GOP's Path to Tax Changes Slowed by Upcoming Budget Fight

By Richard Rubin and Kate Davidson Features Dow Jones Newswires

To advance a tax overhaul this year, congressional Republicans first must clear a tricky hurdle: They need to agree on a budget.

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In many years, budget resolutions are superfluous or impossible because the House and Senate are controlled by different parties. In fact, in eight of the past 15 years, Congress didn't even complete one.

This year that is not an option if Republicans want to advance their ambitious fiscal agenda. Yet even though they control both houses, an array of challenges stand in their way, including intense intraparty fighting over priorities including deficit reduction, restraining entitlement costs and increasing military spending.

"It's going to be tough," said Mick Mulvaney, the White House budget director and a former House member. "It's tough every single year."

The budget-writing process starts in earnest next week when President Donald Trump releases the details of his own budget plans, including economic projections and spending plans for entitlements and federal agencies.

House and Senate budget committees will follow with their own proposals, likely after Congress returns from its Memorial Day recess. Then the full House and Senate will have to vote and resolve any differences. Mr. Trump doesn't need to sign the resolution.

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Congressional budget resolutions -- like scaffolding for a building -- serve as blueprints that lawmakers use to set spending levels for the coming fiscal year. Congress then uses the blueprint to write specific spending bills for agencies that go to the president for signoff. In some past years Congress has passed spending bills without the broader blueprint.

The budget resolution for fiscal 2018 is critically important because, according to the complex rules of federal budget writing, it opens the way for a process called reconciliation that allows certain tax and spending laws to pass the Senate on a simple majority vote.

Getting a budget resolution that the House and Senate both agree on is a critical step because Democrats are unlikely to support a Republican tax overhaul.

The challenge with this resolution: Republican party fissures and competing coalitions among tax reducers, spending cutters, defense hawks and budget balancers leave GOP leaders with little room for error as they try to forge a budget plan for 2018.

"Am I confident?" said Rep. Mario Diaz-Balart (R., Fla.), a Budget Committee member. "I'm confident that it's a very difficult task. That I do know. And I'm confident that clearly both the chairwoman and the members of the committee and I think the Republican leadership want to get it done, but I just know that this is going to be a very, very difficult task."

The House plan will balance by the end of the 10-year budget window, a GOP aide said. The House budget is likely to include, as it has before, cost-saving changes to Medicare that would turn it into a program with government subsidies to purchase private, fee-for-service insurance through an insurance exchange.

Republicans may also propose changes to other so-called mandatory programs. That category includes Medicaid, federal workers' retirement programs, student loans and food stamps.

"Until you can bend that curve on mandatory spending, we'll never be able to pass a budget to do what's necessary for defense and all the rest of it," said Rep. Mac Thornberry (R., Texas), chairman of the House Armed Services Committee.

The budget will also set the parameters of the tax plan, including the yardstick for measuring tax changes and the maximum size of any tax cut.

House Speaker Paul Ryan (R., Wis.) and Rep. Kevin Brady (R.,Texas), the chairman of the House Ways and Means Committee, both want what is known as a revenue-neutral tax bill, after assuming the tax cuts can cause economic growth.

But other Republicans -- including, at times, the Trump administration -- want a tax cut that reduces revenue on net. That could mean a temporary tax cut so the bill complies with reconciliation rules that forbid such bills from expanding budget deficits in years beyond the period specified in the budget, typically 10 years.

"They're going to have to thread the needle of balancing the things that Republicans say they're always for: tax reform, the defense piece, smaller government and then the idea of getting [the budget] to balance at a certain point in time," said Gordon Gray, director of fiscal policy at the American Action Forum, a center-right think tank.

Final decisions will get made as Congress hashes out details of the tax bill, but critical preliminary choices happen with the budget resolution process. It was during the debates over budget resolutions in 2001 and 2003, for example, that Senate GOP moderates constrained the size of the tax cuts.

Rep. John Yarmuth (D., Ky.), the top Democrat on the House Budget Committee, said Republicans will have trouble getting a House plan through the Senate.

The budget-writing process "forces into the open some of the fiscal choices that the Trump administration and congressional Republicans are thinking about making," said Jacob Leibenluft, a senior adviser at the left-leaning Center on Budget and Policy Priorities.

For procedural reasons, Republicans aren't likely to move on a budget resolution until after the health-care bill is done. That creates another hurdle: The slower they move on the budget, the longer the subsequent tax bill takes and the more it may drag into an election year, when lawmakers will be especially wary of taking votes that cause them political trouble at home.

--Nick Timiraos contributed to this article.

Write to Richard Rubin at richard.rubin@wsj.com and Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

May 18, 2017 11:25 ET (15:25 GMT)