House Republicans narrowly passed the Senate’s fiscal year 2018 budget Thursday, a vote that will allow the GOP to start work on tax reform legislation next week.
Thursday’s vote wasn’t always certain. Throughout the week, Republicans from high-tax states like New Jersey and New York threatened to band together to stall the budget over the fear that it would set up a tax bill that raised taxes on their constituents by eliminating state and local tax deductions.
Republican leaders were able to keep the bulk of their conference in line by promising passage of the budget would allow them to unveil the tax bill next Wednesday. Still, 20 Republicans voted against the budget plan, and it passed in a 216-212 vote. House Speaker Paul Ryan voted “yes,” although speakers traditionally do not vote.
Immediately after the vote, Ways and Means Committee chairman Kevin Brady announced that his panel would take up a tax bill on Nov. 6. “Today is a historic day — and we are ready to deliver tax relief that improves the lives of middle-income Americans and struggling families who have been left behind in our slow-growing economy,” the Texas lawmaker said.
The White House also praised the vote.
“This resolution sets the stage for Congress to put America first by providing economic relief for the American people in the form of tax cuts and tax reform,” White House press secretary Sarah Sanders said.
Simply passing the Senate version of the resolution, rather than going to conference and hammering out the differences, will also save weeks on the legislative calendar and keep alive hopes of passing tax reform in 2017. Republicans were broadly supportive of moving quickly to get to the tax package.
“Our members know what this means in terms of getting the process started, working with President Trump to provide middle-class tax relief,” House Majority Whip Steve Scalise, the man responsible for rounding up votes to pass the budget, said on Fox Business just before the vote.
Republicans aim to pass tax legislation using the reconciliation process unlocked by passage of the budget. Through the reconciliation process, the GOP can advance and pass a tax bill with only a simple majority in the Senate, bypassing the Democratic filibuster.
As a party, Republicans view work on tax reform as a respite from high-profile failures on healthcare and President Trump’s struggles to achieve some of his other priorities.
“If there’s anything that unifies Republicans, it’s tax reform,” Senate Majority Leader Mitch McConnell said this week.
To expedite the budget process, Republican leaders adjusted the Senate budget just moments before it passed to align it with the House version. That maneuver set up Thursday’s vote for the House to simply pass the Senate resolution, bringing the process to a conclusion.
The Senate document excluded $203 billion in mandatory spending cuts House conservatives fought for earlier in the year. Nevertheless, members of the House Freedom Caucus lent their support to the resolution out of urgency to pass tax legislation, essentially postponing the pursuit of spending discipline they fought for under President Obama.
“I think we will tackle this important issue in the future,” House Budget Committee chairwoman Diane Black, of Tennessee, said on the House floor.
Rep. Walter Jones, R-N.C., a fiscal hawk, said he was one of the “no” votes because the budget plan didn’t include significant spending reforms.
“I’m tired of bankrupting the country,” he said.
The budget does allow for a $1.5 trillion net tax reduction. Republicans contend the ultimate tax package will generate enough economic growth to cover those losses in federal revenue, but outside fiscal hawks criticized the GOP approach and argued that most economists don’t believe tax cuts pay for themselves.
Also, the Senate budget included language supporting limits in the state and local deduction in order to target relief to the middle class. Although that text is not binding on the tax bill, it drew concern from lawmakers such as New Jersey’s Tom MacArthur, who lobbied this week to protect the deduction.
The bulk of the benefits of the state and local deduction flow to high-income earners. House Republican leaders worked with the White House to try to win over fearful blue-state Republicans with some sort of compromise to ensure middle-income earners in states like New Jersey are held harmless in the tax bill.
Such a fix, Ways and Means chairman Kevin Brady suggested Wednesday, might involve adjusting the income tax brackets and the child tax credit in the GOP framework and including some sort of break for state and local property taxes to ensure that middle-class families didn’t see tax hikes.
The New York and New Jersey Republicans met several times with taxwriters and leadership throughout the week, and the White House also tried to urge skeptical members along.
Ultimately, though, those fears were not put to rest before Thursday’s vote. “The tax reform bill is going to be the place where we address that problem,” Scalise said.
MacArthur said after Thursday’s vote that he was confident a deal would be reached, but warned that blue-staters could doom the tax bill if not. “Twenty people voted no, and dozens of others voted yes holding their nose,” he said of the budget. “So leadership I think knows clearly that if we don’t get this resolved we can’t move forward on tax reform.”
The intra-party skirmish is just one of several major disputes that will have to be sorted out if the GOP is going to put tax legislation on President Trump’s desk.
This week also saw the beginning of a rift among Republicans over the possibility of changing tax-privileged retirement accounts, such as 401(k)s, to raise more money over the 10 year budget timeframe. President Trump staked out opposition to altering the tax treatment of those plans, but Republican taxwriters suggested they wouldn’t rule out doing so.
I”We’ve always said true reform is going to require compromise and give and take,” U.S. Chamber of Commerce head Thomas Donohue said in a statement applauding passage of the budget. “As the hard work continues, I urge the business community and members of Congress to refrain from taking shots at individual provisions, and remain committed to advancing a tax reform package that will be a major improvement over the unacceptable status quo.”
