WASHINGTON (REUTERS) - The US House of Representatives took a step on Thursday (Oct 26) to pave the way for deep tax cuts sought by President Donald Trump and Republican leaders, barely overcoming a revolt within party ranks that could foreshadow trouble ahead for the tax overhaul.
The Republican-controlled House voted 216-212 to pass a budget blueprint for the 2018 fiscal year. The measure will enable the tax legislation, expected to be made public next week, to win congressional approval without any Democratic votes.
But House Republican leaders came within two votes of failure. Democrats were unified in their opposition, and 20 Republicans also voted against the bill, many to express disapproval of a provision in Trump’s tax plan outline that would repeal an income tax deduction for state and local taxes.
Discord is also looming over a potential provision to scale back a popular tax-deferred US retirement savings programme.
Those provisions are aimed at offsetting losses in tax revenues that would result from the planned sweeping tax cuts, particularly for companies.
The outline of the Republican plan announced last month would cut the corporate tax rate to 20 per cent from 35 per cent, the small business rate to 25 per cent from up to 39.6 per cent and the top individual rate to 35 per cent from 39.6 per cent.
Democrats have called the tax plan a giveaway to the rich and corporations that would swell the federal deficit.
Trump, who promised major tax cuts as a candidate last year, has asked Congress to pass the tax legislation by the end of the year. Even though his fellow Republicans control both chambers of Congress, the president has been unable to secure passage of major legislation, having failed to secure a promised repeal of the Obamacare law.
“Big News – Budget just passed!” Trump wrote on Twitter.
Republican House Speaker Paul Ryan, who has said he wants the House to pass the tax overhaul by the Nov 23 US Thanksgiving holiday, said passage of the budget resolution was an “enormous step” towards that goal.
But he declined to take a position on the possibility of capping annual contributions into 401(k) plans, which for four decades have helped millions of Americans save for retirement by offering tax savings.
Trump and Kevin Brady, the Republican chairman of the tax-writing House Ways and Means committee, reopened the door to the possibility of such caps on Wednesday as Republicans scramble to find sources of revenue to cover the tax cuts.
REVOLT FROM HIGH-TAX STATES
A meeting after the budget vote between Brady and Republicans opposing the elimination of the deduction for state and local taxes ended without a compromise, though Brady said he will work to find a solution.
“They made it clear. They need this problem solved before they vote ‘yes’ on tax reform,” Brady added.
Eliminating the deduction would hit middle-class voters in high-tax states like California, New York, Illinois, Pennsylvania and New Jersey.
Republican Representative John Katko of New York, leaving the meeting with Brady, said supporters of the deduction “stood firm, saying no as a group today to let them know we’re not kidding, and we also are going to let the Senate know if they try and take it (the deduction) out, they’re going to have a problem.”
The budget plan will enable the 100-seat Senate to pass tax legislation with a simple majority rather than a 60-vote super-majority. This higher bar would be tough to reach given Democratic opposition. While Republicans hold a comfortable majority in the House they have just a 52-48 margin in the Senate.
The White House and congressional Republicans excluded Democrats as they developed the plan, and it appears unlikely that any significant number of Democrats will get behind the proposal.
The battle within Trump’s own party over the state and local income tax deduction offers a preview of the tough fights ahead as Republicans seek to do away with other popular tax breaks.
Independent analysts last month forecast that corporations and the wealthiest Americans would benefit the most and many upper middle-income people would face higher taxes under the tax outline unveiled by the Republicans.
“Right here before our eyes, in this House, the Republicans are replacing the great American ladders of opportunity with the silver spoon of plutocracy and aristocracy. Their agenda raises taxes on the middle class. That is the fact,” top House Democrat Nancy Pelosi said during the debate on the budget measure.
Independent analysts said the proposal would cut taxes for companies and individuals by up to US$6 trillion (S$8.1 trillion) over the next decade.