House Republicans eager to pass a budget Thursday and announce tax reform legislation on Nov. 1 face the immediate challenge of coming up with money to pay for a compromise with blue-state Republicans, who are reluctant to proceed toward a tax bill that could end the state and local tax deduction.
Several New York and New Jersey lawmakers, whose constituents disproportionately benefit from the break, said Tuesday that they were hoping to be offered some sort of deal, but that the funds had not been found to replace the money that would be raised from axing the deduction.
“There’s a lot of talk about pay-fors,” said Rep. Tom MacArthur of New Jersey.
MacArthur met with Vice President Mike Pence one-on-one at the White House Tuesday to discuss a way forward on tax reform and also participated in a meeting with House GOP leadership and taxwriters with other blue-state Republicans.
But those meetings didn’t yield a proposal to address the issue.
“For me now, the budget is a question mark,” MacArthur warned, adding that others feel the same way. Republicans need to pass the budget to unlock the special budget procedure that allows them to pass tax legislation while avoiding the Democratic filibuster in the Senate.
The question of how to pay for any deal offered to members such as MacArthur is “one of the major questions that still has to be addressed, period,” said Rep. Kenny Marchant, a Texan who is a member of the tax-writing Ways and Means Committee.
The sums involved could easily be in the hundreds of billions. Repealing the state and local tax deduction altogether would raise roughly $1.8 trillion over a decade, according to the Tax Foundation. Limiting the deduction to families earning less than $400,000, a compromise floated by blue state Republicans would raise $481 billion, according to the same group, leaving taxwriters with a trillion-dollar-plus gap to make up elsewhere.
Rep. Chris Collins of New York said that he would be amenable to a compromise involving a lower cap, such as $250,000.
“I don’t think the White House or leadership is going to apologize if the top 2 percent actually pay more. That includes me,” he said. He noted that high-income earners would benefit from the plan, even if it raised their taxes, because it would generate faster economic growth and increase earnings.
Nevertheless, even a compromise along the lines suggested by Collins could leave Republicans well short on tax revenue in the plan. The budget they are working toward limits the total tax net tax cut to $1.5 trillion over 10 years, a constraint that would apply to the eventual tax bill. That $1.5 trillion limit was negotiated in the Senate by Tennessee’s Bob Corker, who has stated concerns about the federal debt.
A deal to reassure blue-state Republicans could come in several forms. The Trump administration and Republican leaders have emphasized that the goal of the plan is to deliver tax relief to middle-class families in every state. But the hang-up is that meeting that goal would likely mean more generous tax breaks, forcing taxwriters to scale back their ambitions for other tax reductions.
Still, Republican leadership and top taxwriters sounded optimistic Tuesday about getting the budget passed and moving on to tax reform next week.
“Discussions are good,” said a tight-lipped Rep. Peter Roskam of Illinois, the chairman of the tax subcommittee, as he left a conference meeting late Tuesday afternoon.
