Republicans set an aggressive timeline for passing legislation to overhaul the nation’s tax code, putting pressure on senior lawmakers and the White House to resolve major disagreements about the effort before a Wednesday deadline to introduce a bill.
In a sign of the challenge to come, House Republicans narrowly passed a budget measure on Thursday allowing the tax overhaul to increase the deficit by $1.5 trillion over a decade. The effort succeeded with support from only two lawmakers to spare, as a group of northeastern Republicans opposed the budget resolution because of concerns that the tax rewrite could hurt their constituents.
The Wednesday deadline sets up what is likely to be several days of intense lobbying to shape the bill. The House and Senate aim to pass legislation by Thanksgiving, with the goal of finalizing the bill and sending it to President Trump by year’s end.
“It shows the strength of the willingness to get tax reform done,” House Majority Leader Kevin McCarthy (R-Calif.) said of Thursday’s 216-to-212 budget vote.
But as they rush forward, lawmakers have not resolved basic questions about how the tax overhaul would affect the wealthy, the middle class or lower-income earners. Still unresolved were several questions: whether the legislation would moderate the expected benefits for the wealthy; whether it would cap or eliminate popular middle-class tax breaks like the state and local tax deduction or the tax benefit of 401(k) retirement plans; and how dramatically it would expand a child-care tax credit that helps working-class families. Also on the table were several critical questions about how the corporate tax code would change.
Lawmakers planned to spend the coming days trying to resolve those concerns, with hopes that they would avoid the kind of intraparty squabbles that have doomed other major legislative efforts this year. They also hoped to avoid unexpected criticism from Trump, who has railed against GOP hopes of overhauling the 401(k) provision.
Asked Thursday if he was concerned that Trump might undermine the effort, House Speaker Paul D. Ryan (R-Wis.) said — half jokingly — that his party’s leader would be beginning a lengthy trip to Asia next week.
“He’s going to be in Asia, number one,” Ryan said. “No, I’m just kidding. That was kind of a joke. I was sort of joking on that one.”
Ryan went on to say that he was working closely with the White House on the bill, but several senior administration officials said they had not seen a final draft of what the tax plan would look like.
House Ways and Means Committee Chairman Kevin Brady (R-Tex.), the head of the House GOP effort to draft legislation, said that after he introduces a bill on Wednesday, his committee will swiftly move to refine it and make changes before voting on it and sending it to the full House.
With the budget behind them, Republican lawmakers can no longer put off answering a host of thorny questions. There are deep divisions over which taxes or deductions to eliminate to offset some of the trillions of dollars in revenue lost to proposed steep tax cuts for corporations and some individuals.
Options to raise revenue have been met with stiff resistance. A Republican proposal to eliminate or scale back a deduction that allows individuals to deduct state and local taxes from their federal payment turned into a major sticking point in Wednesday’s budget vote. Twelve Republicans from the high-tax states of New York, New Jersey and Pennsylvania, where many voters stand to be hit hard if the deduction were eliminated, voted against the budget.
The no votes come after a week of scrambling by party leadership to win over lawmakers from high-tax states, with behind-the-scenes negotiations and various compromise proposals.
A highly anticipated meeting scheduled for Wednesday night between the holdouts and House leaders was canceled shortly before it was set to begin, after party whips appeared to secure enough votes for the budget.
Every Republican member of the California and Illinois delegations, whose constituents are subject to relatively high local taxes, supported the budget, and several New York members waited to cast their no votes until GOP leaders had obtained a majority, indicating that they were unwilling to hold up the tax bill.
McCarthy said he thinks that several House Republicans who opposed the budget for reasons unrelated to the tax bill ultimately “will be there for tax reform.”
But one leader of the bloc supporting the state and local tax deduction — also known as “SALT” — said that despite the budget’s passage, the tax bill itself cannot pass until GOP leaders deal definitively with the issue.
“I know, and they know, that there were people that voted yes only to keep the process going forward but who disagree with the fact that we don’t have a deal yet,” said Rep. Tom MacArthur (R-N.J.), who voted against the budget.
Rep. Tom Reed (R-N.Y.), a member of the tax-writing Ways and Means Committee who has been negotiating a deal on the deduction, said Wednesday that he expected an agreement to be reached in the coming week.
“Before the rollout of the whole tax legislation and bringing it to the floor, all those i’s and t’s will be dotted and crossed,” Reed said.
Several of the concerned members met with House leaders after the budget vote Thursday, and House Majority Whip Steve Scalise (R-La.) said negotiations will continue through the weekend.
“There’s been no agreement, but there’s a lot of discussion about how to fix their problem,” he said.
No Democrats supported the budget, and the party is staunchly opposed to the GOP proposal. Democrats are accusing Republicans of pursuing tax cuts that will expand the budget deficit to deliver tax cuts that mainly benefit the wealthy and corporations.
Democrats also have seized on the potential changes to retirement accounts and to the state-and-local-tax deduction, arguing that the GOP plan could lead to a tax increase for many middle-class households — particularly in high-cost-of-living suburban areas.
House Democrats’ campaign arm warned that support for the budget, and for the coming tax bill, would be a potent campaign-trail weapon against Republican incumbents in those districts.
“With this budget, House Republicans are officially on the record supporting a middle-class tax increase — something they’ll be forced to defend repeatedly in the midterms,” said Democratic Congressional Campaign Committee spokesman Tyler Law.
House Minority Leader Nancy Pelosi (D-Calif.) urged colleagues in a letter Thursday to draw attention to what she called a “monumental assault on the middle class and the future of our nation” when Republicans release their tax bill next week.
But Republican strategists argue that the tax overhaul will pay political dividends — not only by benefiting middle-class voters, but also by broadly restoring conservative voters’ faith in the GOP’s ability to get things done.
Striking SALT from the tax code entirely would generate more than $1 trillion in additional revenue that could offset the rate cuts that are integral to the GOP plan. If Republican leadership is forced to compromise, they may have to set less ambitious goals for tax cuts more broadly or find other ways to offset them.
The fight over the deduction is only the most visible of many other battles that could soon break out.
After reports this weekend that Republicans were considering changing the rules for 401(k) and other retirement accounts, Trump on Monday promised in a post on Twitter that the new GOP tax plan would leave the 401(k) rules untouched.
On Wednesday, the top two congressional tax writers — Brady and Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) — said they were not bound by Trump’s promise and were open to changing the rules.
Sweeping changes planned for business taxation, meanwhile, could prove to be thorniest of all.
Ryan warned that hundreds of lobbyists would soon travel to Capitol Hill. He compared the legislative effort ahead to a white-water rafting voyage.
“We’re about to go through Class 5 rapids, which is the biggest rapid you can go through,” he said. “We’ve got to make sure everybody stays in the boat, and we get the boat down the river.”