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Tax Cuts Are the Glue Holding a Fractured Republican Party Together Tax Cuts Are the Glue Holding a Fractured Republican Party Together
(about 7 hours later)
WASHINGTON — The Republican tax plan is a bit like having a baby to save a failing marriage. WASHINGTON — One week before they are set to unveil a sprawling overhaul of the federal tax code, Republicans struggled on Wednesday with key parts of their plan, reigniting a fight over retirement savings and racing to cut a deal with lawmakers from high-tax states ahead of a critical budget vote in the House on Thursday.
With divisions roiling the party, the prospect of a once-in-a-generation bill to cut taxes on businesses and individuals increasingly appears to be the last, best hope for a fractured establishment desperate to find common ground and advance an effort it has long championed as the pinnacle of Republican orthodoxy. The challenges — and the dogged effort to resolve them on Capitol Hill — highlight the increased importance of the tax issue for a fractured Republican Party desperate for a legislative victory.
But even in this policy refuge, tensions are sure to rise as the details of a formal tax plan spill out. On Wednesday, a top House Republican said that changes to retirement savings were still being considered, even after Mr. Trump declared Monday that “there will be NO change to your 401(k).” The prospect of a once-in-a-generation bill to cut taxes on businesses and individuals increasingly appears to be the best hope for a party anxious to find common ground and advance an effort that it has long championed as the pinnacle of Republican orthodoxy. It is a bit like having a baby to save a failing marriage.
The lawmaker, Representative Kevin Brady of Texas, the chairman of the House Ways and Means Committee, defended a proposal to dramatically lower the cap on tax-free 401(k) contributions, indicating that there are better ways to encourage the bulk of American workers to save. But, like a crying newborn, the drafting of the bill is already costing party leaders sleep. That was evidenced on Wednesday, when President Trump and a top House Republican sparred over whether the plan would include sharp reductions in how much Americans might save, before taxes, in 401(k) accounts. Meanwhile, congressional leaders worked to forge a compromise on state and local tax deductions that could be necessary for the House to pass a budget measure that is needed to ensure the tax bill does not fall to a Democratic filibuster in the Senate.
“Right now, we are not a nation of savers,” he said, adding at a breakfast convened by The Christian Science Monitor, “We think in tax reform we can create incentives for Americans to save more and save sooner.” Republicans from states where the state and local tax — or SALT — deduction is widely used were not making it easy.
House Republicans have been considering sharply reducing the amount that Americans are allowed to save, before taxes, in 401(k) retirement plans to $2,400 a year, from the current $18,000, or $24,000 for workers who are over 50 years old. Republicans reason that such high thresholds are used only by relatively affluent people who would be saving anyway. “To me, the only way to stop this is to defeat the budget tomorrow,” Representative Peter T. King, Republican of New York, said on Wednesday. “Once the budget passes, they hold all the cards.”
Lowering the cap would be unlikely to encourage more savings, research suggests, but they would amount to an accounting maneuver that would help Republicans make up some of the lost revenue from large cuts to business tax rates. “They’re asking us to vote on the budget for a tax bill they haven’t shown us on a promise that somehow it’s going to be fair, even though they’re talking about knocking out SALT,” Mr. King said. “I don’t see how anyone from those districts can vote for the budget under that, even if they promise us something.”
A fight over taxes would be particularly rough on a Republican Party already fraying on the edges. The potential for further dissolution was strikingly apparent on Tuesday, when Senator Jeff Flake, Republican of Arizona, blistered his party and President Trump in announcing his plans not to seek re-election. Mr. Flake’s broadsides came on the heels of a morning spat between Mr. Trump and another retiring Republican senator, Bob Corker of Tennessee, which exposed the growing rifts between old-guard conservatives and Mr. Trump’s new-wave populists in Washington. The challenge facing Republicans is trying to mitigate the revenue-losing effects of cutting tax rates, particularly Mr. Trump’s push to reduce the corporate rate to 20 percent from 35 percent, which the White House says is nonnegotiable. The budget resolution that is supposed to win final approval on Thursday would allow for $1.5 trillion in additional deficits from tax cuts over the next decade, but the proposed tax cuts already revealed would cost well over $2 trillion.
