House Republicans agreed to budget legislation Thursday morning, narrowly overcoming internal dissension and Democratic opposition to clear a major obstacle in the GOP’s quest to pass large-scale tax cuts.
The budget legislation authorizes special procedures that will allow Republicans to reduce federal revenue over the coming decade by as much as $1.5 trillion without Democratic help. Its adoption launches what GOP leaders hope will be several weeks of intense legislating, culminating in House passage before Thanksgiving.
“It shows the strength of the willingness to get tax reform done,” House Majority Leader Kevin McCarthy (R-Calif.) said of the 216-212 vote.
No Democrats voted for the budget Thursday, nor did 20 Republicans, indicating ongoing qualms about the tax push within the party.
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. Several members of that group threatened to hold up the budget unless their concerns were addressed.
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 were eliminated, voted against the budget after no deal on it emerged.
Still, House leaders were able to persuade enough of the balking lawmakers to advance the process. A highly anticipated meeting scheduled for Wednesday night between the holdouts and House leaders was canceled shortly before it was set to begin, after party whips appeared to secure enough votes.
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 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.
Several of the concerned members met with House leaders after the budget vote Thursday, and House Majority Whip Steve Scalise (R-La.) said negotiations will continue through the weekend. “There’s been no agreement, but there’s a lot of discussion about how to fix their problem,” he said.
House Ways and Means Committee Chairman Kevin Brady (R-Tex.) said in a statement after the budget vote that he will introduce a tax reform bill on Nov. 1. He added that his committee will begin a committee markup, a meeting at which members can introduce potential changes to the bill and vote on them, on Nov. 6.
Scaling back plans to eliminate the state-and-local-tax deduction are 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. President Trump is at odds with key congressional leaders about whether tax breaks for retirement savings should be changed, for instance, while sweeping changes planned for business taxation could prove to be thorniest of all.
The budget’s passage came after months of wrangling between 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 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 House Budget Committee. “But the record is clear: This approach has failed time and time again.”
While congressional tax writers have been quietly crafting the legislation behind closed doors for months, Thursday’s vote formally kicks off the bill-writing process. While House Speaker Paul D. Ryan (R-Wis.) has called for the bill to clear the House by Thanksgiving, the Senate is expected to engage in a parallel process that could stretch into December. If both chambers succeed in passing legislation, a conference would resolve the differences between the chambers.
Ryan warned in a Wednesday interview at a Reuters-hosted event 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.”
Ed O’Keefe contributed to this report.