The White House plan for a massive package of tax cuts is gaining new momentum as Republicans attempt to set aside months of intraparty squabbling and unify behind a key part of President Trump’s agenda.
Two developments are accelerating the effort: Key Senate Republicans reached a tentative deal this week to allow for as much as $1.5 trillion in tax reductions over 10 years; and there is a growing willingness within the GOP to embrace controversial, optimistic estimates of how much economic growth their tax plan would create.
Those upbeat estimates, often rejected by nonpartisan economists, would supplant the traditional forecasts offered by official scorekeepers at the Congressional Budget Office and Joint Committee on Taxation, helping lawmakers argue that the plan would not increase the national debt.
Trump is pushing for what he says will be the largest tax cut in U.S. history, which advisers say will come from a sharp decrease in corporate tax rates and tax relief for the middle class.
Numerous pitfalls remain, and Republicans have not yet agreed on major aspects of the plan. They haven’t reached a deal on what the tax cut’s impact should be on the budget deficit, what tax breaks should be jettisoned, or whether to pursue permanent tax cuts or ones that would expire after a number of years. Meanwhile, House conservatives continue to threaten to block any deal unless the White House agrees to include large spending cuts in any tax package. Fights over any of these issues could derail the discussions.
Activity over the next few days could determine the tax effort’s fate, as the White House and congressional Republicans, desperate for a legislative victory after a string of setbacks, hope to seize internal enthusiasm for the plan to pressure vulnerable Democrats to negotiate.
Vice President Pence on Friday traveled to a rally in Anderson, Ind., where he promised the tax plan would benefit middle-class families and small businesses. Indiana Sen. Joe Donnelly (D-Ind.), who is up for reelection in 2018 and has expressed an openness to a deal, attended Pence’s address.
“I’m here in Indiana today on the president’s behalf to say to all of you: We need your help,” Pence said. “And Senator Donnelly, we need your help too.”
House Ways and Means Committee Republicans plan to meet late into the evening on Sunday and all day Monday to try to narrow their differences on the tax plan.
On Wednesday, all House Republicans are set to meet away from the Capitol for a tax briefing — the same day that White House and GOP leaders say they intend to release a “unified” tax framework.
This all comes after months of methodical negotiations meant to avoid a repeat of the GOP’s disjointed and thus-far unsuccessful efforts to repeal the Affordable Care Act.
Republican leaders hope they can pass the tax cut plan along party lines, using a Senate procedure called “reconciliation” that requires only 51 votes. To do this, the House and Senate must pass matching budget resolutions that specify the size and impact of any tax cut measure.
The House Budget Committee has called for passing a tax plan that doesn’t add to the deficit, allowing the federal budget to balance by 2026. But Senate Republican negotiators reached a deal on Tuesday to allow for about $1.5 trillion in lost revenue over 10 years as part of any agreement. The budget deal was negotiated by Sen. Bob Corker (R-Tenn.), a deficit hawk.
The Senate deal was necessary because many Republicans expect Congress’s budget referees won’t endorse the GOP view that tax cuts will lead to massive economic growth, creating more than $1 trillion in new tax revenue. The Senate budget gives them more flexibility when writing their tax plan, as they won’t have to offset every dollar in revenue lost by lower tax rates with another dollar in new revenue gained by eliminating a tax break.
“With $1.5 trillion, you can get the rates down pretty low,” said Steve Moore, who was a top economic adviser during Trump’s 2016 campaign.
Still, Senate Republicans haven’t voted on this deal, and defections by just three lawmakers could doom it, potentially imperiling the entire tax effort.
The vote will likely hinge on whether proponents of the package can convince skeptics the plan not add to the national debt. Traditionally, the White House and Congress have relied on economic impact estimates by CBO and JCT to determine the benefits or drawbacks of legislation, but in the past the nonpartisan scorekeepers have found tax cuts can help the economy by only modest amounts.
The White House is considering releasing its own analysis of how the plan would affect the deficit, hoping it could be used as a counter-argument to the nonpartisan assessments.
The type of economic modeling the White House would employ, known as “dynamic scoring,” carries many uncertainties. For example, many forecasts that predict huge economic benefits from tax cuts don’t take into account the negative implications of adding to the government’s debt, which traditionally hurts growth and drives up government spending on interest payments.
“Thinking that you are going to get at $1 trillion of additional revenue from a dynamic score, it’s just impossible in a model that seriously treats the additional debt,” said Kent Smetters, a University of Pennsylvania economics and public policy professor who was a key tax adviser under former president George W. Bush. “It’s only possible in the models that are being used by various think tanks that don’t take into account the debt effects.”
Congressional Republicans signaled some openness to a White House assessment done via dynamic scoring.
“We’re not going to use some crazy scoring mechanism,” said Corker, who said the bill should not add to the debt. “But we’ll take a number of things into account.”
Another influential Republican on taxes, House Ways and Means Committee Chairman Kevin Brady (R-Tex.), has said he welcomes a range of economic inputs but that he relies on the Joint Committee on Taxation for the official economic forecast.
House conservatives have demanded for months that any tax cut plan be spelled out in detail and be packaged with hundreds of billions of dollars in spending cuts.
Reps. Mark Meadows (R-N.C.) and Jim Jordan (R-Ohio), leaders of the hard-line House Freedom Caucus, wrote in a Wall Street Journal opinion piece this week that they wanted to see new details of the tax plan before offering their support. They did not mention any need for spending reductions as part of any budget agreement.
Jordan, in an interview Thursday, declined to say whether the Senate budget could pass the House, but he emphasized the importance of spending cuts.
“We’re Republicans,” Jordan said. “We’re supposed to cut taxes, put together a tax code that is going to produce economic growth, and we’re also supposed to reduce spending. . . . That is the kind of approach I think we should take.”
While Republicans work to win over their colleagues on the plan, they’re continuing internal negotiations over many of its key components.
Republicans hope to push down the corporate tax rate, hoping to lower it from the current level of 35 percent to something in the low 20s, according to people familiar with the talks who spoke on the condition of anonymity because they were not authorized to discuss the internal discussions.
They are also working to lower the tax rate paid by businesses that are organized in such a way that they pay through the individual income tax code. Negotiators also want to simplify the tax code that individuals and families pay by eliminating certain tax brackets while also providing a large tax cut for the middle class.
How the tax plan would treat the richest Americans remains in flux, but White House officials are leaning toward preserving the top tax bracket for individuals at the current 39.6 percent. That proposal would limit the plan’s windfall for the wealthy and is a reversal from an April proposal that would have slashed that rate.
They plan to offset some, but not all, of these rate reductions by cutting back on tax deductions that families and companies have used for years. This includes eliminating the ability to deduct state and local taxes from taxable income and curbing the ability of companies to deduct interest payments, though those discussions are fraught and fluid.
Republicans are hopeful they can pass matching budget resolutions sometime in October and try to pass similar tax cut plans in the House and Senate after that.