Tax Cut 2.0 Looks Different to Trump Than to GOP Lawmakers

Laura Davison and Erik Wasson
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Tax Cut 2.0 Looks Different to Trump Than to GOP Lawmakers

(Bloomberg) -- One of President Donald Trump’s favorite political promises is a second tax cut. But lawmakers in Congress -- who would need to develop and pass another reduction -- are more focused on making their first tax cut permanent.

Trump on Thursday promised House Republicans another middle-class tax cut that he said would be “very substantial” and “very, very inspirational,” without giving details. Republican leaders say they support the idea, but they haven’t detailed what a plan would look like. Trump has said his proposal will be released next year, in time to be a campaign issue ahead of the 2020 election.

“We will gather together the best ideas from the Hill and the administration and the outside groups to provide a significant new round of middle-class tax relief,” White House Economic Adviser Larry Kudlow told reporters Friday. “This is not a recession measure at all. The economy is very strong.”

Congressional tax writers, led by Senate Finance Committee Chairman Chuck Grassley and the House Ways and Means panel’s top Republican, Kevin Brady, are focused on a different Tax Cut 2.0: Preserving the individual rate reductions from their 2017 law that are set to expire in 2025.

“The first and most important step is we can make the cuts for families and small business permanent,” Brady told reporters Friday at a House GOP policy retreat in Baltimore. He was referring to the lower rates for individuals and pass-through companies that were made temporary in the GOP’s signature tax law to avoid running afoul of budget rules.

Because of the projected $1 trillion-plus deficit impact of the GOP’s tax code overhaul, only the corporate rate cuts and some of the structural changes were made permanent. Even before the temporary individual tax cuts run out, some breaks for companies purchasing new equipment will expire in 2022, and those for the beer and wine industry will expire at the end of this year.

Congress -- with a Republican-led Senate and a Democratic-led House -- would have to pass another law to extend those cuts.

Campaign Promise

Brady led an effort to make all the temporary tax cuts permanent last year when the Republicans still had the House majority. However, his Republican colleagues in the Senate, who only had a slim majority, didn’t bring up the matter on fears it wouldn’t get the 60 votes required to pass.

That inaction suggests that more piecemeal extensions of provisions that expire at different times are more likely, rather than preserving the whole law with one vote. Lawmakers, regardless of which party controls Congress, have often voted to extend tax breaks just before they’re scheduled to disappear.

Trump made a similar promise to cut middle-class taxes before last year’s midterm election as House Republicans struggled to counter Democratic talking points that the 2017 overhaul mostly benefited the wealthy. The president’s proposal caught Republicans off guard, and nothing ever advanced as Brady tried to cast it as part of a unified GOP plan to extend the 2017 cuts.

For now, an additional tax cut would be nearly impossible as Republicans and Democrats remain diametrically opposed, said Adam Michel, a senior policy analyst at the Heritage Foundation. With the 2020 election likely to deliver a still-divided government, further tax cuts are unlikely unless the economy takes a serious turn for the worse, he said.

“But if we actually entered a recession, the conversation would be very different,” Michel said.

(Updates with Kudlow comments in the third paragraph.)

To contact the reporters on this story: Laura Davison in Washington at ldavison4@bloomberg.net;Erik Wasson in Baltimore at ewasson@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Anna Edgerton, Steve Geimann

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