Policy

Search for Offsets Squeezes House GOP on Tax Cuts

Leaders facing pressure from Senate and White House

House Ways and Means Chairman Kevin Brady says he remains focused on pairing tax cuts with offsets that pay for their cost. (Bill Clark/CQ Roll Call file photo)

A widening fracas over offsets leaves House Republican leaders with tough choices as they try to settle on the scope of tax cuts and revenue-raising items in a package they are negotiating with their Senate counterparts and President Donald Trump.

Speaker Paul D. Ryan of Wisconsin and his team face pressure from senators and the administration to loosen their demand for a revenue-neutral tax package. Some Republicans have even floated the idea of temporary tax cuts without any offsets like those enacted under President George W. Bush in 2001 and 2003.

For now, Ryan and Ways and Means Chairman Kevin Brady of Texas appear intent on continuing to match tax cuts with available revenue-raising offsets — aimed at reaching their goal of a tax overhaul package that is revenue neutral based on dynamic scoring. But a number of senior Republicans say the job of balancing tax cuts and offsets is becoming more difficult as lawmakers demand sweeping tax cuts while opposing a number of revenue-raising items.

“It’s a mathematical equation. You have to make a decision on what level of revenue you’re going to have to work with,” said Rep. Kenny Marchant, R-Texas, a Brady ally on Ways and Means.

Brady told reporters Thursday that he and other GOP leaders remained focused on pairing a package of tax cuts with offsets that pay for their full cost.

“We are — in the design — focused on balancing it within the budget and making it permanent. To do that, we have to make choices of what is the most pro-growth,” he said.

And he fired off a warning of sorts about demands to shrink or kill revenue-raising proposals.

“If you allow just small groups that want to exempt their special provisions in tax reform, frankly, there will be nothing left to do tax reform with,” the House’s top tax writer said.

Health care bill

The tough act of balancing tax cuts and offsets got even tougher when Senate GOP leaders jettisoned a proposal to repeal the 3 percent net investment income tax on people with high incomes from their bill to repeal parts of the 2010 health care law.

That move means the net investment income tax repeal, which would cost about $172 billion over 10 years, could be part of a broader tax overhaul. But it would require offsets based on the standards set by House GOP leaders for such legislation.

“We are proposing to eliminate a number of the special provisions for a few, so that we can lower the rates for everybody,” Brady said.

The Texas Republican referred to the push by a number of GOP lawmakers to kill the House leadership-backed border adjustment tax, or BAT. The Tax Policy Center, a nonpartisan think tank, said the BAT would raise $1.2 trillion over 10 years by extending levies to imports and exempting exports. Brady is also trying to douse brush fires around proposals to curb tax breaks, such as the interest deduction for businesses.

Rep. David Schweikert, a member of Ways and Means and the hard-line conservative Freedom Caucus, echoed Brady’s concerns about the mounting squabbles over offsets. The Arizona Republican said it put Brady and other party leaders in a difficult position as they try to defend their plan for a revenue-neutral tax package.

“It makes the ultimate math not work,” he said.

Still, Schweikert said he believed members of the Freedom Caucus would align behind the goal of a package that is fully offset. But other Republicans disagree.

North Carolina Rep. Mark Meadows, the caucus chairman, has said he might agree to a tax package that includes some deficits. Although the Freedom Caucus has not taken an official position on the border adjustment tax, Meadows said last week he believed party leaders should accept “political reality” and develop other options for offsetting tax cuts.

David Burton, a senior fellow at the conservative Heritage Foundation, said there could be growing pressure on House GOP leaders to give ground on their demand for full offsets.

“They could relax the revenue-neutral restraint,” Burton said in an interview.

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