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House Republicans target more tax cuts as elections near

[September 10, 2018] By David Morgan

WASHINGTON (Reuters) - Republicans in the U.S. House of Representatives plan to unveil another round of tax cuts this week, hoping to draw a sharp contrast between themselves and Democrats ahead of the Nov. 6 congressional elections.

Republican lawmakers and strategists say a new tax debate should amplify the party's upbeat economic message, touting a report by the nonpartisan Tax Foundation that forecast the creation of 1.5 million jobs and wage increases if individual tax cuts in last year's tax reform bill were made permanent.

"Anytime we're talking about tax cuts and the growing economy, we're winning," said Matt Gorman, a spokesman for the National Republican Congressional Committee, the party's main campaign support for House Republican candidates.

But experts say House Republican leaders could have trouble mustering the 216 votes needed to pass the measure, given the prospect of widening the federal budget deficit already swollen by a round of tax cuts in December.

And some Republicans from Democratic-leaning states worry that constituents already dislike December's cap on the federal deduction for state and local tax payments, known as SALT.

"Adding another several hundred billion dollars to the deficit is something that I think some Republicans are going to really think hard about," said John Gimigliano, who heads federal tax legislative and regulatory services at the audit, tax and advisory firm KPMG LLP.

"Passage is not automatic," he added.

A dozen House Republicans opposed the Tax Cuts and Jobs Act last December. All but one were from the high-tax Democratic states of New York, New Jersey and California.

If successful in the House, the legislation would not likely be taken up in the Senate soon, though experts believe provisions on retirement savings and tax assistance for start-up companies could find bipartisan support eventually.

Dubbed "Tax Reform 2.0", the House package is intended to augment President Donald Trump's 2017 tax overhaul, which added $1.5 trillion to the federal deficit by providing permanent tax cuts for U.S. corporations, but only temporary individual tax cuts that are set to expire after 2025.

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The U.S. Capitol is pictured on the opening day of the 112th United States Congress in Washington, January 5, 2011. REUTERS/Jim Bourg

Republicans insist Trump's tax overhaul and actions to deregulate industry are boosting the economy. But that has been undercut on the campaign trail by worries about Trump's policy on trade tariffs and a lack of evidence that tax cuts have delivered promised pay increases to workers.

Democrats, who opposed last year's bill, have also cast Republican tax cuts as a giveaway to big corporations and the rich that will lead to cuts in Social Security and Medicare, claims that Republicans deny.

The new legislation would add another $576 billion to the deficit, even taking potentially higher economic growth into account, the Tax Foundation said.

That number could rise if Republicans made an estimated $1.1 trillion in individual tax cuts permanent, but scaled back or eliminated the SALT deduction cap, which is a revenue raiser.

"If this were likely to be enacted in the near term, those numbers would be difficult to square," said David Noren, a tax partner with the law firm McDermott, Will & Emery.

House Ways and Means Committee Chairman Kevin Brady, the 2.0 package's main author, plans to unveil draft language for three bills early in the week and put it to a committee-level vote on Thursday, with a full House vote following by Oct 1.

Aside from making individual tax cuts permanent, Republicans say the legislation will including savings provisions intended to help small businesses offer 401(k) retirement plans, allow 529 education savings plans to pay for apprenticeships and provide access to retirement savings for costs related to births and adoptions.

Republicans say the legislation will also seek to encourage start-up businesses by allowing them to write off more start-up costs and add investors without limiting tax benefits, such as research and development credits.

(Reporting by David Morgan; Editing by Kevin Drawbaugh and Bill Berkrot)

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