Republicans urge more tax cuts as elections near

[September 11, 2018]  By David Morgan and Amanda Becker

WASHINGTON (Reuters) - With congressional elections looming, Republicans in the U.S. House of Representatives on Monday proposed more deficit-expanding tax cuts, an effort seen by some tax experts as unlikely to become law and geared chiefly toward winning votes.

Even if the initiative fails to pass, it could put Democrats in the position of opposing the new tax-cut plan on the House floor, which Republicans could seek to use to their advantage in the Nov. 6 elections where control of Congress will be at stake.

Under the measure, federal individual income tax cuts approved on a temporary basis by the Republican-controlled Congress and President Donald Trump in December would become permanent.

It would also eliminate the maximum age for some retirement account contributions and let new businesses write off more start-up costs.

House tax committee Chairman Kevin Brady, main author of the "Tax Reform 2.0" package, plans to put it to a committee-level vote on Thursday, with a full House vote expected by Oct 1.

Trump and his Republicans are touting December's tax cuts as a boost to the economy, an important feature of their campaign push to defend their majorities in the House and U.S. Senate against a challenge from Democrats.

Democrats say those cuts mainly helped the wealthy and corporations.

In a statement on Monday, House Democratic leader Nancy Pelosi said: “With version 2.0 of the GOP tax scam for the rich, Republicans want to add even more to the deficit, and even more to the bank accounts of the wealthiest 1 percent."

The cuts passed in December are projected to add an estimated $1.5 trillion over a decade to the federal deficit, the difference between Washington's spending and the taxes it collects.

The new round being proposed by Republicans would add a further $576 billion to the deficit, even taking possibly higher economic growth into account, said the Tax Foundation, a pro-business think tank in Washington.

"Regardless of the merits of the House GOP plan, we view it as a political move ahead of the midterm elections that has no chance of passing Congress in the short term," the investment firm Keefe, Bruyette & Woods said in a Monday note to clients.

Chairman of the House Ways and Means Committee Kevin Brady (R-TX) holds up a sample tax form as he speaks during a media briefing after the House Republican conference on Capitol Hill in Washington, U.S., April 17, 2018. REUTERS/Joshua Roberts -/File Photo

"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.

WINNING ISSUE?

Even so, Republican lawmakers and strategists hope a new tax debate will amplify the party's upbeat economic message. They tout a report by the Tax Foundation that forecast the creation of 1.5 million jobs and wage increases if the temporary individual tax cuts are 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.

Still, 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.

A dozen House Republicans opposed the Tax Cuts and Jobs Act last December. All but one were from high-tax Democratic states such as New York, New Jersey and California. The new package would make the capped SALT deduction permanent.

Under Trump and the Republican-controlled Congress, the federal deficit has begun growing rapidly again and is expected to blow through $1 trillion in 2019.

If that happens, it would be the first time since 2012 the U.S. economy would have to support such a large deficit, highlighting a basic shift for the Republican Party, which once prided itself on fiscal conservatism.

(Reporting by David Morgan and Amanda Becker; Editing by Kevin Drawbaugh and Peter Cooney)

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