The White House and House Republican leaders scrambled Tuesday to prevent a rank-and-file rebellion from several lawmakers who threatened to block a key vote in the tax-cut process unless they get assurances about the bill’s impact on their constituents.
The clash centers on an expected provision in the GOP’s tax-cut plan that would prohibit people from deducting the state and local taxes they pay from their federal taxable income. Taxpayers are allowed to deduct these taxes in a way that lowers their taxable income, but GOP leaders want to prohibit the practice going forward, in part to raise more revenue.
This would have a disproportionately negative impact on taxpayers in states such as New York, New Jersey, Illinois and other states where taxes are high and taxpayers can save large amounts of money from the deduction.
Several Republicans in those states have signaled to GOP leaders in recent days that they won’t support a House budget resolution on Thursday unless they can have assurances about the potential impact of the tax plan. Passage of the budget resolution is vital if Republicans want to eventually pass a tax-cut package without support from Democrats.
“I need to know what the endgame is going to look like if I’m going to vote on it,” said Rep. Tom MacArthur (R-N.J.), a leader of the bloc of concerned Republicans. MacArthur attended a White House meeting on the issue Tuesday where he said he “didn’t make the progress I had hoped for.”
The Republican margin for error on the budget resolution is razor thin. An initial version of the budget resolution passed this month by a vote of 219 to 207, and 218 votes are needed to ensure passage. MacArthur had voted for the earlier version of the budget resolution, and if he flips his vote with several other members, the measure could risk failing.
After keeping details closely held, House Republican leaders are hoping to introduce specific language for their tax-cut bill next week, but the process will stall immediately if they can’t pass the budget resolution Thursday.
The last-minute standoff shows how fragile the GOP coalition is as Republicans try to speed the tax-cut bill through Congress. They have held many of the details of the package secret, worried about insurrections from members who have constituents that would be impacted.
Three other House Republicans also told The Washington Post on Tuesday that they had concerns about the state and local tax deduction, commonly referred to as “SALT,” and could vote against the budget if they are not addressed. They cited language in the Senate budget that refers to “reducing federal deductions, such as the state and local tax deduction which disproportionately favors high-income individuals, to ensure relief for middle-income taxpayers.”
“That language shouldn’t have been added to the Senate budget,” said Rep. Lee Zeldin (R-N.Y.). “Unless I get more concrete information on a reasonable agreement, then I will be a no on Thursday.”
Zeldin also supported the earlier version of the House budget resolution.
House Ways and Means Committee Chairman Kevin Brady (R-Tex.) met with some Republicans from potentially impacted states on Tuesday. Some of the meetings were in small groups, although close to two dozen GOP lawmakers have raised concerns.
Republican leaders want to prohibit people from deducting state and local taxes from their federal taxable income because they think low-tax states unfairly subsidize high-tax states with the current structure. Also, eliminating this deduction, Republican budget writers think, could raise more than $1 trillion in new revenue over 10 years, helping them offset sweeping reductions in tax rates.
Rep. Bill Pascrell Jr. (D-N.J.) sought to offer an amendment that would preserve the tax break, but his idea was ruled “out of order” by the House Rules Committee on Tuesday.
“New Jersey already pays some of the highest property taxes in the country, and eliminating the state and local tax deduction to fund tax breaks for hedge fund managers and corporate CEOs is complete unacceptable,” Pascrell said.
But Pascrell, like all other Democrats, had voted against the House budget this month. Republican leaders are more worried about people who initially supported the House budget and are now threatening to pull their support.
Rep. Tom Reed (R-N.Y.), a member of the tax-writing House Ways and Means Committee, indicated on Tuesday that an agreement had been reached that would allow people who earn less than $400,000 to continue deducting their state and local taxes from their federal taxable income.
I’m very comfortable with the compromise of continuing the SALT exemption for taxpayers earning up to $400,000: https://t.co/qEWpfubbc3
— Tom Reed (@RepTomReed) October 24, 2017
It’s unclear whether this is the plan that House Republicans will try to advance. They have also discussed letting people use some type of tax credit to offset the impact. It’s also unclear what these adjustments would mean for the amount of revenue that the provision might raise.
Republican leaders were counting on the state and local tax changes to be a primary source of new revenue to offset the tax-rate cuts that President Trump has repeatedly promised voters.
House Republicans need to pass the new budget resolution because it matches one passed last week by the Senate. If the House and Senate pass matching budget resolutions, it unlocks a process called “reconciliation” in the Senate that allows Republicans pass a tax-cut bill later this year that would add $1.5 trillion to the deficit without any support from Democrats. But if enough Republicans vote against the House budget resolution, they could block the measure and potentially imperil the chances of the tax-cut measure being designed by GOP leaders.
Two House GOP aides said late Tuesday that party leaders are working with the concerned members toward a deal. One said leaders “are feeling good” about the Thursday vote but acknowledged that talks are underway.
House Republican leaders have shown a willingness to make major changes to their tax-cut plan to avoid a political brawl. Brady and House Speaker Paul D. Ryan (R-Wis.) agreed to scrap a provision that would have made companies that import goods into the United States for sale pay higher taxes after a blowback from retailers and conservative groups. That measure, known as a border adjustment tax, also would have raised more than $1 trillion over 10 years, budget experts think.