By Siobhan Hughes and Richard Rubin
WASHINGTON -- Senate Republicans reached a deal Tuesday that
would allow tax cuts over the next decade, bridging party divides
over trade-offs between tax cuts and budget deficits and taking an
important step toward tax-overhaul legislation.
Sens. Pat Toomey (R., Pa.) and Bob Corker (R., Tenn.),
representing opposing fiscal-policy viewpoints in the Senate Budget
Committee, said Tuesday that they struck the agreement, which
senators said could lead to a committee vote as early as next
week.
Mr. Toomey had been seeking tax cuts that might reduce revenues
by as much as $2 trillion over a decade. Mr. Corker, more wary of
budget deficits, had been arguing for a smaller number. The number
could be up to $1.5 trillion in revenue-reducing tax cuts, but
neither senator would confirm the figure in advance of a formal
announcement.
Mr. Corker said he was willing to let the budget move ahead to
get the tax bill started. He said he would judge the eventual tax
plan by how much it encouraged economic growth and avoided
increasing budget deficits.
"Those two guys had the biggest difference that we had to iron
out, so I'm very encouraged," said Sen. David Perdue (R., Ga.), a
Budget Committee member.
Democrats accused Republicans of abandoning their claims of
fiscal probity in a country with $20 trillion in debt, about $10
trillion in projected additional deficits over the next decade and
the prospect, eventually, of rising interest rates.
"If this was starting with a clean balance sheet, it would be
problematic," said Sen. Mark Warner (D., Va.) "But it is
exponentially more problematic."
The Republicans are eager to cut tax rates and rewrite the tax
system before the 2018 midterm elections. If the House and Senate
adopt the same fiscal 2018 budget, Republicans can use the
fast-track process known as reconciliation to write and pass a tax
bill with a simple majority -- instead of a 60-vote threshold that
would require Democratic support.
The Toomey-Corker agreement would allow Republicans to lower tax
rates while making fewer tough decisions on what tax breaks to
eliminate to help pay for the cuts.
Republicans say their tax-cutting efforts will boost economic
growth and generate revenue, reducing the actual impact on the
deficit. Still, they may need to make some of the tax cuts expire
after 10 years, leaving decisions to a future Congress they may not
control.
They still have a long way to go. "While I know a lot of people
read things into what this budget agreement does, the only thing it
really does is begin the tax reform discussion," Mr. Corker
said.
The full Senate would need to vote on the budget, and
Republicans could lose only two votes from their 52 members. Then
they would need to align it with the House budget that came out of
committee in July.
As written, the House budget likely doesn't allow for as large a
tax cut as the Toomey-Corker pact and is tied to more than $200
billion in cuts. Those gaps will require a House-Senate
negotiation.
Then, using the size of the tax cut in the budget as the
maximum, the House and Senate would each write their own tax bills.
Those measures are likely to diverge from each other and force
lawmakers into the trade-off debates and lobbying fights that have
prevented a major rewrite of the tax code since 1986.
The tax-writing committees plan to work off a blueprint being
released next week by top negotiators from the House, Senate and
White House.
They face the challenge of offering enough detail to make
congressional Republicans comfortable voting for the budget without
placing too-tight constraints on the tax bill.
Republicans want to lower tax rates on corporations and other
businesses, reduce middle-class taxes, repeal the estate tax,
eliminate the alternative minimum tax and lighten the tax burden on
U.S. companies' foreign earnings.
Achieving those goals would likely reduce revenue by more than
$1.5 trillion over a decade, meaning that Republicans would still
need to curtail or repeal tax breaks. They also could scale back
some of their rate-cut goals. They have been placing less emphasis
recently on significantly lowering the 39.6% top rate on income
earned outside a business.
The Congressional Budget Office projects that the U.S. will
collect about $43 trillion in tax revenue over the next decade.
Republicans would prefer to start with a slightly lower number,
meaning a lower hurdle to get over when accounting for the impact
of tax cuts, because there are more than $400 billion in expired or
expiring tax breaks that they assume would be extended anyway. And
they also want to assume that their tax plan, which isn't written
yet, would increase economic growth and thus partly pay for itself
with new tax revenue.
The Senate parliamentarian, Elizabeth MacDonough, balked at that
accounting, said Sen. John Thune (R., S.D.).
Instead, Republicans will start with the CBO projection and set
a tax-cut number that includes the cost of extending expiring tax
cuts and an assumption about how much revenue from economic growth
they might get.
Mr. Thune said added economic growth from tax cuts likely
wouldn't be enough for the tax cut to pay for itself.
"Most of our members are willing to accept a certain amount of
deficit if we think it's a very pro-growth tax bill that will
accomplish our objectives and that's to grow the economy," he
said.
That is a shift for some Republicans. As recently as May, Senate
Majority Leader Mitch McConnell told Bloomberg News that the tax
bill would have to be revenue-neutral, or raising as much money as
the current tax code does.
Under the fast-track reconciliation rules, the tax bill can't
increase deficits beyond what's likely to be a 10-year budget
window. That means Republicans may have to set some tax cuts to
expire, in a partial repeat of the 2001 and 2003 tax cuts under
President George W. Bush.
Write to Siobhan Hughes at siobhan.hughes@wsj.com and Richard
Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
September 19, 2017 19:15 ET (23:15 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.