Senate Republicans fear President-elect Trump’s tax agenda could be derailed in the House by several potential land mines, including calls by some GOP lawmakers to raise corporate taxes and to lift the cap on state and local tax (SALT) deductions.
Senators worry that if one or two House Republicans insist on raising corporate taxes to cut the deficit, and a few others insist on substantially raising the cap on SALT deductions, Trump’s broader $4.5 trillion tax initiative may stall.
Speaker Mike Johnson (R-La.) has argued he’ll have more leverage over potential rebels in his conference if he combines the tax package with legislation to secure the southern border, which has overwhelming support among Republicans in both chambers.
“The House is a very thoughtful body, but sometimes it can be dysfunctional. They have a lot of personalities over there that they’ve got to get together with a very small majority to agree to it,” said Sen. Markwayne Mullin (R-Okla.), a staunch Trump ally who has strong relationships with both Johnson and Senate Majority Leader John Thune (R-S.D.).
Republicans are aiming to pass large pieces of Trump’s agenda through a process known as reconciliation, which bypasses the Senate filibuster and thus doesn’t require Democratic votes. But House Republicans’ razor-thin majority presents an intraparty challenge.
Mullin cited conservative Rep. Chip Roy’s (R-Texas) call for putting higher corporate tax rates “on the table” to pay for extending Trump’s expiring tax cuts as a concern.
The Oklahoma senator warned that if Roy votes against a tax package that doesn’t increase corporate taxes, the Speaker “really can only lose one more” Republican vote.
“If you were to put a lot of stuff together, it would be very difficult for Chip Roy to vote against border security and energy,” he said, explaining Johnson’s desire to move border security and tax relief in the same bill.
Roy, a leading fiscal hawk in the House, said he isn’t threatening to tank this year’s tax bill.
But he made it clear he doesn’t want whatever tax bill moves through Congress to add substantially to the federal debt.
“I’m on the record as saying everything should be on the table, and I’m on the record of having said, ‘Why should we just allow corporate taxes to stay in place, or think about lowering them, if we’re not [making] good changes among corporations, or if we’re not doing what we need to do on the individual tax rate side, or if we’re not balancing the budget or being deficit neutral?’” Roy told The Hill in an interview.
“I’m happy to put everything on the table. I want taxes to be lower, but I want spending to be lower and I don’t want any assumptions made,” he said of what Republicans should do about corporate taxes.
“We need to be real about it,” Roy said of the impact this year’s tax bill will have on future deficits. “That’s where there’s a tension for me and Republicans. I think it’s math, they think it’s just a kind of, ‘No, this is just our philosophy, this is what we do.’
“I want math,” he said.
“Everything should be on the table, including corporate rates, yes,” he said.
Mullin warned there are also potential defections on tax legislation in the House GOP conference from “the New York guys that are very serious about SALT.”
New York Rep. Mike Lawler (R) introduced legislation Wednesday to lift what he called “the unfair cap” on SALT deductions for single filers and $200,000 for married couples.
“This is a top priority for the Hudson Valley, and I’m committed to getting this done in the 119th Congress,” he declared.
Rep. Nick LaLota (R-N.Y.) told NBC News last month that between eight and 10 House Republicans could insist on raising cap on SALT deductions.
“Two-seat majority; eight or 10 very SALT-y Republicans? You guys can do the math on that one,” he said.
Sen. Thom Tillis (R-N.C.), a member of the Senate Finance Committee, said corporate taxes and raising the cap on SALT deductions are two major stumbling blocks for getting the tax bill through the Congress.
“Those are big issues,” he said of divergent views within the party on corporate taxes and the SALT cap.
“Those are where I think the kinks in the slinky will come up,” he said.
On the subject of corporate taxes, Tillis said “over the course of this week, I’ve heard some people say we ought go to 15 percent and I’ve heard other people say we need to increment it up 1 or 2 percent because we probably went deeper than we needed to begin with” in cutting the rate from 35 percent to 21 percent in 2017.
And Tillis pushed back on House Republican colleagues who want to raise the cap on SALT deductions.
“SALT gets personal with me,” he said of his past efforts as Speaker of the North Carolina House to phase out SALT deductions in his home state.
He said House GOP lawmakers who want to lift the SALT cap “are asking me, No. 1, to subject my state — where I lowered the taxes and got them out of the SALT issue — to subsidize bad tax policies from their [state] legislatures, which is what SALT does.”
“If there’s a repeal, I’m completely against it,” he warned.
Sen. Kevin Cramer (R-N.D.) said the battle over the deductibility of state and local taxes — a top priority for Republican lawmakers in California, New Jersey and New York — is a potential “hang-up” for Trump’s agenda.
“That’s a big part of it. SALT is one of those things that most Republicans don’t like unless you’re from New York. That’s part of the hang-up in the House and what Speaker Johnson knows he’s got to deal with,” Cramer said.
Sen. Mike Rounds (R-S.D.) called the looming battle in the House over SALT deductions “a challenge” for passing Trump’s tax agenda.
“I think it has been [a complicating factor] from the beginning. It was a challenge last time. It will be a challenge again this time. But it’s an item of interest, especially in the House, and we know that,” he said. “I think it will be a negotiation. We’re going to need all hands on deck, and that means we have to be able to recognize the concerns that some of the members are going to have in some of those areas.”
The Speaker is hoping to increase his leverage over GOP colleagues on the tax package by attaching it to Trump’s broader legislative agenda, which would be difficult for any Republican House member to reject in total.
Roy said in June he would consider raising the corporate tax rate from 21 percent to 25 percent.
“There’s a bubbling-up concern that we should not be doing the bidding of corporate America,” Roy told Politico.
On Thursday, Roy told The Hill he could live with a 21 percent corporate tax rate as long as the spending reductions in the budget reconciliation package are big enough to offset the fiscal impact of extending the Trump tax cuts and enacting new tax reductions.
“I think the 21 percent rate is a pretty good spot for competition for us, globally,” he said, citing that and other business-tax provisions, such as research and development tax credits. “However, all of that depends on getting spending restraint that gets us to deficit reduction.
“If we don’t, then I’m going to take a step back and say, ‘OK, guys, what do we do on the tax side of the ledger?’”
But that kind of talk is raising questions about the future of Trump’s tax agenda, given the razor-thin House GOP majority.
Tillis warned that extending the Trump-era tax cuts isn’t a slam dunk.
And he said fumbling the tax bill is one of several possible negative economic developments that he worries could have major reverberations for the country.
“We may end up having a $4 trillion tax increase,” he said. “I’m worried about at least some storm systems that could actually converge into a perfect storm economically over the next couple of years.”
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