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House Passes Budget Blueprint, Clearing Path for Tax Overhaul House Passes Budget Blueprint, Clearing Path for Tax Overhaul
(about 9 hours later)
WASHINGTON — The House on Thursday sounded the starting gun on legislative efforts to cut taxes by as much as $1.5 trillion over the coming decade, narrowly clearing a budget blueprint that will allow a tax bill to pass Congress without any Democratic votes. WASHINGTON — The Republican race to overhaul the tax code broke into a sprint on Thursday, with House members narrowly clearing a budget blueprint that would allow a tax bill to pass Congress without any Democratic votes, and Senate leaders signaling that the bill could be introduced, debated and approved in both chambers by the end of November.
But the 216-212 vote hinted at how difficult actually legislating a tax overhaul could be. The budget measure cleared Congress over the loud protests of House members from high-tax states like New York, New Jersey and California, who worry that the blueprint will doom the current deduction for state and local taxes — a deduction of great importance to taxpayers in their states. Those ambitions are already complicated by difficult math, both in terms of tax revenues and vote counts. The budget vote put those competing factors on display, with 20 Republicans defecting and the resolution narrowly passing, 216 to 212, in part over concerns about the possible elimination of a tax break that disproportionately benefits residents of high-tax states. A potential reduction in contribution limits for 401(k) retirement accounts also appears to be stoking an intraparty fight.
Twenty Republicans voted against it, 11 of them from New York and New Jersey. Neither the retirement issue nor the squabble over the deduction for state and local taxes was resolved on Thursday, but party leaders vowed to push ahead at an even faster pace than they had previously outlined. Representative Kevin Brady, Republican of Texas, the chairman of the House Ways and Means Committee, said his committee would introduce a bill on Nov. 1 and begin amending it on Nov. 6.
“This is a big issue, and it has to be resolved,” Representative Tom MacArthur, Republican of New Jersey, said on the eve of the vote. “Tax reform is good for the country; it’s just not good for the country when it’s on the back of six states. That’s the problem.” Senator John Cornyn of Texas, the No. 2 Senate Republican, told reporters that the Senate would follow about a week behind the House. “We need to get the tax bill out of the Senate by Thanksgiving,” he said. Privately, Republican leaders echoed that aggressive timeline.
Final approval of the budget measure clears the way for House leaders to unveil their tax plan next Wednesday, with a formal bill drafting during the week of Nov. 6. The high-stakes legislative sprint could affect households in every state and businesses in every industry, with enormous political consequences for President Trump and Republicans in Congress. The exacting pace is meant to maximize party cohesion and neutralize attacks by Democrats and business groups. If Republicans stick to it, they will speed what could be a 1,000-page piece of legislation, affecting every corner of the United States economy, through the House and the Senate in less than three weeks.
The budget measure would allow for a tax bill that adds as much as $1.5 trillion to federal deficits over a decade, at a time when the federal government is already piling up more and more debt, which has now topped $20 trillion. The deficit for the 2017 fiscal year, which ended Sept. 30, totaled $666 billion, an increase of $80 billion from the previous year. Democrats were swift to criticize the approach, saying it was an attempt to hide tax changes that will hurt, not help, middle-class families. Senator Ron Wyden of Oregon, the top Democrat on the Senate Finance Committee, said the bill was shaping up to be “a bunch of false promises to the middle class.” Republicans, he said, “know the details — the specifics of what they’re really about — will be hard to argue in the sunlight.”
The outline of a tax plan unveiled in September would cut the corporate income tax rate to 20 percent, from 35 percent, collapse individual income tax brackets from seven to three, with tax rates of 12 percent, 25 percent and 35 percent, and double the standard deduction to $12,000 for individuals and to $24,000 for married couples filing jointly. But the hardest decisions on how to mitigate the costs of the proposal have yet to be made. Lawmakers and committee staff members must still resolve some of the thorniest issues before they can release a bill, including where to draw income lines for tax brackets, how high to set the top personal income tax rate and how to ensure that major changes to the way that multinational corporations are taxed do not encourage them to shift more money overseas. The biggest question is how to offset enough tax revenue that will be lost from cutting rates to remain within the rules of the Senate budget reconciliation process, which allows Republicans to bypass a Democratic filibuster.
The blueprint, as unveiled, would cost the Treasury more than $2 trillion over a decade, according to estimates by tax-writing experts. Now Congress must find a way to force those proposals into a $1.5 trillion budget hole. The budget measure approved on Thursday would allow for a tax bill that adds as much as $1.5 trillion to federal deficits over a decade, at a time when the federal government’s debt has already topped $20 trillion. The deficit for the 2017 fiscal year, which ended Sept. 30, totaled $666 billion, an increase of $80 billion from the previous year.
Disagreements on how to do that have begun spilling into public view. In addition to the dispute over the deduction for state and local taxes, Mr. Trump and the House’s chief tax writer, Representative Kevin Brady of Texas, have collided over the issue of retirement savings, another delicate issue. The outline of the tax plan unveiled in September would cut the corporate income tax rate to 20 percent, from 35 percent; collapse individual income tax brackets from seven to three or four, with tax rates of 12 percent, 25 percent and 35 percent, and possibly one higher; and nearly double the standard deduction, to $12,000 for individuals and to $24,000 for married couples filing jointly.
Republicans hope that by the end of the year, they will be able to deliver to Mr. Trump the first significant revamping of the tax code since the Reagan administration, a feat that would show that unified Republican government can take on a big challenge and produce success. The budget measure passed over the loud protests of House members from New York and New Jersey, who worry that the blueprint will doom the current deduction for state and local taxes — a benefit of great importance to taxpayers in their states. Eleven of the 20 Republicans who voted no were from those two states.
