Tax Re­form Means Cuts For States

The Bond Buyer - - Front Page - By BRian tu­multy

WASH­ING­TON – Bud­get cuts to Med­i­caid and other fed­eral pro­grams that state and lo­cal gov­ern­ments de­pend on are in­cluded in the bud­get res­o­lu­tion con­gres­sional Repub­li­cans are con­sid­er­ing as their blueprint to en­able tax re­form.

The fed­eral bud­get cuts would be used to help pay for tax cuts un­der their blueprint, adding a sec­ond set­back for state and lo­cal gov­ern­ments al­ready fac­ing the prospect of los­ing the fed­eral de­duc­tion for state and lo­cal taxes.

Michael Leach­man, direc­tor of state fis­cal re­search for the Cen­ter on Bud­get and Pol­icy Pri­or­i­ties, which sup­ports so­cial safety net pro­grams, called the pro­posed bud­get cuts the elim­i­na­tion of SALT de­duc­tion “a big one-two punch.”

“At the same you would be shift­ing huge new costs to states and lo­cal­i­ties, you would be re­strict­ing their abil­ity to raise new rev­enue to deal with the fall­out,’’ Leach­man said.

House Repub­li­cans ap­proved their bud­get res­o­lu­tion last week

in a 219-206 vote with 18 GOP law­mak­ers join­ing Democrats in op­po­si­tion.

The Se­nate’s bud­get res­o­lu­tion was ap­proved by the Se­nate Bud­get Com­mit­tee in a par­ti­san vote last week. It is ex­pected to re­ceive a floor vote later this month.

The two cham­bers will need The two cham­bers will need to rec­on­cile their dif­fer­ences and pass a joint bud­get res­o­lu­tion in or­der to move ahead with the fall leg­isla­tive pri­or­ity of en­act­ing tax re­form.

Both bud­get res­o­lu­tions would trim non-de­fense dis­cre­tionary spend­ing in the 2018 fis­cal year that be­gan Oct. 1. Those pro­grams are cur­rently oper­at­ing un­der a tem­po­rary mea­sure that ex­pires Dec. 8, so Congress would have to en­act spend­ing cuts af­ter point. A bud­get res­o­lu­tion for the 2018 fis­cal year also will en­able Se­nate Repub­li­cans to waive the 60-vote su­per-ma­jor­ity re­quired un­der its rules and pass tax re­form by a sim­ple ma­jor­ity.

That’s the same process Se­nate Repub­li­cans used over the sum­mer in a failed bid to re­peal the 2010 Af­ford­able Care Act, com­monly re­ferred to as Oba­macare. Mu­nic­i­pal bond mar­ket ex­perts are mon­i­tor­ing the de­bate over tax re­form for its im­pact, es­pe­cially the ef­fort to pre­serve the tax de­duc­tion for state and lo­cal taxes.

“At a time of mas­sive in­come and wealth in­equal­ity, the Repub­li­can bud­get takes from the mid­dle class and those in need, and gives huge tax breaks to the wealth­i­est peo­ple in this coun­try,” Sen. Bernie San­ders, I-Vt., said Sept. 29.

San­ders, the rank­ing mi­nor­ity mem­ber of the Se­nate Bud­get Com­mit­tee, ac­cused Repub­li­cans of us­ing the pro­posed cuts that in­clude al­most $500 bil­lion in Medi­care, to “give bil­lion­aires, in­clud­ing the Trump fam­ily, huge tax breaks.”

San­ders es­ti­mated that Med­i­caid, which is the largest sin­gle source of fed­eral aid to the states, would be cut by $1 tril­lion over the next decade.

The Se­nate and House res­o­lu­tions both call for spend­ing cuts over the next decade with the Se­nate ver­sion cut­ting non-de­fense dis­cre­tionary spend­ing by $800 bil­lion and House cut­ting $1.4 tril­lion, Leach­man said.

Do­mes­tic spend­ing pri­or­i­ties such as bor­der se­cu­rity, re­search and the FBI are less likely to be tar­geted for cuts than sup­port for state and lo­cal pro­grams such as K-through-12 ed­u­ca­tion and po­lice and fire de­part­ments, Leach­man said.

The House ver­sion in­structs 11 com­mit­tees to achieve at least $203 bil­lion in manda­tory sav­ings and re­forms over 10 years to en­ti­tle­ment pro­grams. The Se­nate res­o­lu­tion al­lows $1.5 tril­lion in new deficit spend­ing over the com­ing decade, which the House ver­sion does not do.

The feud be­tween Sen. Bob Corker, R-Tenn. and Pres­i­dent Trump that erupted into pub­lic view over the week­end could help de­rail the plan for new deficit spend­ing and force the Se­nate to take the same ap­proach as the House. Corker has vowed to not sup­port any plan that in­creases the deficit.

Trump said Tues­day he doesn’t think his dif­fer­ences with Corker will af­fect tax re­form.

“The peo­ple of this coun­try want tax cuts. They want lower taxes,” Trump said. ◽

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