Republicans Tiptoe Toward Safety-Net Cuts to Unlock Tax ‘Logjam’

  • Move departs from leaders’ call for revenue-neutral bill
  • Trump has pledged no reductions in costliest U.S. programs

Sen. Lee Believes Tax Reform Will Happen This Year

Republicans searching for consensus on how to pay for tax cuts are beginning to weigh attacking spending in potentially sensitive areas of the budget.

Senate Finance Chairman Orrin Hatch told Bloomberg he prefers to find spending cuts to pay for a tax overhaul, though he stopped short of guaranteeing any outcome.

“That’s what should be the solution, I’ll put it that way,” Hatch, a Utah Republican, said Thursday. “And I’m hopeful that the Republicans will work to do that. I’d like to find some spending cuts. We’re spending us into oblivion."

GOP leaders have not moved off their calls for revenue-neutral tax legislation -- that is, a bill that balances tax cuts with other provisions that would raise revenue. Still, a growing number of Republican lawmakers is calling for abandoning that concept.

Representative Jim Jordan of Ohio, a leader of the ultraconservative House Freedom Caucus, called for $400 billion in unspecified cuts to welfare programs to help cover the cost of tax cuts. That’s “the way to unlock the logjam in the House” on setting tax and spending levels in a budget resolution, Jordan said Friday at an event sponsored by the Heritage Foundation, a conservative policy and advocacy group. Drawing up a budget resolution is a procedural prerequisite for Congress to tackle a tax overhaul.

At issue is how to comply with Senate rules that require 60 votes for any bill that adds to the long-term budget deficit. Republicans have only 52 votes in the chamber, and they aren’t counting on Democratic support. So tax-overhaul legislation must either avoid increasing the deficit or set its changes to expire within 10 years.

No Consensus

House Speaker Paul Ryan has proposed financing tax cuts with new revenues, but his proposals -- including imposing a border-adjusted tax on U.S. companies’ imports and eliminating their ability to deduct net interest payments -- face considerable opposition. No consensus has emerged on any other ways to raise revenue, however.

“The political facts are that there is not consensus for the border-adjustment tax,” said Representative Mark Meadows, the Freedom Caucus chairman.

Jordan and Meadows said the Freedom Caucus won’t insist on revenue-neutral legislation, meaning some tax provisions would have to automatically expire in 10 years. “Some of the tax cuts could be temporary, so you don’t have to get full revenue-neutral,” Jordan said.

Republican Senator David Perdue of Georgia, a staunch opponent of the border-tax proposal, also floated spending cuts as a possible offset for a tax-cut package. Representative Mark Sanford of South Carolina floated a hybrid -- revenue-raisers and spending cuts, particularly for entitlement programs -- of offsets.

Budgeting for the Future

Achieving spending cuts on a large scale is easier said than done. The costliest programs in the U.S. budget are Medicare, Social Security and defense spending, which President Donald Trump has promised not to cut. The “discretionary” part of the budget has faced deep cuts in recent years, and many Republicans are reluctant to go further. That leaves “mandatory” spending, which covers popular safety-net programs like unemployment benefits, food stamps and veterans’ benefits.

“If we don’t get after mandatory spending, we will bankrupt our country,” Representative Warren Davidson, an Ohio Republican. “And that is not compassionate and we should not let that happen.”

Some Republicans see no way out of the logjam other than to change the rules and allow deficit-raising tax cuts for a longer time horizon. Senator Pat Toomey of Pennsylvania cast doubt on the prospects for consensus on major spending cuts and instead has called for imposing a 30-year time horizon for budgetary changes that can add to the deficit.

“I hope we’re not going to hold ourselves to something that is revenue-neutral, because then we’re not going to get good tax reform,” Toomey said.

But Ryan and Senate Majority Leader Mitch McConnell haven’t revised their calls for revenue-neutral tax reform. The White House hasn’t taken a definitive position on that question, and the lack of guidance has fueled a free-for-all political environment. But the clock is ticking, and Republicans are eager to see some progress soon in order to keep hope alive of passing a tax bill in 2017.

“We’ve got to make some decisions,” Meadows said. “It is time to make some decisions.”

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