying to avoid rhetorical broadsides that could upend the sensitive negotiations.
And they held closely to their views that deep corporate tax cuts were the most important thing to assure the success of the bill, and that, despite the legislation’s billing, tax cuts for working families had to be a second-tier goal.
Without a dramatic reduction in the corporate tax rate, Republicans said, they would have lost their chance to make U.S. companies more competitive in a globalized economy.
“The president cared a lot about the business rate – it was the single biggest topic the president talked about,” National Economic Council Director Gary Cohn said Wednesday.
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It was the day after the presidential election, and Rep. Kevin Brady’s cellphone was blowing up.
Trump had secured a shocking win, ending six years of divided power in Washington. Business executives, lobbyists and fellow lawmakers were all ringing Brady, R-Texas, the House Ways and Means chairman, asking one question:
What’s border adjustment?
It was a wonky-sounding term, for years an idea discussed only in academic circles, but it also stood out as a powerful tool that could allow Republicans to hold fast to their long-held belief that a tax overhaul shouldn’t add to the deficit.
It was, in fact, the only serious idea they had to significantly remake the tax code – crucially, dropping the corporate tax rate from 35 percent to the low 20s or below – without significantly driving up the deficit.
The provision was effectively a new tax on imports, and it would not just generate about $1 trillion in new tax revenue but also serve as an incentive for businesses to keep operations in the United States.
Republicans had included the border-adjustment tax in their 2016 campaign plan, a document largely ignored until Trump won. But now Republicans controlled the levers of power, and the House agenda had the most complete tax plan around.
“It just went up to a new level of intensity, right the day after the election,” Brady said.
For some industries – particularly retailers and manufacturers who purchase their raw materials abroad – the implications were glaring: The corporate rate would be lowered on their backs.
Sen. Tom Cotton, R-Ark., – whose constituents include the world’s largest retailer, Walmart – compared the idea to something out of Orwell: “Some ideas are so stupid only an intellectual could believe them,” he said in a February floor speech. “This is a theory wrapped in speculation inside a guess.”
As the Republicans faced a lobbyist revolt at the start of the new administration, private negotiations among what was called the “Big Six” – the top Republican leaders in the House and Senate, the chairmen of the two tax-writing committees, Treasury Secretary Steven Mnuchin and Cohn – weren’t going any better.
McConnell and Sen. Orrin Hatch, R-Utah, the chairman of the Senate Finance Committee, didn’t see the border tax as politically feasible. While Trump appeared to endorse the concept at times, seeing it as the type of border tariff he had campaigned on, divisions within the White House kept him from embracing it. House Speaker Paul Ryan, R-Wis., and Brady, who had spent years warning of the risks of mushrooming federal deficits, were loath to abandon it.
There appeared to be no way forward, and some in the party had already begun to lower their expectations of a once-in-a-generation tax overhaul.
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It took a massive failure on another policy to clarify things.
Early on the morning of July 28, Sen. John McCain, R-Ariz., turned his thumb downward, casting the deciding vote against his own party’s health-care bill, and his colleagues immediately feared he had done even worse.
From the beginning, the GOP’s effort to remake the nation’s health-care system was racked with infighting propelled by ideological, temperamental and geographical divisions within the party – not to mention delay after delay that only amplified waves of public protests that relentlessly targeted individual lawmakers.
It seemed quite possible the tax effort would fare similarly.
But hours before McCain’s vote, the Big Six released a statement: “While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside to advance tax reform.”
As Republicans pondered how they had failed so badly on health care, the Big Six had made a fateful decision that would clear the way for the tax overhaul. The group had killed the border-adjustment tax, and with no plausible alternative, they had effectively removed the requirement that the tax plan not add to the deficit.
Brady said he and other Republicans were convinced that the tax effort would boost economic growth enough that the requirement was no longer necessary.
“In my view, over time this tax reform plan will recoup these revenues,” he said. “Without tax reform, we are doomed, to a slower economy and higher deficits.”
The failure on health care, Portman said in an interview, “concentrated the mind on how do we avoid this” when it came to tax legislation.
Even if Republican leaders were prepared to borrow money to pay for the tax bill, they still had to win over the support of Republican lawmakers who saw the nation’s rising debt as the biggest threat to American prosperity. Chief among them was Sen. Bob Corker, R-Tenn., a member of the Senate Budget Committee with an independent streak who had been openly clashing with Trump.
McConnell asked Corker to craft a deal with Sen. Patrick Toomey, R-Pa., a longtime advocate of supply-side doctrine who believed big tax cuts spur economic growth.