In the face of those divides, Republican leaders retreated to the only safe ground they have left: a partisan, fast-tracked tax bill, which party leaders hope to introduce next week in the House and deliver to Mr. Trump’s desk by Christmas. The stakes are rising by the day, as Republican donors and voters watch the intraparty dispute unfold and worry about the party advancing the legislative priorities it has long espoused, let alone holding its congressional majorities in the 2018 midterms. Cutting rates unifies Republicans. Finding offsets, either by eliminating tax deductions or employing accounting tricks, divides them.
Pressure is only increasing on Republican lawmakers, with conservative commentators and other observers saying failure on a tax bill is not an option. On Wednesday, Representative Kevin Brady, Republican of Texas and the chairman of the House Ways and Means Committee, acknowledged a long list of still-unresolved issues in the House’s draft bill, which is to be released Nov. 1. They included where to place the income limits for various tax brackets, whether to maintain or cut tax rates on top earners, and the fate of several critical components of the revamped corporate code.
“I’ve sensed this shift in just the last couple of weeks. I think the Republicans are finally figuring out if they don’t pass this, the political consequences are going to be catastrophic,” said Stephen Moore, a senior fellow at the Heritage Foundation who is advising Mr. Trump on tax policy. “The attitude of the conservative base is, ‘If they don’t do this, they’re worthless.’” Two issues in dispute flared up publicly: changes to retirement savings and to individuals’ ability to deduct their state and local taxes.
Large donor groups are particularly blunt on this point. “Passing tax reform is critical for Republican lawmakers, and they are building momentum to get it done,” said James Davis, an executive vice president at Freedom Partners, which is part of the billionaire Koch brothers’ network of political groups. Mr. Brady seemed to defend a proposal to drastically lower the cap on tax-free retirement account contributions. He indicated that there were better ways to encourage the bulk of workers to save, even after Mr. Trump declared on Monday that “there will be NO change to your 401(k).”
The comity of a tax cut was evident only on Tuesday, as Republicans appeared to come apart at the seams over their party’s president. “Right now, we are not a nation of savers,” Mr. Brady said at a breakfast convened by The Christian Science Monitor, adding: “We think in tax reform we can create incentives for Americans to save more and save sooner.”
Mr. Flake announced his retirement from the Senate floor in a speech that criticized Mr. Trump and scolded other Republicans for supporting the president’s at times erratic behavior in the White House, while Mr. Corker accused Mr. Trump of “debasing” the country with his approach. Privately, though, a member of House leadership assured lobbyists on Wednesday that retirement account limits would not be touched in the draft bill.
Senator Mitch McConnell, Republican of Kentucky and the majority leader, sought to bridge the gap by invoking the tax bill that is expected to be introduced in both the Senate and the House next month. House Republicans have been considering sharply reducing the amount that Americans are allowed to save, before taxes, in 401(k) retirement plans to $2,400 a year, from the current $18,000, or $24,000 for workers who are over 50. Lowering the cap would be unlikely to encourage more savings, research suggests, but it would amount to an accounting maneuver that would help Republicans make up some of the lost revenue from large cuts to business tax rates. Money in such retirement accounts is taxed when it is withdrawn. By taxing most deposits immediately, Republicans would push future tax revenue into the 10-year budget window they are now working in.
“Tax reform is what we are about,” Mr. McConnell said. “If there’s anything that unifies Republicans, it’s tax reform.” Mr. Trump was not giving up. He told reporters that he wanted to “quickly” end speculation because “401(k)’s, to me, are very important.” Asked whether he might negotiate over the changes, he replied, “maybe we’ll use it as negotiating,” then added that Mr. Brady knew how critical the retirement accounts were.
Speaker Paul D. Ryan, Republican of Wisconsin, said that he did not think that Mr. Trump’s dispute with Mr. Corker, which sprawled across social media on Tuesday, “changes our efforts on tax reform.” Representative David Schweikert, Republican of Arizona and a member of the Ways and Means Committee, said the issue of tax rules for retirement savings was far more complicated than Mr. Trump’s declaration.
The cohesion harkens to the roots of a party that for decades identified along free-market, limited-government lines, but is now increasingly embracing the nationalistic policies of Mr. Trump. The conservative columnist Robert D. Novak once quipped that “God put the Republican Party on earth to cut taxes,” a line many Republicans still invoke today. “We’re the ones writing the bill,” Mr. Schweikert said. “At some point, he gets to agree or veto. And ultimately, we have to make the math work.”
