Republicans in the US House of Representatives forged ahead on Tuesday with legislation to reshape the US tax code, while a top credit-ratings agency said the bill would balloon the budget deficit and give only a temporary boost to the economy.
As the House tax committee weighed amendments to a bill that Democrats have blasted as a give-away to the rich and corporations, the Washington tax reform debate was fast shifting to the Senate, where Republicans hold only a slim majority.
Senate Republican leader Mitch McConnell said he and his colleagues would unveil a tax bill on Friday, but his office later issued a statement saying that he “misspoke” and suggested a bill would be available at the end of the week.
The House is aiming to vote on its bill next week, a senior Republican said.
Tax reform has been a priority of President Donald Trump, who says it will stimulate economic growth. Republicans have yet to score a major legislative accomplishment since Trump took office in January, even though the party controls both chambers of Congress as well as the White House.
Fitch Ratings predicted that a Republican tax plan would win passage in both chambers, but did not see it offering long-term benefits.
“Such reform would deliver a modest and temporary spur to growth. … However, it will lead to wider fiscal deficits and add significantly to US government debt,” Fitch said, revising up its medium-term U.S. government debt forecast.
The US national debt now exceeds $20 trillion. Republicans once firmly opposed adding to the debt, but since taking power in Washington their emphasis has changed.
Congress’ Joint Committee on Taxation (JCT) said the House bill would add nearly $1.5 trillion to the national debt from 2018 through 2027.
Trump and congressional Republicans say the proposed tax cuts would boost economic growth so much that new government revenues would be generated and offset the tax cuts. Few economists agree.
The House bill slashes tax rates for large corporations, small businesses and wealthy Americans, while sharply reducing or eliminating tax breaks that benefit many middle-class Americans such as deductions for state and local taxes, college tuition and home mortgage interest.
The JCT estimated the House bill could result in higher taxes for as many as 38 million people who earn between $20,000 and $40,000 per year, beginning in 2023.
In the House, Republicans have an overwhelming majority and drafted their bill in secret, ignoring Democrats. The House bill was unlikely to be taken up in the Senate, where the Republicans’ two-seat majority means that they need to pay more heed to moderates within their own ranks and Democrats, lobbyists and analysts said.
Republican leaders have pushed for the House to vote on the tax bill before the U.S. Thanksgiving holiday on November 23.
“My donors are basically saying, get it done or don’t ever call me again,” Republican Representative Chris Collins said.
U.S. tax legislation must begin in the House. “We’ll bring it to the floor next week,” House Ways and Means Committee Chairman Kevin Brady told Fox News.
Some Democratic senators from states won by Trump last year were meeting with administration aides on Tuesday to talk taxes.
“I’ve been all along wanting to work with them,” Democratic Senator Sherrod Brown of Ohio said.
Senator Heidi Heitkamp, of North Dakota, also said she was attending a meeting with the administration on taxes.
In party-line votes on Tuesday, Brady’s Republican-led tax committee voted down two Democratic amendments that would have preserved a deduction for state and local taxes and nullified the tax legislation if it increased the deficit in future years.
Brady offered a sweeping amendment on Monday that tweaked at least half a dozen provisions of the 425-page bill.
One was a proposal related to carried interest income, a share of an investment fund’s profits paid out to the fund’s general partners and which represents a large portion of many fund managers’ incomes. Carried interest currently is taxed at the capital gains rate, which is substantially lower than the personal income tax rate for higher earners. Brady’s amendment would lengthen to more than three years from one the time period assets must be held in order to be eligible for the capital gains tax rate.
The amendment would also reduce the amount of carried-interest income eligible for the lower rate.
Brady’s amendment also tweaked, but did not substantially revise, a proposed 20 percent tax on cross-border transactions between related business units.