Hatch ‘disgusted’ with Corker kickback claims

As the U.S. Senate prepared for a vote on federal tax overhaul legislation, Tennessee Sen. Bob Corker’s shift from no to yes “swirled into a political firestorm,” according to Politico. Senate Finance Committee Chairman Orrin Hatch on Tuesday sent Corker a letter basically declaring there was no “Corker kickback” – a label some have been using.

Excerpt from the Politico article (one of several in national media) that has Corker comments on why he changed sides:

Liberal activists and lawmakers declared it the “Corker Kickback,” in a last-ditch bid to derail the bill — or at least further tarnish Republicans’ big tax win this week.

Corker denied the accusation, as did the chief tax writers in the House and Senate.

“I had obviously nothing whatsoever to do with that and I think that’s part of the public record,” Corker told reporters at the Capitol on Monday.

The final House-Senate tax compromise did nothing to reduce the measure’s trillion-dollar-plus increase of the federal deficit, which Corker cited as a chief reason for rejecting an earlier version of the bill. Still, the retiring Tennessee Republican, the sole GOP senator to vote against the chamber’s version, said he was confident in his decision to reverse course.

“On one hand, you had the deficit issue. On the other hand, you had the economic growth issue,” Corker said. “I took a long walk on Friday morning and just decided that from the standpoint of, if I were the deciding vote on this … is our country better with this or not better with it? And I feel that we are.”

Corker, who had also met with Treasury Secretary Steven Mnuchin to discuss the tax measure, spent considerable time on the phone with local business leaders in his home state and other experts to weigh the pros and cons of the bill, Corker said.

Nonetheless, the claim that a provision was snuck in during the final hours of bill drafting — and that Corker had asked for it — spread quickly over the weekend following an International Business Times report that people who hold real estate holdings through a limited liability company will be able to take advantage of a new deduction for “pass-through” businesses even if they have few employees. Pass-throughs are companies that pay taxes through the individual, not the corporate side of the tax code.

The IBTimes report noted the Trump family and several congressional Republicans, including Corker, would likely benefit from the language…. Corker said he had nothing to do with it, and did not seek specific tax changes in the bill. He sent a letter to Sen. Orrin Hatch on Sunday asking him to provide an explanation for how the provision made it into the final conference report.

In a letter released Monday, Hatch said it was “categorically false” that Corker sought the provision or that the language was inserted into the final tax legislation at the last minute. The Finance Committee chairman said he was “disgusted” at news reports that characterized it as otherwise.

Here’s a note distributed to media by Corker’s office Monday, followed by text of Hatch’s letter

The senator is not a member of the tax-writing committee and had no involvement in crafting the legislation. He requested no specific tax provisions throughout the months-long debate and had no knowledge of the pass-through provision in question.

Senator Hatch notes that the two assertions “contained in these reports” are “categorically false”. He writes: “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 as an issue requiring a compromise between conferees is somehow a covert and last-minute addition to the conference report.”

December 18, 2017

The Honorable Bob Corker

425 Senate Dirksen Office Building

Washington, D.C. 20510

 

Dear Chairman Corker,

Thank you for your letter dated yesterday.

I am disgusted by press reports that have distorted one particular aspect of the conference agreement on H.R.1, the Tax Cuts and Jobs Act.  The reports have focused on the final version of the 20 percent pass-through deduction, the proposed new Section 199A.  As the author of this provision and the vice chairman of the conference committee, I can speak with authority about the process by which the conference committee reached its final position.

There are two false assertions contained in these reports, and I would like to correct the record on both.

First, some have asserted that a new provision was crafted for real estate developers and was “air-dropped” into the conference agreement.  Second, reports have implied that you had some role in advocating for or negotiating the inclusion of this provision.

Both assertions are categorically false.  With respect to the second, I am unaware of any attempt by you or your staff to contact anyone on the conference committee regarding this provision or any related policy matter.  To the contrary, virtually all the concerns you had raised in the past about the treatment of pass-through businesses in tax reform were to voice skepticism about the generosity of various proposals under consideration.

The first 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.  For more than a year, tax-writers in the House and Senate have worked to craft legislation that not only provided relief for “C” corporations, but also delivered equitable treatment for pass-through businesses.  Though the two chambers came at this issue from different angles, our goal was the same: To provide tax relief to pass-through businesses at a level similar to that provided to regular “C” corporations.  This policy goal was confirmed in the Unified Framework for Fixing Our Broken Tax Code, which provided in part:

“TAX RATE STRUCTURE FOR SMALL BUSINESSES The framework limits the maximum tax rate applied to the business income of small and family owned businesses conducted as sole proprietorships, partnerships and S corporations to 25%. The framework contemplates that the committees will adopt measures to prevent the re-characterization of personal income into business income to prevent wealthy individuals from avoiding the top personal tax rate.”

The House Ways Means Committee and the Senate Finance Committee achieved this mutual goal by different means.  Section 1004 of the House bill provided a special tax rate for pass-through income and included a “prove-out” option for capital-intensive businesses.  Chairman Brady unveiled this approach on November 2nd, more than six weeks ago.

The Senate took a different approach, achieving the intended rate relief through a deduction patterned after current law Section 199.  We also included measures to ensure that compensation could not be easily gamed into business income in order to qualify for the deduction.  Similar to Section 199, the deduction in the Senate bill excluded compensation and guarantee payments to owners and was limited to 50 percent of compensation paid to employees, with an exception for small pass-through businesses, including service providers.  The Senate bill did not include a prove-out option for capital-intensive businesses like the one contained in the House bill.

The Joint Committee on Taxation (“JCT”), the non-partisan congressional scorekeeper for tax legislation, released a side-by-side summary of the two bills for conferees.  That summary, dated December 7, 2017 and available on JCT’s website (JCX 64-17), described the House position in part:

“In the case of a capital-intensive business, a taxpayer may “prove out” a capital percentage by electing the application of an increased percentage for the taxable year it is made and each of the next four taxable years.  The applicable percentage is determined by dividing (1) the specified return on capital for the activity for the taxable year, by (2) the taxpayer’s net business income derived from that activity for that taxable year.”

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 as an issue requiring a compromise between conferees is somehow a covert and last-minute addition to the conference report.

I have sat on a number conference committees, too numerous to remember.  In each case, conferees have come into the conference expecting to achieve their chamber’s position or negotiate a reasonable compromise.  This conference committee was no exception.  The House entered the conference with an interest in preserving, in some form, the prove-out alternative as an option for capital-intensive taxpayers.  Through several rounds of negotiations, the House secured a version of their proposal that was consistent with the overall structure of the compromise.

The prove-out alternative included in the conference report was derived from the House provision and is the product of a negotiation between the House and Senate tax-writing committees.  It is that simple.

If you have any further questions, please feel free to contact me.

 

Very Truly Yours,

Orrin G. Hatch,

Chairman, Senate Finance Committee

Cc:  The Honorable Kevin Brady, Chairman, House Committee on Ways and Means

The Honorable Mitch McConnell, Majority Leader, United States Senate

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