The details of the Republican tax reform bill will be revealed this week in Congress, but GOP lawmakers are already threatening to sink it over proposed tax loophole closures.
Republicans are eager to pass a bill that lowers both individual and business tax rates. But Republicans are up in arms over the proposals to at least partly pay for cuts by eliminating some deductions.
House Way and Means Committee Chairman Kevin Brady has held frequent meetings with a group of lawmakers from high-tax states who oppose a provision that would strike the popular state and local tax deduction.
Other lawmakers are threatening to defect if Republicans go anywhere near the 401(k) tax deduction that allows individuals to save up to $18,500 annually tax free.
And some Republicans are insisting on certain new tax credits to win their vote.
Sen. Mike Lee, R-Utah, for example, wants the tax overhaul to include a $2,000 child tax credit. The Republican tax reform outline calls for raising the existing $1,000 child tax credit, but no amount has been determined.
“My biggest issue has been the child tax credit, trying to get that increased,” Lee told the Washington Examiner.
Meanwhile, providing no offsets also threatens passage, particularly in the Senate where Republicans hold onto a 52-seat majority and can afford to lose only two GOP votes.
Fiscally conscious lawmakers including Sen. Bob Corker, R-Tenn., are reluctant to back a bill that blows up the nation’s deficit, which was projected to be $693 billion for fiscal 2017, according to the Congressional Budget Office.
Republicans will have to find ways to pay for the tax cuts and it is likely to divide the GOP conference in both the House and the Senate.
“Where I think we’re going to get hung up is in deductions,” Sen. Jim Risch, R-Idaho, told the Washington Examiner. “Those deductions didn’t get there by accident. There was a hard fought battle every time a deduction came along and there is going to have to be some give and take on it. No question about that.”
But Republicans late last week seemed unwilling to give an inch on altering the 401(k) deduction.
According to the IRS, the 401(k) is the most popular type of retirement plan used today.
Republicans haven’t announced any specific plans to alter or eliminate the deduction. But aside from a pro-401(k) tweet from President Trump, neither the White House nor Republican leaders have pledged to leave it untouched.
For many Republican lawmakers in the Senate, the move is a nonstarter.
“I don’t see it happening,” Rep. Jodi Ernst, R-Iowa said, when asked about the 401(k) deduction being eliminated or altered. “I don’t even think we should go into that area yet. I think we just should stay away from it right now.”
The first hurdle for Republicans next week will be hashing out a deal on the state and local tax deduction, which lawmakers refer to as the SALT.
A significant group of Republicans last week voted against a key budget resolution that will serve as the vehicle for tax reform, in order to send a signal to GOP leaders that they will not accept the plan to eliminate the SALT.
Most of the affected lawmakers are from New York and New Jersey, where state and local taxes are among the highest in the country.
Shortly after the Thursday vote in which the budget passed narrowly, the New Jersey and New York Republicans headed back to Brady’s office, where they spent much of last week trying to work out a deal to modify the SALT rather than eliminate it.
Among the ideas is one that would cap the deduction at $400,000 per family. Another plan would provide credits for those eligible for a newly capped SALT deduction.
No final agreement was reached last week, which leaves many Republicans in limbo over whether they’ll back a tax reform bill.
“There are a couple of concepts that are being modeled,” Rep. Tom MacArthur, R-N.J. said. “But that doesn’t tell me where this is heading. People are ultimately going to have to look at their constituents and answer for their votes, on how they affected their tax bill.”
