House Republicans narrowly adopted a budget resolution Thursday unlocking a fast-track process to achieve their long-sought goal of cutting Americans’ taxes by the end of the year. The next step will be releasing a draft tax measure as early as Nov. 1.
The 216-212 vote allows Congress to enact tax cuts later that increase the federal deficit by up to $1.5 trillion over 10 years. The bill could pass the Senate with just 50 votes — plus a tie-breaker from Vice President Mike Pence — bypassing the need for any Democratic support.
While Republicans haven’t outlined a full plan, their tax framework calls for doubling the standard deduction for individuals and reducing the current seven income brackets to three — 12%, 25% and 35%, with a possible fourth bracket for top earners. Those tax cuts may be funded by limiting the deduction for state and local income and property taxes, an idea opposed by some GOP moderates from high-tax states.
Moderate Republicans, mostly from Northeast states, had threatened to hold up the budget measure but now will reserve their fight for the tax bill itself.
“Tax reform is good for the country; it’s just not good when it’s on the backs of six states,” said Representative Tom MacArthur of New Jersey.
Republicans are determined to enact a tax-cut plan, especially after spending much of the year trying to use the same fast-track process to repeal Obamacare. That effort finally collapsed, leaving Congress with no major legislative achievements thus far in President Donald Trump’s first year in office. Some Republicans say a failure to cut taxes could doom many of them in the 2018 elections.
Some revenue-raisers are needed to keep the tax reductions within the $1.5 trillion revenue loss cap. Deficit hawks like Senator Bob Corker of Tennessee have said they would vote against a tax bill that results in a greater revenue loss. He has also said that “reasonable” growth estimates would need to show that the $1.5 trillion loss would be erased by economic growth.
Although the House adopted its own budget on Oct. 5, Republicans decided to speed the tax-overhaul process by agreeing Thursday to pass the Senate’s version, avoiding the need for negotiations between the two chambers.
The budget measure, H.Con.Res. 71, would allow a $90 billion increase in defense spending above the current cap, and would let lawmakers raise $1 billion by opening Alaska’s Arctic National Wildlife Refuge to oil drilling for the first time. It doesn’t include a House proposal to cut entitlement spending.
Balance in 10 Years
The budget claims to reach balance in 10 years through $5 trillion in spending cuts, though it doesn’t contain a mechanism to fast-track a vote on the cuts this year.
Democrats said the budget will set up a rushed vote on a tax plan that would increase the deficit and ultimately lead to cuts in social spending that helps the elderly and poor.
“They don’t want you to find out that it overwhelmingly benefits the wealthy, while increasing taxes on millions of middle-class families,” said top Budget Committee Democrat John Yarmuth of Kentucky on the House floor. In addition to the spending reductions called for in the budget, “more cuts will be coming once the Republican tax cuts blow an enormous hole in the budget,” he said.
Most conservatives said they would vote for the budget to advance tax reform and that they plan to resume their quest for cuts in social spending next year.
Ways and Means Committee Chairman Kevin Brady of Texas said Wednesday that the state and local tax deduction issue needs to be resolved before the tax measure is released.
One moderate Republican spelled out his reasons for wanting to keep the state and local deduction. “The rest of the country is getting a tax cut and the best they are offering my folks is you will break even? I can’t go back to my district and say, ‘Re-elect me, it could have been worse,’” Peter King of New York said Wednesday.
King and other moderates propose keeping the deduction for individuals earning up to $400,000 a year. Other ideas would allow the deduction of property taxes but not income taxes, or would convert the deduction to a credit that could be used by people who don’t itemize.
‘Brings Some Fairness’
White House budget director Mick Mulvaney said Wednesday night that the Trump administration wants to eliminate the deduction. Getting rid of it “brings some fairness where it wasn’t before,” he said at Georgetown University.
Republicans also are talking about raising money by reducing the annual limit on 401(k) retirement account contributions — an idea Trump has flatly rejected. That would “violate our principles,” Mulvaney said, adding that if a tax plan raised taxes on the middle class, ”we would certainly give serious thought to vetoing it.”
Brady’s committee plans to vote on the tax bill during the week of Nov. 6, with a full House vote the following week.
The fight over the deduction is just the start of the coming battles over tax legislation. Other controversial elements include a possible global minimum tax for multinational companies, a phase-in of a new 20% corporate rate, ending the deductibility of business interest expenses, and safeguards to prevent wealthy individuals from improperly taking advantage of a new 25% rate for individually owned businesses.