Tax reform state of play: The biggest day for Republicans on taxes yet

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Story highlights

  • Outside groups are spending big to protect the GOP tax plan
  • The Senate unveils their version which will have key differences with the House

Washington (CNN)The House ways and means committee is expected to approve the Republican tax bill Thursday, setting it up for a House floor vote next week. The Senate finance panel will also introduce its major tax plan tenets Thursday, setting it up for committee consideration next week.

But there are several huge issues looming over the day.
- What changes are made in the House bill?
    - What does ways and means committee Chairman Kevin Brady use or tweak to add revenue to the bill to hit the $1.5 trillion deficit target?
    - How do Republicans react to those changes?
    - Can House GOP leaders keep the California delegation, which save for Rep. Darrell Issa, has mostly been OK with the state and local tax deduction repeal, in line?
    - How do the powerful industries that have been lobbying for those changes react?
    - How sharp are the differences between the House and Senate Republican plans?

    On the policy, the always present revenue problem:

    As CNN reported Wednesday, the Joint Committee on Taxation had informed House ways and means committee members that the bill, after changes, was now over the $1.5 trillion deficit target. A Congressional Budget Office analysis put that number at $1.7 trillion.
    Key points on this:
    - Brady told CNN Wednesday that the bill would be back down to $1.5 trillion with the changes coming Thursday.
    - The House bill being over the $1.5 trillion target is not a huge problem. It's not fatal. It doesn't shut down the bill. It just creates future hurdles if the Senate chooses to incorporate major elements.
    - What these numbers show is that revenue was, is, and will continue to be a huge problem as this process moves forward.

    What about Obamacare?

    As has been clear over the last few weeks, Republicans are actively considering adding a repeal of Obamacare's individual mandate to the tax proposal. Why? Because they have revenue problems, and CBO Wednesday confirmed the repeal would give them an extra $300 billion to work with.
    To be crystal clear here, from several high level sources: GOP leaders do not want to go this route. It's political nightmare for them.
    As one senior aide sarcastically put it: "Yes. Health care has worked out so well for us this year. Let's just go ahead and add it to our already-extremely complicated, lone must-pass legislative item."
    They've been gauging the temperature of their members in both chambers the last several days, to see whether keeping the conversation on it going is even worth it. So far, Brady said Wednesday, the discussions remain ongoing.
    Here's the bottom line on this: If this is included in the bill, it means they have a huge revenue problem and have run out of all other options. Period.

    How Republicans plan to get this done

    House leaders have been going member by member, delegation by delegation, providing economic data breakdowns via slide presentations to try and assuage concerns about various pieces. So far, early checks with their whip team are yielding good results, but they are far from a hard count. Expect that to start after ways and means finishes its bill Thursday.
    Also expect changes, based on the members who remain holdouts, before the bill gets to the floor next week.

    The Outside Game:

    Millions in TV, digital and print ad buys from outside groups. The untold story of this process is how unbelievably aligned the outside groups -- the Chamber of Commerce, Koch Brothers, etc. -- are on this bill. That's a huge deal. And they are already spending big to try and protect Republicans who may be on the fence about this.

    The White House:

    The White House legislative and economic teams are in close contact with the Hill and have been every step of the way. Their policy folks are available to members and Treasury may soon play one of the most important roles in this entire process when they create their own dynamic score.
    The President's overall role, especially given the fact he's been out of the country, is, according to one GOP senator: "Rah rah and TBD. He's all in, but we're a tad unclear how he's going to be deployed. Or, of course, what he's actually going to say."

    Senate changes

    CNN's Lauren Fox reports the following:
    - Five to seven brackets (instead of four), with different income thresholds than the House.
    - Double the exemption on estate tax (short of full repeal), for Sen. Susan Collins, R-Maine.
    - Full repeal of state and local tax deduction.
    - One year phase in on the 20% corporate rate.
    - On pass-throughs, not 70/30 or 50/50. Instead, they have a tax deduction construct of sorts.
    - Child tax credit right around the $1,600 level from the House
    There will be other major differences, too. But these are the key ones. The corporate rate phase in is essential to stay on track budget-wise. But Trump and White House officials were livid when the House considered a similar strategy last week. Their reaction here will be very interesting.

    Senate fallout

    The Senate, especially on repealing the state and local tax deduction, is about to do things that fly in the face of what House leaders have negotiated to appease some of their members.
    A question, particularly after health care, looming over the conference right now: "Why vote for a deal the Senate is going to immediately undercut?"
    "The lack of trust with those guys is unreal in the conference right now," one House GOP lawmaker said of his Senate counterparts.
    Brady and Ryan have made clear to their members that the bill will go to conference, and in conference, Senate negotiators will have to accept that the House has a SALT problem. But keep an eye on this dynamic.

    Where Democrats currently stand

    House Democrats on the ways and means panel spent the week introducing dozens of amendments to create political problems for the Republicans, and also try and lay bare what they believe are the major weak points in the GOP bill.
    Minority Leader Nancy Pelosi told CNN last week her goal is to kill the proposal, not negotiate. That's a pretty unified perspective in the House. At the moment, it feels like the Senate Democrats are following suit.
    But the Senate is a very different animal than the House, and the political realities (10 Democrats up for re-election in Trump-won states), combined with the expected policy shifts in some areas, have senior Republicans expecting that at some point three or four Senate Democrats will be in play.
    Asked about this possibility, a senior Democratic aide said simply: "Good luck."