By Richard Rubin 

WASHINGTON -- House Republicans are busily preparing what they call "Tax Reform 2.0," an extension of tax cuts they passed last year that are scheduled to expire after 2025. So far, their Senate counterparts aren't so interested.

House Republicans expect to vote on their tax plan in September, and one leading option is a three-bill package: Extension of expiring tax cuts, expansion of incentives for savings and policies to promote innovation.

The tax-cut extension, the largest of the three bills, is the one that is most likely to become a campaign-season talking point and also least likely to become law this year.

"We've got a pretty full agenda," said Sen. Bill Cassidy (R., La.), listing nominations, spending bills and flood insurance as priorities ahead of the new tax bill.

Republicans in the Senate have a 51-49 advantage, but the bill would need 60 votes to clear procedural hurdles. Sen. John Thune (R., S.D.), a member of GOP leadership, said Republicans likely wouldn't bring the tax bill to the floor unless they're sure it could get 60 votes.

Even attempting a sure-to-fail vote carries risks for Senate Republicans, because a few Democrats up for re-election in states won by President Donald Trump could muddle the GOP's campaign message against them by voting for middle-class tax cuts.

One of those Democrats, Sen. Claire McCaskill of Missouri, said she backed making the "tax cuts for regular families" permanent but that they should be paid for. One suggestion she made was lowering the income cap for child tax-credit eligibility, which now starts phasing out at $400,000 for married couples.

"I don't know how they look in the mirror. I can't remember how many righteous lectures I got from my Republican colleagues about the debt and deficit," she said.

The tax cuts expire because of choices Republicans made as they passed their tax law without any Democratic votes last year. They used a fast-track procedure that let them avoid the 60-vote Senate threshold, but it came with the restriction that they couldn't increase budget deficits beyond a decade.

They made the corporate tax-rate cut permanent to give companies certainty, and they set the individual tax cuts to expire after 2025. If Congress doesn't act, the top tax rate would return to 39.6% from 37%, the child tax credit would shrink back to $1,000 from $2,000, the standard deduction would get cut and a new break for partnerships and other pass-through businesses would vanish.

"We want to work toward permanence, making sure these tax cuts that Americans are already working on and using now can become permanent," said Rep. Jim Renacci (R., Ohio).

Tax increases embedded in the law, including limits on the state and local tax deduction and the elimination of deductions for personal exemptions, would also reverse after 2025 if Congress doesn't act. On net, extending all those major changes would reduce federal revenue by $214.5 billion in 2027 alone, according to the conservative-leaning Tax Foundation. Mr. Trump has also suggested lowering the corporate tax rate from 21% to 20%.

"We're very well-aligned with the White House," Rep. Kevin Brady (R., Texas), chairman of the House Ways and Means Committee, said after a meeting Tuesday with Mr. Trump. "We continue to have discussions with the Senate and listen to what they'd like to see."

Mr. Brady's Senate counterpart, Orrin Hatch of Utah, backs making the tax cuts permanent and wants to "find a viable path and timing to achieve this goal," said his spokeswoman, Julia Lawless.

Mr. Cassidy said he is confident that a future Congress would extend the tax cuts before they expire. He pointed to 2013, when President Barack Obama and a Senate controlled by Democrats agreed to extend most of the tax cuts created under President George W. Bush in 2001 and 2003.

"History tells us that tax cuts for families tend to get extended," he said.

The other pieces of the House GOP tax agenda stand a somewhat better chance of becoming law if passed separately. There's bipartisan interest in incentives for retirement savings, and the outlook for them will become clearer once Republicans release details.

It isn't certain that Senate Republicans could muster a majority for a tax-cut extension. Sen. Bob Corker (R., Tenn.), who voted against the Senate's tax bill before voting for the House-Senate compromise that became law, said he only backed individual tax cuts because they were tied to corporate changes.

"I would have been far happier with no individual changes, and therefore I can't imagine possibly supporting extensions," he said.

--Siobhan Hughes contributed to this article.

(END) Dow Jones Newswires

July 19, 2018 05:44 ET (09:44 GMT)

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