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What The GOP Budget Taught Us About The Party’s Tax Reform Plans

After a month of wrangling, Republicans in the House narrowly passed a budget resolution on Thursday that has no direct policy effects. Like all other budget resolutions of this kind, it doesn’t even go to the president for a signature.

But Thursday’s budget resolution, which was also approved by the Senate last week, really matters. Most importantly, to use the so-called reconciliation rules — by which lawmakers can pass a bill with a simple majority vote in the Senate instead of needing 60 votes to end a filibuster — Congress has to approve a budget resolution first. So now, Republicans can move forward with their proposal to reform America’s tax system and potentially pass a bill without any Democratic votes. (All Democrats voted against the budget resolution in both the House and the Senate).

But beyond legislative tactics, Republicans also made three telling decisions during this process, each with a potentially big impact:

1. They chucked aside concerns about the deficit

The original House version of the budget bill called for a tax reform plan that would be deficit-neutral, meaning that any tax cuts would have to be made up for with tax increases. The Senate, however, passed a budget last week that said tax reform could increase deficits by as much as $1.5 trillion over the next 10 years.

How did congressional Republicans deal with this difference? At President Trump’s urging, House leaders simply took up the Senate bill and adopted that version. The resulting budget does not guarantee that the GOP’s eventual tax bill will raise the deficit by $1.5 trillion, but it’s a clear signal that Republicans are not committed to a deficit-neutral tax plan despite constantly complaining about rising deficits when Barack Obama was president.

2. They left open the possibility of getting rid of or limiting state and local tax deductions

Earlier this week, Rep. Peter King of New York, a Republican, demanded that party leaders commit to leaving in place the local and state income tax deduction, which allows Americans to deduct those taxes on their federal tax filings. King wanted that commitment before they held a vote on the budget resolution. The beneficiaries of that deduction are disproportionately upper-income people in states with high local taxes, such as New York and New Jersey. Republican leaders have not released the formal details of the party’s tax plan yet, but they have hinted publicly that they want to either eliminate or limit state and local deductions (which would be one way for Republicans to raise money in this legislation and reduce the amount that it increases the deficit).

Party leaders refused King’s request and held the vote anyway. That led 11 of the 14 GOP House members from New York and New Jersey, including King, to vote against the budget resolution. (Overall, 20 Republicans voted no, while 216 approved it. Several of the other 9 Republicans to vote no are either members of the House Freedom Caucus or known to be iconoclastic members who often vote against major party priorities.)

That House Republican leaders wouldn’t drop the idea of eliminating this deduction, even as some GOP lawmakers strongly objected to it, suggests that they are determined to include some version of it in the final legislation. At the same time, the 11 GOP “no” votes from New York and New Jersey nearly brought down the resolution. (It passed 216-212, meaning that the bill would have failed if two more Republicans voted against it.)

If King’s bloc is not placated on this issue, Speaker Paul Ryan will have a very narrow margin on which to pass the tax bill through the House.

3. They left Obamacare out of the bill

The last budget resolution passed by Republicans, in January, explicitly laid out a path for health care legislation to be passed using reconciliation. That’s how they were going to repeal Obamacare.

This budget does not lay out such a path. That does not mean Obamacare is safe by any means. The budget adopted by both chambers calls for reductions in Medicaid spending, a big part of Obamacare. And, of course, Republicans can weaken Obamacare in other ways, from the Trump administration not really trying to enroll people in the law’s marketplaces (as it appears to be doing) to Republicans on Capitol Hill blocking a bipartisan bill (Murray-Alexander) to give insurers money to make up for certain cost-sharing subsidies that they provide for consumers. And Republicans could adopt another budget bill that explicitly called for an Obamacare repeal through the reconciliation process.

But at least for right now, Republicans do not have a clear path to repeal Obamacare with 50 GOP senators (plus Vice-President Mike Pence casting the tie-breaking vote). This budget bill is in some ways a formal concession that the party can’t find the votes to get rid of Obamacare. And Republicans don’t have that much time to make good on their promise to do so, as they could lose control of the House, Senate or both after next November elections.

This all sets up a dicey path on moving forward with tax reform. Republicans are saying they will roll out the formal tax bill as soon as next week. That will set up three big intra-party debates as members of Congress, lobbying groups and the public examine this legislation and potentially push for changes.

  • Is this bill going to spike the deficit?
  • If not, how? Will Republicans propose smaller tax cuts? Or, alternatively, will they propose raising some taxes?1
  • Are Republicans committed to the general tax structure that they laid out last month, which showed huge reductions in taxes for the wealthy and either modest cuts or even increases for middle-income Americans, or are they open to changing the distribution of the cuts?

Passing the budget resolution was the easy part for Republicans, just as it was with Obamacare. Now comes the hard part: Writing a bill that will get the votes of 218 House members and 50 senators.

Footnotes

  1. This is where proposals like limiting how much Americans can put in their 401(k) plans, which GOP officials have floated, or the state and local tax deductions move come into play. Republicans are also talking about keeping in place the highest income tax rate, which is 39 percent, instead of lowering it to 35, as was in the original draft of the tax proposal.

Perry Bacon Jr. is a senior writer for FiveThirtyEight.

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