Republicans in the U.S. House of Representatives forged ahead on Tuesday with legislation to reshape the federal tax code, while a top credit-ratings agency said the bill would balloon the budget deficit and give only a temporary boost to the economy.
As the House tax committee weighed amendments to a bill that Democrats have blasted as a give-away to corporations and the rich, the Washington tax reform debate was fast shifting to the Senate, where Republicans hold only a slim majority.
Senate Republicans are expected to unveil their own tax bill at the end of the week, and early indications suggest it could differ significantly from the House legislation.
The House is aiming to vote on its bill next week, a senior Republican said.
Tax reform has been a priority for President Donald Trump, who says it will stimulate economic growth. But Republicans have yet to score a major legislative accomplishment since Trump took office in January, even though the party controls both chambers of Congress as well as the White House.
Trump made another pitch for Democratic support on Capitol Hill, where his top aides met with about a dozen Senate Democrats and Trump himself phoned in from his Asia trip.
“He said, ‘Look … I want to do it in a bipartisan way,’” Senator Joe Donnelly told reporters.
Fitch Ratings predicted that a Republican tax plan would win passage in both chambers, but did not see it offering long-term benefits.
“Such reform would deliver a modest and temporary spur to growth. … However, it will lead to wider fiscal deficits and add significantly to U.S. government debt”, Fitch said, revising up its medium-term U.S. government debt forecast.
The U.S. national debt now exceeds $20 trillion. Republicans once firmly opposed adding to the debt, but their emphasis has changed. Congress’ Joint Committee on Taxation (JCT) said the House bill would add nearly $1.5 trillion to the national debt from 2018 through 2027.
Trump and congressional Republicans say the proposed tax cuts would boost economic growth enough to generate new revenues that would offset the tax cuts. Few economists agree.
The House bill slashes tax rates for large corporations, small businesses and wealthy Americans, while sharply reducing or eliminating tax breaks that benefit many middle-class Americans such as deductions for state and local taxes, college tuition and home mortgage interest.
JCT estimates that the House bill could raise taxes on as many as 38 million people who earn between $20,000 and $40,000 per year, beginning in 2023.
House Republicans, who have an overwhelming majority, drafted their bill in secret, ignoring Democrats.
But the House bill is unlikely to be taken up in the Senate, where Republicans have a 52-48 seat majority and they need to pay heed to moderates within their own ranks as well as Democrats, lobbyists and analysts said.
Two conservative Republican senators, Ted Cruz and Rand Paul, have already voiced concern that the House tax bill could raise taxes on some middle-class Americans.
The Senate bill could delay the proposed corporate tax cut by one year, may not allow any deductions for local property taxes, and may not collapse the current seven individual brackets to the four proposed by the House, according to the Washington Post.
PRESSURE TO DELIVER
Republican leaders have pushed for the House to vote on the tax bill before the U.S. Thanksgiving holiday on Nov. 23.
“My donors are basically saying, get it done or don’t ever call me again”, Republican Representative Chris Collins said.
U.S. tax legislation must begin in the House. “We’ll bring it to the floor next week”, House Ways and Means Committee Chairman Kevin Brady told Fox News.
In party-line votes on Tuesday, Brady’s tax committee voted down eight Democratic amendments that would have preserved or expanded tax breaks for the middle class, nullified the tax legislation if it increased the deficit in future years and maintained taxes on foreign profits of U.S. corporations.
Brady offered a sweeping amendment on Monday that tweaked at least half a dozen provisions of the 425-page bill.
One related to carried interest income, a share of an investment fund’s profits paid out to the fund’s general partners and which represents a large portion of many fund managers’ incomes. Carried interest currently is taxed at the capital gains rate, which is substantially lower than the personal income tax rate for higher earners. Brady’s amendment would lengthen to more than three years from one the time period assets must be held in order to be eligible for the capital gains tax rate.
The amendment would also reduce the amount of carried-interest income eligible for the lower rate.
