Republicans are on the verge of adopting a budget that provides them a historic opportunity to rewrite the tax code for the first time in a generation.
But the path to victory on the biggest issue remaining on President Donald Trump’s agenda this year is littered with obstacles and traps — all laid by members of the Republican Party. With the House scheduled to approve a budget Thursday, followed by plans to release their tax bill Nov. 1, Republicans are caught between the urge to cut taxes while avoiding ideas that could cause a revolt in their own party or hurt middle class taxpayers.
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Here are the six ways Republicans could derail their own tax plan:
$4 trillion budget hole: The Republican budget allows them to cut taxes by $1.5 trillion, which sounds like a lot — except compared to all the promises they’ve made. Their plans to cut taxes on businesses and individuals would cost some $5.5 trillion, according to the nonpartisan Tax Policy Center.
That means they have to find $4 trillion in offsetting savings to fit their tax plan into the budget. That’s more in tax increases and other savings than Congress has approved in the past quarter-century combined.
Many lawmakers have no idea about the scope of changes that will be required to meet their budget numbers, and it is an open question whether Republicans can agree to take trillions with one hand while handing out trillions with the other. They’ve offered some indications where they’d find the money, but they haven’t gone over well.
401(k) changes: One of the possible revenue raisers has ignited a feud between Hill Republican leaders and President Donald Trump. Congressional tax writers have considered sharply lowering the cap for pre-tax contributions to 401(k) savings plans and steering contributions beyond that to plans that would tax the money up front, rather than when it is withdrawn.
House Ways and Means Chairman Kevin Brady signaled Wednesday that the issue was still on the table, despite a tweet from Trump earlier this week promising, “There will be NO change to your 401(k).”
“We think we can do better,” Brady told reporters.
Asked later about Brady’s comments, Trump said “maybe we’ll use it as negotiating. But trust me. That’s one of the great things. You know, there are certain elements of deals you don’t wanna negotiate with. 401(k)s — and Kevin knows it, and I think Kevin Brady is fantastic, but he knows how important 401(k)s are.”
State and local tax problems: Another idea that has spawned intra-party squabbling is Republican leaders’ desire to end the federal tax deduction for state and local taxes people pay, which would bring in an estimated $1.3 trillion in new tax revenue over a decade. GOP members from high-tax districts are rebelling over the idea, with some from New York and New Jersey threatening to withhold their votes from the budget unless their concerns are addressed.
The lawmakers have floated several compromises, including capping the deduction for high-income earners.
Brady said Wednesday he expected a deal to be struck before tax legislation is introduced.
“I do expect to reach an agreement with our high-tax lawmakers,” he said.
Trump interference: Republicans have longed for presidential leadership on taxes, but, if anything, Trump is making things harder. He confirmed many Republicans’ fears when he abruptly shot down any 401(k) changes. Earlier this year, he stunned many Republicans when he called a House-passed Obamacare repeal plan “mean,” raising fears among lawmakers they might embrace controversial ideas as part of their tax-write plans only to see them trashed by Trump.
What Republicans ideally want from a president is help fighting special interests, by explaining to the public how difficult trade-offs are the price of tax reform. But Sen. Bob Corker surely spoke for many Republicans when he said Tuesday that he’d be happy if Trump just butted out of the tax debate.
“What I hope is going to happen is the president will leave this effort, if you will, to the tax-writing committees, let them do their work and not begin taking things off the debate that ought to be debated in these committees,” he told ABC’s “Good Morning America.”
Senate filibuster: The so-called Big Six tax framework released last month was designed to get Republicans on the same page when it comes to rewriting the tax code, though it hasn’t quite worked out like that. The House and Senate appear to be going in their own separate directions on issues ranging from specific tax policies like whether to kill the estate tax to how much a plan ought to cost.
Senators expect to be consulted — not handed down a pre-cooked proposal — and they don’t fear Trump’s wrath like many House Republicans. It doesn’t help that Trump is feuding with two of the chamber’s most independent-minded members, Corker and Sen. John McCain (R-Ariz.).
Many fear a repeat of the Obamacare repeal debacle when the House strained to pass a plan only to watch it die as senators tried, and failed, to come up with an alternative. Asked earlier this month about the biggest impediment to tax reform, House Speaker Paul Ryan said: “You ever heard of the United States Senate before?”
Unrealistic deadlines: Republicans say they intend to finish up with taxes by the end of this year, even as they simultaneously punt a growing number of other contentious issues into December.
They’ll have to agree on federal spending in order to keep the government open beyond Dec. 8. Many lawmakers also want to address the so-called DREAMers, some 700,000 undocumented immigrants threatened with deportation under a White House order issued last month. Then, earlier this month, Trump cut off Affordable Care Act subsidies to insurance companies, which lawmakers are scrambling to address amid worries it could lead to soaring premiums.
All of those are combustible issues, and would come as lawmakers try to digest a tax plan likely to run more than 1,000 pages. Some fear it could lead to another showdown over shuttering the government — blowing taxes off the radar.
Republicans have begun acknowledging the calendar may slip when it comes to taxes, with Treasury Secretary Steven Mnuchin saying last week that it would be “extraordinary” if lawmakers can wrap up that work by the end of the year.