Senate Republicans Reach a Deal on Budget

FeaturesDow Jones Newswires

Senate Republicans have reached a tentative budget deal that would set the parameters for a tax overhaul being pursued by the party and President Donald Trump.

"There is" a tentative deal, Sen. Bob Corker (R., Tenn.) told reporters.

Continue Reading Below

He said that the Senate GOP may provide details after a closed-door Republicans' lunch breaks up. Vice President Mike Pence is attending the lunch.

Mr. Corker is a pivotal vote on the Senate Budget Committee, where members have been considering writing a budget allowing up to $1.5 trillion in tax cuts over a decade.

For Republicans, the budget is a prerequisite to passing a tax bill through the Senate on a simple-majority vote without needing Democratic support.

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)