Tax cuts are glue binding the GOP
WASHINGTON — One week before they are set to unveil a sprawling overhaul of the federal tax code, Republicans struggled Wednesday with key parts of their plan, reigniting a fight over retirement savings and racing to cut a deal with lawmakers from high-tax states before a critical budget vote in the House on Thursday.
The challenges — and the dogged effort to resolve them on Capitol Hill — highlight the increased importance of the tax issue for a fractured Republican Party desperate for a legislative victory.
The prospect of a once-ina-generation bill to cut taxes on businesses and individuals increasingly appears to be the best hope for a party anxious to find common ground and advance an effort that it has long championed as the pinnacle of Republican orthodoxy. It is a bit like having a baby to save a failing marriage.
But, like a crying newborn, the drafting of the bill is already costing party leaders sleep. That was evidenced Wednesday, when President Donald Trump and a top House Republican sparred over whether the plan would include sharp reductions in how much Americans might save, before taxes, in 401(k) accounts. Meanwhile, congressional leaders worked to forge a compromise on state and local tax deductions that could be necessary for the House to pass a budget measure that is needed to ensure the tax bill does not fall to a Democratic filibuster in the Senate.
Republicans from states where the state and local tax — or SALT — deduction is widely used were not making it easy.
“To me, the only way to stop this is to defeat the budget tomorrow,” Rep. Peter T. King, R-N.Y., said Wednesday. “Once the budget passes, they hold all the cards.”
The challenge facing Republicans is trying to mitigate the revenue-losing effects of cutting tax rates, particularly Trump’s push to reduce the corporate rate to 20 percent from 35 percent, which the White House says is nonnegotiable. The budget resolution that is supposed to win final approval Thursday would allow for $1.5 trillion in additional deficits from tax cuts over the next decade, but the proposed tax cuts already revealed would cost well over $2 trillion.
Cutting rates unifies Republicans. Two issues in dispute flared up publicly: changes to retirement savings and to individuals’ ability to deduct their state and local taxes.
House Republicans have been considering sharply reducing the amount that Americans are allowed to save, before taxes, in 401(k) retirement plans to $2,400 a year, from the current $18,000, or $24,000 for workers who are older than 50. Lowering the cap would be unlikely to encourage more savings, research suggests, but it would amount to an accounting maneuver that would help Republicans make up some of the lost revenue from large cuts to business tax rates. Money in such retirement accounts is taxed when it is withdrawn. By taxing most deposits immediately, Republicans would push future tax revenue into the 10-year budget window they are now working in.
Trump was not giving up. He told reporters that he wanted to “quickly” end speculation because “401(k)s, to me, are very important.” Asked whether he might negotiate over the changes, he replied, “maybe we’ll use it as negotiating,” then added that Brady knew how critical the retirement accounts were.
A failure on taxes, after the Republicans did not succeed in repealing the Affordable Care Act, could jeopardize its congressional majorities in the 2018 midterms.
“The Republicans are finally figuring out if they don’t pass this, the political consequences are going to be catastrophic,” said Stephen Moore, a senior fellow at the Heritage Foundation who is advising Trump on tax policy. “The attitude of the conservative base is, ‘If they don’t do this, they’re worthless.’ ”