The two senators, McConnell later said, “represented the yin and yang” on the issue.
White House officials initially thought they could not achieve a very big tax cut – maybe $1 trillion – but for months, Toomey had been pressing his colleagues for at least double that. Toomey persuaded White House officials to request a larger package from his colleagues on the Senate Budget Committee, while he would continue advocating for the even bigger number he wanted, making the administration’s request seem modest.
During a meeting in McConnell’s office with the Republicans on the Budget Committee, the plan played out perfectly, Mnuchin said the White House wanted a $1.5 trillion tax package, according to a person involved in the discussions who requested anonymity to describe the private deliberations. Toomey said he wanted a package that was more than $2 trillion, and Sen. Ron Johnson, R-Wis., chimed in that he wanted a tax-cut package that was even bigger than that.
The White House and a number of Republicans were bombarding Corker with huge numbers all at once, numbers that were much bigger than many had thought possible.
Corker settled on the $1.5 trillion range, with the expectation that later steps would be taken to limit the impact of the legislation on the debt.
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From the beginning, the centerpiece of the plan was the reduction in the corporate rate, and for more than a year, Trump had promised 15 percent.
On Capitol Hill, that number was considered unworkable – it would open a gaping revenue hole and create a huge gap between the rates paid by owners of other businesses not organized as taxable corporations.
Publicly, the president kept the pressure on. But privately, Trump signaled to tax negotiators some flexibility. “Twenty is a pretty number,” he said on one conference call in early summer.
While Trump and the House felt comfortable with 20 percent, McConnell and Hatch wanted more flexibility. But by late September, the negotiators knew they needed to be on the same page, providing very broad principles to the House and Senate’s tax-writing committees so they could shape legislation that would pass their respective chambers.
The result would be a “unified framework” sparse on details. It would look a lot like the House blueprint, including a 20 percent corporate rate. But it would omit the difficult provisions – any offsets that would help pay for the plan.
With days remaining until the Big Six was due to release its framework, Trump dropped a bomb on the proceedings: Under no circumstances, he privately told the negotiators, would he accept a corporate rate over 18 percent. That would cost hundreds of billions of dollars more over the coming decade and threaten the viability of the entire effort.
It fell to Ryan to walk Trump back from the edge: If you agree to 20 percent, he told the president on a phone call, we will keep it there.
“He was very vocal about his views on this stuff,” said Sen. John Thune, R-S.D. “But I do think that he was good at interacting with people who had differences of opinion about the legislation but not browbeating them, not embarrassing them but really working with them.”
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Even with broad agreement on the shape of the legislation, the House and Senate faced two sharply different calculations.
For the House, it came down to a bloc of blue-state Republicans threatened by a proposal to significantly scale back or do away with the state and local tax deduction.
The tax break had been part of the federal tax code since the income tax was first instituted in 1913, and it had largely survived every effort to scale it back thanks to the clout of lawmakers from New York and other high-tax states that disproportionately benefited.
But in 2017, the politics were different: There were no Republican senators representing New York, New Jersey, California and other high-tax states. There were a handful of GOP House members from those states, but not so many that Republican leaders felt they absolutely had to be accommodated.
This time around, House Republicans proposed limiting the deduction to allow people to reduce only up to $10,000 in property taxes.
That was enough to split the bloc: Several Republicans representing the New York suburbs abandoned the bill, but most upstate Republicans and Rep. Tom MacArthur of New Jersey got on board. The 14 California Republicans, meanwhile, were keeping relatively quiet. The $10,000 property tax deduction didn’t help their constituents much at all: California has relatively low property taxes and relatively high income taxes.
But the nation’s most powerful California Republican, House Majority Leader Kevin McCarthy, R-Calif., privately assured them that the problem would get fixed. It might not happen in the House bill, he told them. It might not happen in the Senate bill, either. But he promised them that it would get fixed, and 12 of the 14 ultimately voted to pass the bill.
“The bill would not have passed if we didn’t have the support and votes from New York and California,” said Rep. Steve Scalise, R-La., the House majority whip. “Kevin made a commitment: This will get fixed in conference, and he never wavered in seeing that through.”
In the Senate, McConnell faced a different complication. There wasn’t one bloc of potentially aggrieved lawmakers but at least nine Republicans who could present problems. Republicans could afford to lose only two votes given the chamber’s 52-to-48 split.
Sens. Susan Collins, Maine, Lisa Murkowski, Alaska, and McCain had doomed the Affordable Care Act repeal earlier that summer, on a combination of concerns about drastic changes to health care and the Senate bypassing its usual process.
