House Republicans Set Out Plan to Rewrite Tax Code

By Richard Rubin Features Dow Jones Newswires

House Republicans are unveiling an ambitious fiscal plan on Tuesday that could let them rewrite the tax code, revamp medical malpractice laws, change federal employees' retirement benefits and partially repeal the Dodd-Frank financial regulations -- all in a single law without any votes from Democrats.

Continue Reading Below

The strategy, embedded in the House GOP fiscal 2018 budget, faces a host of political and procedural obstacles, including many of the same ones that derailed the party's health-care bill in the Senate.

Republicans this year control the House, Senate and White House for the first time since January 2007, and they are trying to take advantage of that moment by pairing a landmark tax bill with at least $203 billion in deficit-reduction measures.

"With a Republican Congress and a Republican administration, now is the time to put forward a governing document with real solutions to address our biggest challenges," said Rep. Diane Black (R., Tenn.), chairman of the House Budget Committee.

Most bills can be filibustered in the Senate and require a 60-vote threshold. What Republicans are trying to do is take advantage of an exception to that rule -- the so-called reconciliation procedures allowed under budgetary law.

Under reconciliation, fiscally oriented bills can become law with a simple-majority vote in both chambers and a signature from the president. They can't increase long-run budget deficits and must hit fiscal targets set out by the budget. To get to that point, Congress must adopt a budget first, which means the House and Senate must agree twice, once on the budget and then again on the ultimate bill.

Continue Reading Below

The House Budget Committee's release on Tuesday, followed by a committee vote slated for Wednesday, marks the first step in that process.

The committee's fiscal blueprint envisions $6.5 trillion in deficit reduction over the next decade, forecasts 2.6% economic growth, and calls for cutting projected Medicare costs and reducing spending on nondefense programs in an effort to balance the budget by 2027.

Those assumptions are politically challenging, and Democrats will likely question the economic assumptions, but they are less important in the near term for the Republican legislative agenda.

The biggest impact of the budget is to set the stage for future reconciliation bills, which could attempt to achieve only a fraction of the deficit reduction the budget envisions.

The budget will assign deficit-reduction targets to 11 committees under reconciliation, and although the budget doesn't specify policy changes, the potential targets are clear. They are unlikely to include the Medicare changes included in the 10-year budget outline in this first chunk of deficit reduction. But other so-called mandatory spending programs could be affected.

The Judiciary Committee, for example, has a $45 billion target, while the Oversight and Government Reform Committee has a $32 billion number. The committees will decide exactly which policies to pursue, but agenda items could include medical malpractice and Dodd-Frank bills favored by House Republicans, though reconciliation's special rules could affect and limit them too.

As the House Budget Committee prepares for a Wednesday vote, it isn't clear whether the budget written by Chairwoman Diane Black (R., Tenn.) has enough support to get out of the House before lawmakers leave for their August recess at the end of next week. Conservatives have been arguing for even larger spending cuts in the reconciliation package.

The budget debate will occur even before Congress gets to the tax plan, which negotiators from the House, Senate and White House are working on. They have expressed optimism that they can release a plan before the end of September and finish the entire process by the end of 2017.

The tax plan itself is aimed to be deficit-neutral, partly paying for itself with revenue from stronger economic growth.

"This creates the vehicle for ultimately getting tax reform to the president's desk this year," said Rep. Kevin Brady (R., Texas), chairman of the tax-writing Ways and Means Committee.

Adding non-tax legislation could make that task harder, because it would create a super bill with hundreds of moving parts and coalitions.

The reconciliation rules allow each budget to have three bills stem from it: one for revenue, one for spending and one for the debt limit.

The House plan operates under the assumption that the tax bill and spending cuts must be coupled. But a different interpretation of rules or a different structure of the bills could let them decouple the two measures.

Under the reconciliation rules, any bill created through that process must not add to budget deficits beyond the budget window. Although some lawmakers, including Sen. Pat Toomey (R., Pa.), have called for a longer budget window that would allow long-lasting temporary tax cuts, the House budget has a 10-year window.

Before they can advance the tax bill, the House and Senate must agree on the same version of the budget. The Senate Budget Committee hasn't yet released a budget or set a date. President Donald Trump doesn't need to sign the budget resolution; he would need to sign the subsequent bill into law.

The budget could change significantly in the Senate and it could also be revised to facilitate whatever tax agreement the House, Senate and White House agree on.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

July 18, 2017 05:14 ET (09:14 GMT)