But overhauling the tax code is an exceedingly difficult task, as evidenced by the decades that have passed since it was last achieved. And in the first year of Mr. Trump’s presidency, Republican lawmakers already failed in their long-promised quest to repeal the Affordable Care Act, an outcome that makes the tax effort even more critical to the party’s fortunes. “This isn’t over,” one of those lawmakers, Representative Tom MacArthur of New Jersey, a Republican, said after the vote. “I am confident we’ll reach an agreement. And if we don’t, then I don’t see how we can move forward.”
The budget resolution approved Thursday, for the 2018 fiscal year, ostensibly maps out spending and revenue levels for the federal government. But its passage is meaningful largely because of the special procedures that it unlocks. Mr. Brady told reporters later in the day that while no such agreement had yet been reached, it would eventually be resolved, since families in New York and New Jersey needed to be “better off” after a tax bill passes.
The budget measure contains parliamentary language that will shield a tax bill from a Democratic filibuster in the Senate, allowing it to pass with the approval of only 50 senators in a chamber where Republicans hold 52 seats. It also could pave the way for lawmakers to open the Arctic National Wildlife Refuge in Alaska to oil and gas drilling. “This is a serious issue, and we’re taking it seriously,” Mr. Brady said. Republican lawmakers from those states “made it clear they need this problem solved before they vote yes on tax reform,” he added.
In order to allow the tax effort to move along quickly, Republicans in the House agreed to pass the budget plan that the Senate approved last week. Democrats were quick to seize on the discord. The Democratic Congressional Campaign Committee said that Speaker Paul D. Ryan of Wisconsin had put his party’s control of the House at even greater risk through his “foolish decision to force his most vulnerable members to walk the plank on a toxic tax increase.”
The House had passed its own budget measure earlier this month, but by agreeing to the Senate plan rather than trying to meld the two documents, the timeline for passing a tax measure can be sped up. “Anybody who votes for this thing should have their head examined if they live where we do,” said Representative Sean Patrick Maloney, Democrat of New York.
In the end, the eagerness to tackle the tax overhaul ended up trumping other matters — including fiscal concerns that have been a central issue for many conservative Republicans. In addition to the dispute over the deduction for state and local taxes, President Trump and Mr. Brady have collided over the issue of retirement savings, another delicate matter.
For one thing, the House’s previous budget blueprint would have called for a more aggressive approach on cutting spending. In addition to laying the groundwork for a tax bill, the House’s plan would have instructed committees to come up with legislation that would produce about $200 billion in savings. The House’s plan also called for a tax overhaul that would not add to the deficit. House Republicans, over Mr. Trump’s public objections, are considering changes to the tax treatment of retirement accounts, including potentially lowering the pretax amounts that Americans may contribute to their 401(k) accounts each year. On Thursday, Mr. Brady hinted that the bill may raise the limit on the total amount Americans can save in tax-preferred accounts but shift the tax preference to the back end, so that a larger share of those contributions are taxed up front, instead of when they are withdrawn, as is the case with 401(k) plans.
Such a change would produce more tax revenues in the short term, at the expense of the long run, which would help Republicans make their tax math work. One possible reason to consider that change would be to offset revenues lost from a deal to preserve some of the state and local deduction for individuals.
A budget blueprint passed by the House earlier this month called for a more aggressive approach on deficits and spending cuts. In addition to laying the groundwork for a tax bill, the House’s plan would have instructed committees to come up with at least about $200 billion in savings. The House’s plan also called for a tax overhaul that would not add to the deficit. But the House ultimately agreed to approve the Senate version of the budget to speed the tax overhaul effort.
House Republicans were “asked to vote for a budget that nobody believes in so that we have the chance to vote for a tax bill that nobody’s read,” Representative Matt Gaetz, Republican of Florida, complained this week.House Republicans were “asked to vote for a budget that nobody believes in so that we have the chance to vote for a tax bill that nobody’s read,” Representative Matt Gaetz, Republican of Florida, complained this week.
Representative Diane Black, Republican of Tennessee and the chairwoman of the House Budget Committee, acknowledged that taking up the Senate plan was not an ideal outcome. Representative Diane Black, Republican of Tennessee and the chairwoman of the House Budget Committee, acknowledged that taking up the Senate plan was not an ideal outcome, but she talked up the promise of overhauling taxes.
But she talked up the promise of overhauling taxes. “President Trump is with us on this, and I agree that we must move quickly,” she said.
“Put simply, we have the opportunity to make history by reforming our tax system for the first time in nearly three decades,” she said. “President Trump is with us on this, and I agree that we must move quickly.” And while Republicans expressed cautious optimism that they could resolve their differences, avoid lobbying pitfalls and deliver the bill to Mr. Trump for his signature in December, Democrats warned that the ride could be rough.
Democrats continued their drumbeat against the tax effort, warning that Republicans were preparing to cut taxes for the rich. “It’s easy to understand why they want to rush a bill like this through, because the more people see it, the less they’ll like it,” said Senator Chuck Schumer of New York, the top Senate Democrat. “It’ll be a lot tougher for them to get it done than they think.”
Representative John Yarmuth of Kentucky, the senior Democrat on the House Budget Committee, said the budget measure was “not a real effort at responsible budgeting.”
“It is a means to an end,” Mr. Yarmuth said, “a single-minded plan to make it easier to enact tax cuts for the wealthy and big corporations regardless of the consequences for everyone else.”