Narrow House passage of GOP budget resolution suggests tax reform plan faces a tough road

House Republicans’ narrow passage Thursday of a 2018 budget resolution points to how much work still lies ahead to push through President Trump’s tax cut package.

The largely partisan tax plan, aimed chiefly at lowering corporate tax rates, is set to be unveiled in a matter of days.

But signs of friction flared Thursday when House Speaker Paul D. Ryan (R-Wis.) was barely able to muscle through a largely symbolic budget blueprint that clears the way for easier passage later this year of a tax bill.

The budget resolution passed by a 216-212 vote, with dissent from 20 Republicans and all Democrats. GOP opponents, primarily from New York and New Jersey congressional districts, balked at elements of the tax proposal that would eliminate state and local tax deductions, which are crucial write-offs to residents in their states, as well as in California.

The Senate, which earlier approved the budget resolution, has a similarly narrow path to pass the tax overhaul. Even under special rules allowing for passage in the Senate by simple majority, Republicans can only afford to lose two votes.

“Now you’re starting to see how difficult tax reform is,” said Rep. Tom Reed (R-N.Y.), an ally of the president and member of the tax-writing House Ways and Means Committee who voted for the budget resolution.

Republicans are hungry for a legislative win, especially after their failure to repeal Obamacare. But there is growing discomfort that the package has not won much support in the polls and Americans are beginning to view it as more beneficial to corporations and the wealthy than the middle-class Americans the president championed in his campaign.

“Healthcare was so, so political and so hard,” Reed said. “People were getting attacked from all over. They just thought: It can’t be any worse. But when you go into policy that’s talking about money and impacts every American, ... now they’re getting a sense [of] how complicated, how extensive this effort is.”

Trump brushed off concerns of friction within the party over the tax bill. “Do not underestimate the UNITY within the Republican Party,” he tweeted.

Most lawmakers left town for the weekend, leaving bill writers to turn the ambitious framework agreed to by the White House and congressional leaders into legislative text.

A core dilemma is how to pay for the expansive tax cuts that, under rules passed with the budget resolution, can add up to $1.5 trillion to the existing federal deficit over 10 years.

Limiting the state and local deductions was expected to cover much of the cost, bringing about $1 trillion in new revenue, mostly from residents of high-tax states like California and those in the Northeast who would no longer be able to write off state income and property taxes.

After the revolt by the New York and New Jersey Republicans, who provided more than half of the GOP opponents to Thursday’s budget, leadership was frantically working to bring those lawmakers in line, perhaps by reaching a compromise that may preserve some of those deductions.

California’s Republicans have been notably quieter on the issue, even though Reps. Darrell Issa of Vista and Mimi Walters of Irvine are among those in high-tax districts where residents could be hardest hit by limiting the deduction.

Rep. Steve Knight (R-Palmdale), who voted for the budget Thursday, said in an interview that he received assurances from party leadership that the state and local deduction issue would be “fixed” to offset the potential losses for California districts like his.

"I have said that is my No. 1 priority, so if we can’t get it fixed, then we’re going to have problems with this,” Knight said. “You’ve got to show me that the people that are in California are going to get a tax break.”

Walters said in a statement she went along with the budget because it provides “a major step toward tax reform.”

After talks on the state deductions stalled, bill drafters turned their sights to retirement savings accounts. Some Republicans want to raise revenue by lowering the annual cap of tax-deferred contributions that can be made to 401(k) plans from $18,000 to as little as $2,400.

Trump swiftly rejected that idea, as did other Republicans, worried it would clip Americans’ key retirement savings tool and step on the GOP’s message that the tax bill helps middle-class Americans. But the issue remains unresolved.

Another tussle is expected after drafters reveal the new income levels for individual tax rates — 12%, 25%, 35% and probably a top rate for the wealthy. Lower rates, along with a doubling of the standard deduction, to $24,000 for couples, is intended to reduce tax preparation and the need to itemize. Income cutoffs, along with the fate of some deductions, will be key in determining which Americans get a tax cut and who ends up paying more.

A final point of friction among Republicans comes from the tax plan’s use of deficit spending to pay for cuts. Republican leaders say the tax cuts will spur economic growth, eventually offsetting the $1.5 trillion in lost revenue.

But as seen in Thursday’s vote, the remaining deficit hawks in the party — who railed for years against deficits under President Obama — are skeptical.

“Conservative leaders would have slammed this Big-Government Budget under Pres. Obama. Now, they demand Republicans in Congress vote for it,” tweeted Rep. Justin Amash (R-Mich.), who voted against the budget resolution. “2011-2016: Principles! 2017: End justifies the means.”

House Minority Leader Nancy Pelosi (D-San Francisco) said the package — which would lower the corporate rate from 35% to 20% — is little more than the “trickle-down” economics of days past, “shaking down the middle class, ripping off the middle class.”

Though Republicans say businesses will pass along their savings to Americans in the form of higher salaries, Pelosi and others note that history suggests otherwise.

“They say, ‘Oh, it’ll pay for it.’ Never has. Never has,” she said. “It’s nonsense.”

GOP tax writers are struggling to meet the competing demands, but they are quickly learning that complex tax reform packages, like yarn in a sweater, can unravel in unexpected ways with one wrong yank.

With a Wednesday target looming to roll out the bill, lawmakers are planning to reassemble Monday evening to hash out the latest details and try to come to consensus.

“Oh golly, the list of pressure points is just going to get longer and longer and longer,” said Rep. Rob Woodall (R-Ga.), a member of the House Budget Committee. “Details matter.”

Times staff writer Sarah D. Wire in Washington contributed to this report.

lisa.mascaro@latimes.com

@LisaMascaro

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UPDATES:

3:45 p.m.: This article was updated with additional reaction and analysis.

9:35 a.m.: This article was updated with details about Republicans who voted no.

This article was originally published at 8 a.m.

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