House Republicans set the stage Thursday for an intense sprint toward a landmark tax overhaul, overcoming internal dissension and Democratic opposition to move forward with legislation that could cut revenue by up to $1.5 trillion over the coming decade.
Budget legislation passed Thursday will allow the GOP to pass its tax plan without Democratic help, but the close 216-to-212 House vote reflected ongoing tensions about the tax push among Republicans — and many expect the qualms to grow once draft legislation is released next week.
Leaders are aiming to pass tax legislation through each chamber before Thanksgiving, with the differences to then be hashed out before year’s end, and then send a bill to President Trump for his signature.
At issue are significant changes to the individual tax code that stand to affect virtually every American taxpayer, including the elimination of personal exemptions and many popular itemized deductions, an increase in the standard deduction and a reduction in the number of tax brackets.
On the corporate side, Republicans are pursuing a dramatic rate cut, from 35 percent to 20 percent, a complete overhaul of how overseas profits are taxed and a new treatment for business profits that are “passed through” to be taxed as individual income.
Each provision touched by the GOP plan carries the potential to generate opposition that could scuttle the whole effort, but party leaders hailed Thursday’s House vote as proof that Congress would not be sidetracked by parochial concerns.
“It shows the strength of the willingness to get tax reform done,” said House Majority Leader Kevin McCarthy (R-Calif.).
No Democrats voted for the budget Thursday, and 20 Republicans declined to support it. A key holdout bloc consisted of Republican lawmakers from states with high local tax burdens who have resisted the GOP’s plan to eliminate, or at least scale back, the income-tax deduction for state and local taxes.
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 is eliminated, voted against the budget after no deal emerged to preserve it.
Still, House leaders were able to persuade enough of the balking lawmakers to advance the process. Every Republican member of the California and Illinois delegations, whose constituents are also 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 believed 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 pro-deduction bloc 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 House Ways and Means Committee who has been negotiating a deal on the deduction, said Wednesday 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.
Scaling back plans to eliminate the state-and-local-tax deduction is a potential land mine for the Republican tax writers. Striking the provision 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. Scaling it back could mean scaling back the rate cuts or other provisions.
“The effect that I’m looking for on the taxpayer probably cuts that number about in half,” MacArthur said.
The fight over the deduction is only the most visible of many other battles that could soon break out into the open. Trump is at odds with key congressional leaders about whether tax breaks for retirement savings should be changed, for instance.
Several members of the House and Senate tax-writing committees said they were open to changes that could affect the rules for tax-advantaged retirement accounts used by tens of millions of Americans, such as 401(k)s and IRAs, or individual retirement accounts. But Trump and other Republicans have expressed reservations.
“This would be the worst time to disincentivize people from saving for their retirement,” Sen. Ron Johnson (R-Wis.) said in a CNN interview Thursday.
The sweeping changes planned for business taxation, which include the elimination of tax provisions favoring certain industries, could prove to be thorniest of all.
House Speaker Paul D. Ryan (R-Wis.) warned Wednesday that hundreds of lobbyists would soon swarm Capitol Hill, hoping to preserve the tax provisions treasured by their clients. 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.”
Ways and Means Committee Chairman Kevin Brady (R-Tex.) said in a statement after the budget vote that he will introduce a tax bill Nov. 1. He added that his committee would begin a markup, a meeting at which members can introduce potential changes to the bill and vote on them, on Nov. 6.
Democrats 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. Polling done by the Democratic Congressional Campaign Committee and shared with The Washington Post showed a shift in public opinion away from Republicans on taxes, eliminating the GOP’s traditional advantage on the issue.
“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 DCCC spokesman Tyler Law.
House Minority Leader Nancy Pelosi (R-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.
The budget’s passage came after months of wrangling among various factions of the Republican Party, with adherents of supply-side economics facing off with deficit hawks, as well as with members with more parochial concerns.
The House Budget Committee crafted a spending blueprint that included a pathway to cutting $200 billion in federal spending over the coming decade, while envisioning a tax overhaul that did not add to the federal deficit. But the Senate version of the budget, which the House adopted Thursday, did not provide a path for spending cuts and authorized a tax bill that would add up to $1.5 trillion to the deficit.
The House Republican leaders argue that cutting taxes will spark economic growth that will drive up federal revenue, ultimately offsetting the revenue loss. But Democrats, some rank-and-file Republicans and most economists dispute that claim.
“I know my Republican colleagues desperately want to believe that the tax cuts in their budget will pay for themselves and usher in a new era of economic growth, or at least they want the American people to believe that,” said Rep. John Yarmuth (D-Ky.), the top Democrat on the Budget Committee. “But the record is clear: This approach has failed time and time again.”
Tory Newmyer and Ed O’Keefe contributed to this report.