Corker and Sen. Jeff Flake, Ariz., both of whom had announced they wouldn’t be running for reelection, were worried about the impact on the federal debt.
Sens. Marco Rubio, Fla., and Mike Lee, Utah, were upset that their proposed expansion of a child tax credit benefiting families wasn’t included in the bill.
And Johnson and Sen. Steve Daines, Mont., complained that businesses that pay taxes through the individual tax code – so-called pass-through entities – weren’t getting as significant a rate cut as corporations.
With the health-care debate this year, similar types of concerns had led the Republicans to, in rapid succession, present different versions of the legislation, failing each time to advance it and embarrassing Republican leadership and the White House.
This time around, McConnell worked to avoid a similar situation.
He and top lieutenants summoned lawmakers in small groups to his ornate suite of offices on the second floor of the Capitol to fill them in on details of the bill and hear out their concerns. Before each group departed, McConnell delivered a message: Don’t draw red lines, least of all in public, about what should be in or out of the bill.
“If you can, keep your powder dry,” Thune said, summing up McConnell’s message. “Don’t go out and publicly define yourself in a way that prevents you from ultimately being able to get back to ‘yes.’ ”
For the most part, lawmakers heeded McConnell’s request, even as tax writers added controversial measures to the Senate bill. Most notably, they made the individual tax cuts sunset in 2025 and added a repeal of the Affordable Care Act’s individual mandate.
But one by one, all but one of the senators were won over.
Collins got agreement from McConnell to pass legislation – still to be delivered – stabilizing the health-care law. Murkowski got a provision that would enable drilling for oil off Alaska’s shores. McCain was convinced that the Senate had followed the type of process he had insisted upon.
“The other high point for me was John McCain’s decision to come on board early. . . . It meant a lot to me personally,” McConnell said. “I think that was a critical moment for us.”
Flake got a promise that Congress would move forward to address the status of young undocumented immigrants who had come to the United States as children. Johnson and Daines were given a more generous “pass-through” provision.
Rubio agreed to vote the measure, suggesting he would pull back his support if Republicans later made the plan more advantageous for the wealthy without doing more for working families.
The bill finally passed the Senate in the early morning hours of Dec. 2, after a wild night full of last-minute scrambling as Democrats erupted in fury over leaked drafts with portions crossed out and revisions scribbled in the margins.
Corker was the lone “no” vote after leaders couldn’t overcome his concern about estimates the bill would add at least $1 trillion to the deficit.
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Then came the process of reconciling the House and Senate bills. The effort was in precarious shape, especially with two ailing GOP senators, Thad Cochran of Mississippi and McCain, whose ability to show up for the final vote was in question.
Republicans absorbed a political body blow when Democrat Doug Jones won a special Senate election in Alabama, but they stayed on track, more determined than ever to deliver the legislation to Trump by Christmas.
At the 11th hour, Republicans pushed up the corporate tax rate to 21 percent while moving the effective date of the corporate tax cut earlier and reducing the top income tax rate.
But then Rubio threatened to oppose the bill unless the child tax credit was sweetened; leaders met his demand. And in a surprise move, Corker announced that he would vote for the bill after all, angrily denying that language that could benefit real estate developers had anything to do with it.
“Failure was never an option,” Scalise said. “We knew we had to get this done.”
Stunningly for legislation of such magnitude, Republicans had stuck to their timetable. Everything was lined up for final passage through the House and Senate on Tuesday. But after the House had acted and left for the night came one final hiccup – Senate Democrats succeeded in last-minute parliamentary maneuvers that knocked out a few minor elements of the bill.
One piece the Democrats successfully challenged? The title of the legislation itself, “The Tax Cuts and Jobs Act,” was found impermissible under the chamber’s arcane guidelines.
So the House had to come back into session Wednesday to pass a revised bill, an anticlimactic finale for the first tax overhaul in three decades.
One thing is certain: The nation has a new tax code. Much of the rest is a guessing game. Only in coming years will the parties learn who wins and loses as a result of the legislation and whether workers will see the benefits that have been promised them.
As for Manchin, the Democrat who wanted to get to yes, he says he regrets that Republicans didn’t welcome his overtures. He had also objected to the bill’s Affordable Care Act mandate repeal but gave Republicans a number of ways to address his concerns that he felt were reasonable.
“They were determined to make this a political bill, a partisan bill, and they didn’t need anybody. They didn’t want anybody,” he said early Wednesday morning as the Senate passed the final bill. “I even said, ‘Don’t you at least want the appearance – even if you get two or three of us – even if you get one of us?’ ”
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The Washington Post’s Damian Paletta and Jeff Stein contributed to this report.