Scramble...

GOP leaders scramble for tax deduction fix before budget vote

A handful of Republicans are threatening to vote against the budget unless GOP leaders retreat from plans to eliminate a key federal deduction.

By RACHAEL BADE, SARAH FERRIS and AARON LORENZO

House Republican leaders are in a mad dash to resolve a dispute between GOP tax writers and Republicans from high-tax states that has the potential to make Thursday's budget vote a real nail-biter.

A handful of New York Republicans, along with a New Jersey lawmaker, are threatening to vote against the budget unless GOP leaders retreat from plans to eliminate a key federal deduction that people can take for the state and local taxes they pay.

Scrapping the deduction would bring in an estimated $1.3 trillion in new tax revenue over a decade, which could be used to cover some of the cost of other tax breaks Republican leaders are eyeing. But Republicans from high-tax districts in New York, California and New Jersey say millions of their constituents rely on the deduction and would face a tax hike without them.

Some of those lawmakers say they won’t commit to backing the budget until they receive assurances from GOP leaders to protect the benefit. The high-stakes vote on Thursday is the final hurdle to unlocking a filibuster-proof tax overhaul this year.

“There would need to be more progress made in figuring out the solution on this issue in order for me to vote for the resolution on Thursday,” said Rep. Lee Zeldin, a New York Republican who’s close to President Donald Trump. “As of right now, I don’t have enough answers to vote ‘yes’ on the budget.”

Rep. Tom MacArthur (R-N.J.) said that despite a meeting with Vice President Mike Pence at the White House on Tuesday, his concerns were not assuaged and he needs more of a guarantee before supporting the budget.

“Didn’t make the progress that I hoped for today, but we have another meeting late tomorrow and we’ll see,” he said.

Rep. Pete King (R-N.Y.) has gone even further and is calling for Republican donors to cut off all contributions to national Republican groups in the absence of any commitment from GOP leaders not to tamper with the deduction, or at least compromise.

“Keep it all or a very high cap,” demanded King, suggesting he might be open to getting rid of the deduction for only the wealthiest of earners.

Even then, he wasn’t happy: “The budget attacks SALT [state and local tax]. … I want a commitment. … All the indications are we’re going to get screwed on SALT.”

Senior Republican lawmakers and staff have repeatedly said this week that they’re not worried about the budget vote, predicting it will pass easily. House Budget Chairman Diane Black (R-Tenn.) said, “I think the whip count looked pretty good,” upon leaving the GOP Conference on Tuesday morning. Rep. Tom Cole (R-Okla.), a senior budget panel member who also serves on the whip team, called it “the easiest whip I've ever had.”

But even before the last-minute revolt from the New York lawmakers and MacArthur, the House’s vote on Thursday was expected to be narrow.

Nineteen Republicans voted against the House budget earlier this month. Faced with a vote on the Senate’s budget Thursday, several more House Republicans privately told leadership they preferred to keep pushing their own fiscal blueprint.

Senior Republicans know the vote could be tight if New York members like Zeldin and King, who typically vote with leadership, actually vote “no.”

The growing heartburn within the House GOP led to a swift intervention from Trump, who has phoned several GOP lawmakers who were withholding support.

Trump also urged House Republicans on a rare Sunday afternoon conference call to back the budget measure, which unlocks a fast-tracking tool to bypass Senate Democrats.

The budget measure also took on more urgency after House Ways and Means Committee Chairman Kevin Brady announced he’ll release legislative text of the tax reform as soon as the House adopts the budget.

GOP leaders, Brady and the lawmakers from high-tax states huddled in the whip office Tuesday afternoon to try to resolve the dispute. No deal was reached, but members who left felt confident the issue would be resolved in the coming days.

“We’re making progress, we’re not there yet,” Brady said Tuesday evening. Asked whether he would reach an agreement by the Thursday vote, Brady said he hasn’t “set a timetable.

“I feel confident that we will have the votes to pass the budget,” Brady said.

Not all Republicans from New York are drawing a red line. Rep. Tom Reed (R-N.Y.), who also sits on the Ways and Means panel, said he’s a “yes” on the budget — though he would like to see the issue resolved as well.

“I do know that a compromise on state-and-local [tax] is in the works, so that gives me comfort that I can support the budget because I believe we’re going to be able to get to a good-faith compromise position on this.”

From the start, Trump and GOP leaders have sought to scrap the deduction to help pay for more generous individual and corporate tax breaks. But that precious pay-for is also one of the most sacred tax breaks in history. The same deduction also escaped the no-holds-barred tax code rewrite in the Reagan era.

Senate Republicans have already hinted they’ll have to lower their sights on fully repealing the deduction. During last week’s budget vote, the Senate adopted an amendment from Republican Shelley Moore Capito of West Virginia that allows the GOP’s tax plan to cap the deduction.

Capito said she'd be open to the idea of capping the deduction for taxpayers with incomes below a certain threshold, such as $250,000 and $400,000.

"I think that's a discussion we need to have," Capito said. "I wouldn't be necessarily in opposition to something like that, but I would rather keep everything on the table right now."

During the same budget vote, Republicans rejected an amendment from Sen. Maria Cantwell (D-Wash.) that would have protected the state and local deduction in full.

The feud over state and local deductions is just the latest headache for Black. Over 11 months, the first-term budget chief has been forced to delay work multiple times so that GOP leaders can twist arms on the tax plan.

House leadership was personally working on a fix with GOP tax writers and the frustrated New York lawmakers Tuesday afternoon, at the same time that Black made her final pitch before the House Rules Committee.