Budget Deal by GOP Leaders Would Clear the Way for Tax Measure

Updated on
  • Plan would allow quick passage in House after Senate approval
  • Pact includes compromises on defense spending, entitlements

Assessing the Appetite for Tax Reform on Capitol Hill

Republican leaders reached a deal to allow budget legislation under consideration by the Senate to speed through the House, a key step in Republicans’ drive to enact major tax cuts.

The agreement was taking shape Thursday night as the Senate began a marathon series of votes -- known as a vote-a-rama -- designed to end with adoption of a budget.

The votes on a long list of proposed budget amendments could continue into the night or perhaps into early Friday. Senate Majority Leader Mitch McConnell of Kentucky appears to have enough votes for adoption of the budget, which the House must approve to give the Senate an easier path toward passing the tax-law overhaul later.

House and Senate Republicans are crafting an amendment to the Senate budget designed to remove the need to spend weeks reconciling the Senate budget with the version already passed by the House. The House would simply vote on the budget that passes the Senate; plans call for holding that vote next week, a House aide said.

The compromise would amend the Senate budget to allow for more defense spending in the first year, in line with the House budget, according to a House Republican aide. It would also eliminate House language to expedite $203 billion in entitlement savings, while leaving in place Senate language that would ease drilling in the Arctic National Wildlife Refuge. 

On taxes, the compromise would keep the Senate’s plan to allow tax cuts that add up to $1.5 trillion to the deficit, before including the effects of economic growth, according to the aide. The House budget had required tax changes not to lose revenue.

The faster both chambers agree to the budget, the more quickly tax legislation can take shape.

Senate Finance Chairman Orrin Hatch of Utah said Thursday he’s aiming to release a draft of a tax bill early next month.

Earlier Thursday, the Senate rejected a Democratic budget amendment aimed at protecting the state and local tax deduction for individuals -- preserving a controversial suggestion to repeal or reduce the tax break by President Donald Trump and congressional Republicans.

The chamber adopted a measure that would allow for reducing that tax deduction, which tends to benefit high-income taxpayers in high-tax states that tend to vote Democratic. That amendment, offered by Republican Shelley Moore Capito of West Virginia, was approved on a 52-47 vote, mostly along party lines.

It’s unclear whether or how any legislation will address the so-called SALT deduction, which allows federal taxpayers to write off the cost of the state and local taxes they’ve paid. Roughly two dozen Republican House members in high-tax states have raised concerns that their constituents would be adversely affected by abolishing the state and local tax deduction.

Capito’s budget amendment doesn’t specifically call for eliminating the tax break, but says tax legislation “may include reducing” the deduction. Senator Joe Manchin, a West Virginia Democrat, crossed party lines to vote yes, while Senator Rand Paul, a Kentucky Republican, voted no.

While some Republican House members have complained, the SALT deduction issue isn’t as touchy for the GOP in the Senate; Republican senators generally represent lower-tax states. Still, House leaders have said they’re listening to their dissident members’ concerns, and the Trump administration has suggested it’s open to compromise on the issue.

Revenue Raiser

“Senate Republicans doubled down today on their devotion to tax cuts for the wealthy while sticking it to everyone else by refusing to vote to keep the long-standing and vital state and local tax deduction in the tax code,” said Randi Weingarten, the president of the American Federation of Teachers, in an emailed statement. “Republicans want to use the revenue generated by jettisoning this deduction to pay for tax rate cuts for the rich at the expense of most Americans, especially low- and middle-income people.”

Repealing the deduction is estimated to raise $1.3 trillion over 10 years. For that reason, it’s key to helping offset the steep tax-rate cuts for businesses and individuals called for in the GOP tax framework. Imposing an income cap on the deduction, which some GOP House members envision as a way to protect middle-income taxpayers, would sharply reduce that revenue.

Republican tax writers are also considering a compromise that would allow individuals to keep deducting the cost of the property taxes they pay while eliminating the break for their other state and local taxes, a GOP member of Congress said Thursday. That change would erase about $300 billion of the estimated $1.3 trillion revenue increase.

Thursday’s SALT amendments are among many the Senate will consider as part of the process to adopt a budget resolution -- a critical step needed to allow the GOP to pass a tax bill with just 50 Senate votes. Republicans, who control only 52 seats in the chamber, have a slim margin for error as they try to seize on Trump’s last best chance for securing a major legislative achievement this year.

— With assistance by Ben Brody, and Kaustuv Basu

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