“We want to make sure we kind of walk the members through the bill, before we start talking about it publicly,” Senate Majority Whip John Cornyn (R-Texas) said. | Alex Brandon/AP House GOP punches big hole in plan with tax avoidance change

Under pressure from businesses, House Republicans have gutted a plan to crack down on corporate tax avoidance — which is now helping put their broader tax-rewrite plan over budget.

They’ve scaled back the proposal — which is opposed by the influential Koch brothers, as well as scores of large corporations — so much that the provision is now projected to raise $7 billion over the next decade, which is 95 percent less than the original plan. Some companies would likely pay nothing under the revised plan.


Senate Republicans, meanwhile, plan to unveil a tax plan on Thursday that sharply diverges from the House GOP's plan, including by not fully repealing the estate tax, eliminating the state and local tax deduction and possibly changing a tax cut for unincorporated “pass-through” companies so it is more palatable to the small business lobby than the House legislation.

GOP leaders will brief the conference on the details on at 11:30 a.m. Thursday in the Strom Thurmond Room at the Capitol, according to two sources.

“We want to make sure we kind of walk the members through the bill, before we start talking about it publicly,” Senate Majority Whip John Cornyn (R-Texas) said in an interview Wednesday. “But I would say we learned a lot from the House’s experience. I’m glad the House went first because hopefully some of the things they have learned from the experience, we will avoid those problems in the Senate.”

The House Republicans’ change in the corporate tax avoidance provision is a big reason why their tax plan now doesn’t fit within their budget, which allows them to cut taxes by $1.5 trillion. They’re now $146 billion over budget, according to Ed Lorenzen, a budget expert at the nonpartisan Committee for a Responsible Federal Budget.

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Filling that hole will be a key challenge facing the tax-writing Ways and Means Committee as it pushes to approve the legislation this week. Failing to stay within their budget, aside from being embarrassing, would create procedural problems in the Senate that could allow Democrats to block the plan.

Senate leaders have their own set of budgetary and political challenges and are going their own way in drafting a tax plan. Sources said not entirely repealing the estate tax is done in part to accommodate Sen. Susan Collins (R-Maine), a powerful swing vote in the Senate who has said she sees no need to eliminate it, as the House plan does.

The decision to completely repeal the state and local tax provision undercuts House Republican leaders’ efforts to mollify members from high-tax blue states. The House plan would keep a write-off for property taxes, up to $10,000.

GOP Sens. Marco Rubio of Florida and Mike Lee of Utah have been pushing for a more generous child tax credit than was outlined in the House bill. Meanwhile, the Senate leadership was whipping members on Wednesday afternoon to see whether there would be support for repealing Obamacare’s individual mandate within the tax bill, according to two GOP senators.

Ways and Means Chairman Kevin Brady (R-Texas) said Wednesday that he would have another round of changes to the House plan tomorrow.

“I do expect to offer an amendment that, as required, brings our committee’s product within the budget reconciliation number of $1.5 trillion,” he told the panel Wednesday.





Rep. Lloyd Doggett (D-Texas) blasted the revised tax avoidance proposal as a "corporate giveaway" that comes even as Republicans rejected his colleagues' efforts to spare tax breaks for higher education, medical expenses and adoptions that are now on the chopping block.

"It's a question of priorities," he said.

Republicans unveiled a package of changes to their plan Monday evening, the largest of which rewrote a proposal targeting companies that use subsidiaries in other countries — which are beyond the jurisdiction over the IRS — to avoid paying U.S. taxes.

Their original proposal had essentially told companies they would have to pay a hefty excise tax unless they agreed to submit those overseas entities to IRS oversight. If the companies agreed, they would be subject to Republicans’ planned 20 percent corporate income tax, though they could take some deductions when calculating their tax bills.

The revised proposal does not touch that tough new excise tax, but it does sweeten the pot for companies that submit to U.S. taxing authority.

It would allow complying companies to take more deductions and would also give them credits for some taxes paid in other countries. Those changes would cost $147.5 billion, according to a new Joint Committee on Taxation estimate, which had said the original provision would have raised $154.5 billion.

The changes are adding to Republicans’ budget challenges. Lawmakers are under pressure to ease scads of other proposals in their plan that they're relying upon to help make their tax math work. Among them: plans to crimp the popular mortgage interest deduction, to change how "pass-through" businesses are taxed and to dump a tax break for adopting children.

Under Congress’s arcane rules, they can use “reconciliation” to move their tax legislation in the Senate, past Democratic filibusters, only if they cut taxes by no more than $1.5 trillion.

"To get it to $1.5 trillion, you know that's the bottom line," said Rep. Vern Buchanan (R-Fla.), who sits on the tax-writing committee. "It's a lot of hard decisions — they've got to be made."

Aside from the budgetary impact, the changes to the international tax avoidance plan means the GOP's proposal will do less to protect the U.S. tax base from gamesmanship.

As part of their plan, lawmakers want to switch to a so-called territorial tax system, in which companies’ overseas profits would not be taxed. But that would prompt many companies to move overseas, in order to cut their tax bills, which is why experts say the Republican plan needs to include special safeguards to prevent an exodus of companies.

The international tax avoidance plan was one of their main ways of addressing that issue, though some experts say the new changes are so significant they’ve defanged the proposal.

“The United States needs a pragmatic inbound base-erosion rule that helps level the playing field between U.S. and foreign-headquartered multinationals,” said Itai Grinberg, an international tax expert at Georgetown University. “This rule does not accomplish that goal.”

Colin Wilhelm contributed to this report.