The effort to cut taxes was already going to be tough, given the magnitude of the business and individual income tax cuts Republicans are considering and their ability to offset the enormous cost. Finding common ground will get only more difficult as Republicans worry about their political futures and the effect on their constituents from the various tax changes under consideration. Mr. Brady also said Republican leaders were seeking a deal on the state and local tax deduction, which they had targeted for elimination. Mr. Brady seemed to suggest the deal could focus on maintaining deductions for property taxes, but not for income or sales taxes.
Polling suggests Republican voters subscribe less to the tax cut philosophy than their elected representatives. A report this week from the Pew Research Center, based on polling from August, found that “Republicans were not especially unified in support of tax cuts,” said Carroll Doherty, the center’s director of political research. “Over all, there was some division of opinion even among conservative Republicans, with about half supporting lower tax rates for corporations.” That would reduce the savings from eliminating the deduction to about $1.3 trillion over 10 years, from an estimated $1.9 trillion over 10 years for eliminating the deduction entirely, according to the nonpartisan Tax Foundation. But it may be the key to passing the budget resolution, which appears in jeopardy if Republicans from high-tax states are not pacified.
A September poll from the online survey company SurveyMonkey found that three-quarters of Republicans and Republican-leaning independents approve of cutting corporate taxes, which is the centerpiece of the tax plan Republicans are expected to put forth next week. The same poll, and a related October SurveyMonkey survey, found a divide in the Republican Party on the issue: Republican voters who approve of Mr. Trump were far more likely to approve of corporate tax cuts and to say that they believe their individual taxes will fall next year. A protracted fight over taxes would be particularly rough on a Republican Party already fraying on the edges. Mr. Trump is feuding with two Republican senators who plan to retire, Jeff Flake of Arizona and Bob Corker of Tennessee, as part of a growing rift between old-guard conservatives and Mr. Trump’s new-wave populists in Washington.
The divisions in the party do not, at this point, appear to imperil the tax-cutting effort. Mr. Corker is widely viewed as having prevailed in pushing for specific limits on the cost of any tax cuts in the Republican budget. And Mr. Flake — Tuesday diatribe aside — is still viewed as a likely “yes” on whatever tax bill makes it to the Senate floor. In the face of those divides, Republican leaders aim to deliver a completed tax bill to Mr. Trump’s desk by Christmas. The stakes are rising by the day, as Republican donors and voters worry about the party advancing the legislative priorities it has long espoused. A failure on taxes, after the Republicans did not succeed in repealing the Affordable Care Act, could jeopardize its congressional majorities in the 2018 midterms.
Still, the baby has yet to be born, and it is an open question whether its arrival will patch the divisions that are threatening to rupture the party. “The Republicans are finally figuring out if they don’t pass this, the political consequences are going to be catastrophic,” said Stephen Moore, a senior fellow at the Heritage Foundation who is advising Mr. Trump on tax policy. “The attitude of the conservative base is, ‘If they don’t do this, they’re worthless.’”
Finding common ground will only get more difficult as the effects of specific tax changes on constituents become clearer.
Polling suggests Republican voters subscribe less to the tax cut philosophy than their elected representatives. A report this week from the Pew Research Center, based on polling in August, found that “Republicans were not especially unified in support of tax cuts,” said Carroll Doherty, the center’s director of political research.
A September poll from the online survey company SurveyMonkey found that three-quarters of Republicans and Republican-leaning independents approve of cutting corporate taxes, which is the centerpiece of the tax plan. But that poll, and a related one in October, found a divide: Republican voters who approve of Mr. Trump were far more likely to approve of corporate tax cuts and to say that they believe their individual taxes will fall next year than those who have turned against the president.
The divisions in the party do not, at this point, appear to imperil the tax-cutting effort. Mr. Corker is widely viewed as having prevailed in pushing for specific limits on the cost of any tax cuts in the Republican budget. And Mr. Flake — diatribe on Tuesday aside — is still viewed as a likely “yes” on whatever tax bill makes it to the Senate floor, provided it survives several weeks of political kicking and screaming.