Capito all in on tax legislation; Manchin undecided

Despite earlier posturing, Sen. Joe Manchin, D-W.Va., said he hasn’t made up his mind on a tax reform bill that the Senate could vote on as soon as next week.

Manchin declined an interview request to talk about the current Senate legislation. His spokesman, Jon Kott, said in an email the senator wants to learn more about the bill, how it will impact West Virginia and what changes might be made to it in a conference committee with the House of Representatives before he discusses it publicly.

The House passed its version of the bill last week in a 227-205 vote, with all three of West Virginia’s representatives voting in the affirmative.

In August, Manchin drew national headlines when he declined to sign a letter with most of the Senate Democratic caucus outlining principles the members asked Republican leadership to follow when drafting a tax reform package.

In a subsequent interview, Manchin said he agreed with the general ideas of the letter: tax reform should not increase the deficit; it shouldn’t go through a fast-track procedural process like budget reconciliation; and it should neither increase the tax burden on the middle class nor decrease it on high-income earners.

The Senate tax bill in its current form violates all of those principles.

According to data from the congressional Joint Committee on Taxation, the legislation would increase the deficit by more than $1.4 trillion between 2018 and 2027. It is moving through the Senate via the budget reconciliation process. Additional JCT data shows while the bill will lower tax rates across the wage-earning spectrum in the short run, by 2027, when some of the tax cuts geared toward middle class families expire, those earning up to $75,000 will pay more in taxes. Meanwhile, those above that threshold will maintain a tax cut.

Kott said Manchin is not walking back his remarks, just further studying the bill.

Manchin, who is running for re-election in 2018, could be a pivotal vote within the Senate’s thin margins. The 52 Senate Republicans can only afford to lose two votes to pass the bill, assuming all 48 Senators who caucus with the Democrats oppose it. Sen. Ron Johnson, R-Wisc., came out against the bill last week.

Sen. Shelley Moore Capito said in an interview last week she’s planning to vote for the package.

She said she’s aware of the JCT’s data showing the middle class tax spike, but there is still room to negotiate, both within the Senate and in a conference committee with the House. She said she’d like to see the Senate solidify some of the middle class tax cuts, which are temporary under the Senate bill.

Those include cuts to child tax credits and the roughly-doubling of the standard deduction, both of which expire in December 2025.

“That is something that’s still a work in progress on the individual side, we want to make everything permanent, we’d like the Democrats to join us on this to figure out a way to make everything permanent,” she said. “We’re going to keep working towards that, and hopefully we’ll have some success.”

Along with changing the tax bracket structure, temporarily roughly doubling the standard deduction while limiting certain itemized deductions, temporarily increasing the child tax credit, lowering the corporate interest rate, and other provisions, the Senate tax bill would repeal the individual mandate to purchase health insurance, part of the Affordable Care Act.

When asked if the repeal of the individual mandate perturbed her at all, Capito said while some see it as a health care issue, she sees a tax penalty for not purchasing insurance as an unwarranted tax on Americans — generally in the middle class — who choose not to purchase a product.

“That’s a tax on the middle class,” she said of the mandate. “In my view, removing that tax, simply says, ‘We’re not going to tax you if this is the choice that you make.’ It doesn’t touch Medicaid, it doesn’t touch the exchanges, and it doesn’t tell anybody not to buy insurance. So it’s really about, I think, adding tax relief for that worker.”

International Revenue Service data shows middle class West Virginians pay the bulk of the tax penalties for not having insurance in the state.

However, Capito said the decision to combine the repeal with tax reform was a source of contention, even within Senate Republicans.

According to an analysis from the Congressional Budget Office, a repeal of the mandate would reduce the budget deficit by $338 billion between 2018 and 2027. The Senate must stay under a deficit cap to pass the bill via reconciliation rules.

The CBO also estimated the repeal would lead to 13 million fewer Americans covered by health insurance by 2027 than under current law. This would cause premiums to increase by roughly 10 percent.

One of Capito’s biggest hopes for the bill is that lowering the corporate tax rate to 20 percent (down from 35) and incentivizing companies will lead them to repatriate their assets from abroad into the U.S.

She said the U.S. might not win the race to the bottom, but the changes would make the country internationally competitive.

“We’re not trying to get to the lowest rate here, we’re just trying to get competitive,” she said. “We know Ireland [has lower corporate tax rates], but right now we’re either at the top or No. 2.”