Late last week, the GOP tax reform legislation looked to be a done deal after Senator Corker (R-TN) – who has publicly feuded with President Trump and famously compared the West Wing to an “adult daycare center” – announced he would support the tax bill after previously voting against it.
Then, Corker’s sudden change of heart took another surprising turn when it was discovered over the weekend that it came only after new language was inserted that could be worth roughly $1 million to him personally…language which has since been dubbed the “Corker Kickback“.
Now, adding to a scandal that Democrats will undoubtedly attempt to leverage in their last minute efforts to block tax reform, Senator Orrin Hatch (R-UT) admits that he drafted the controversial language that helped flip Corker to a ‘yes’ vote, but his memory is a little more ‘fuzzy’ when it comes to recalling whether or not the provision was already incorporated in previous versions of the bill. Despite Hatch’s insistence that a similar provision was passed in the House version of the GOP’s tax bill, tax experts interviewed by the International Business Times say that’s simply not true:
In his letter explaining the situation, Hatch did not dispute that Corker and other Republicans who have large ownership stakes in real-estate-related LLCs stand to reap a personal windfall from the legislative language he added to the final bill. Instead, Hatch insisted the controversial provision wasn’t new, but was in fact included in the version of the bill passed by the House earlier this month. He wrote that the claim “that a new pass-through proposal was created out of whole cloth and inserted into the conference report is an irresponsible and partisan assertion that is belied by the facts.”
Hatch’s characterization of the provision was disputed by tax experts Monday, who said the Republican senator’s process argument was factually false.
“Chairman Hatch’s letter is an exploration of an alternative tax universe not previously known to science,” Edward Kleinbard, former chief of staff of Congress’s Joint Committee on Taxation, told IBT.
“[The provision’s] only connection with the House bill is that it rewards owners of capital intensive businesses, like wealthy real estate investors, but the measure of those rewards and the new provision’s design have no relationship to the House bill,” said Kleinbard, currently a law professor at the University of Southern California.
In a letter Monday morning addressed to Corker, Hatch said that the controversial provision was a compromise between the House- and Senate-passed tax bills that had generally been considered before.
Hatch further wrote that the House bill — which was never voted on by Corker in the Senate — included a section that “provided a special tax rate for pass-through income and included a ‘prove-out’ option for capital-intensive businesses,” but also acknowledged that “the Senate bill did not include a prove-out option for capital-intensive businesses like the one contained in the House bill.” He then declared: “It takes a great deal of imagination — and likely no small amount of partisanship — to argue that a provision that has been public for over a month, debated on the floor of the House of Representatives, included in a House-passed bill, and identified by JCT [Joint Committee on Taxation] as an issue requiring a compromise between conferees is somehow a covert and last-minute addition to the conference report.”
That said, tax experts familiar with the specifics of both the House and Senate versions of the tax bill said that while there are some general similarities between the House bill and the conference report, Hatch sculpted a brand new provision for the final bill — one that was not in the previous versions of the legislation.
“The mechanism that suddenly appeared in the conference committee was entirely new,” Matt Gardner of the Institute on Taxation and Economic Policy, which opposes the bill, told IBT in an email. “While the concept of giving a special pass-through carve-out to owners of real estate is, sadly, not new, the way in which the conference committee subverts the pass-through break is entirely new.”
Steve Rosenthal, a former tax attorney at Ropes & Gray, agreed.
“The House bill allowed lower rates for qualified income from pass-through businesses, but did not have a wage guardrail,” said Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, in an email. “The Senate bill added a wage guardrail, to limit the lower rates to income from businesses with substantial payrolls. The Senate copied the wage guardrail from another rule in the tax code today. The Conferees followed the Senate bill, but lifted the wage guardrail for real estate and, perhaps, other businesses without substantial payrolls. The rule in the Code today does not lift the guardrail for real estate and other businesses without substantial payrolls. The House bill did not have any wage guardrail to lift.”
Meanwhile, adding fuel to the fire is the fact that financial disclosures show Hatch’s wife, who owns a real estate LLC worth up to $500,000, would also directly benefit from his lucrative new policy modification.
So, what say you…just another media-fabricated ‘nothing burger’ or is tax reform suddenly sinking in the Washington D.C. swamp?