Capitol Hill Recap: The House Budget Bump in the Road

In D.C., you need to finish your celebratory champagne fast—because there could be a new setback before you can drain your glass.

That's the whiplash Republican Congressional leaders felt this week. On Wednesday, they made another big step forward when the House Ways and Means Committee voted to approve sweeping new tax legislation to extend the 2017 Tax Cuts and Jobs Act, along with many other significant changes. The party-line vote came after nearly 20 hours of debate and several votes on amendments, mostly offered by Democrats and rejected by the Republican majority.

But the party had no time to savor the victory. To keep on track for passage by Memorial Day, the House Budget Committee began its own markup Friday morning. That committee’s role is only to combine all of the legislation from committees involved in reconciliation into a single bill. But a few hours into the markup, the committee voted 16-21 against advancing the bill, prompting the chairman to recess the hearing until Sunday night.

There was a time when committee markups were substantive affairs, with lawmakers debating the merits of the bill and crafting it through the amendment process. But these days, it’s normally a scripted show, with both sides offering amendments purely to provide partisan talking points. Real changes, if they happen, are negotiated beforehand and added to the "manager’s amendment"—the version of the legislation that will ultimately be voted on.

But just because there’s a script, doesn’t mean that everyone will follow it. That’s what the party leaders found out Friday morning, with four conservative Republican members announcing their opposition to the bill, mostly due to its potential cost. Rep. Chip Roy, R-Texas, one of the most vocal Republican opponents so far, claiming it fell “profoundly short” of its goals.

In a sense, the procedural stops and starts are a sideshow—necessary to complete the process but not necessarily where the real action is happening. With a tiny majority, House Speaker Mike Johnson, R-La., and the bill’s managers will have to win over nearly all of the current standouts, one way or another. The real decisions are happening behind closed office doors, during lunches and drinks, even walking through the halls of Congress. But it’s hard to negotiate before there’s something in writing, which is why the formal process normally starts before all the ducks are in a row. Hence, the bumps in the road like Friday’s vote.

It’s a bit like trying to drive a car while you’re still fixing it.

Right now, the spotlight is on the deficit hardliners opposing the bill’s progress. Even though the legislation sticks to the levels of spending and revenue cuts set in the initial resolution—which the hardliners fought hard for—they’re skeptical that the official budget estimates reflect the bill’s true cost. That’s not only because of the favorable tax policies and new exemptions packed into the next four years but ostensibly set to expire in 2029—but also the planned rollback of Inflation Reduction Act green energy credits and cuts to spending which won’t happen for several years. Expirations are often reversed, and spending cuts delayed—if that happens here, the cost of these provisions could be as much as a trillion dollars higher.

Republicans could try to smooth out those timing differences, but that will cost money, which is in limited supply. This is especially true because they have yet to win over all of the “SALT Caucus”—lawmakers pushing to raise the cap on the federal income tax deduction for state and local taxes paid. The limit is $10,000 in current law and set to expire entirely—the legislation would raise that to $30,000, which the Republican, suburban, blue-state SALT members say isn’t enough.

They're not the only ones, though. There are still also Republican members who aren't happy about potential changes to Medicaid, or the rescissions of the IRA credits. Johnson will need to find a way to appease everyone, while keeping under the budget resolution’s revenue limits.

If there’s a way, he needs to find it soon.

Tax Pieces From the Past Week:

Here’s What’s in the Big Domestic Policy Bill to Deliver Trump’s Agenda – Margot Sanger-Katz, Andrew Duehren, Brad Plumer, Tony Romm and Catie Edmondson, The New York Times ($):

The legislation as currently written would slash taxes, while providing the biggest savings to the wealthy, and steer more money to the military and immigration enforcement, while cutting health, nutrition, education and clean energy programs to pay for it.

Major portions of the sprawling package remain unresolved amid Republican divisions over cuts to Medicaid and details of the tax plan, among other issues. The changes that the hard-liners on the Budget Committee are calling for — including speeding up when new work requirements for Medicaid would kick in and a wholesale repeal of the Inflation Reduction Act — could very well alienate more moderate Republicans whose support is also crucial to passing the legislation.

Businesses Made a Big Tax-Cut Request. Republicans Said Yes—And Then Some. – Richard Rubin, The Wall Street Journal ($):

Pass-through business owners are an essential part of the GOP coalition, embedded in communities across the country. They employ millions, sponsor youth sports teams, run in lawmakers’ social circles and donate to political campaigns.

While Republicans love the deduction, tax experts across the political spectrum detest it, citing complexity, odd incentives and advantages for pass-through businesses. This year, it won the libertarian Cato Institute’s Tax Expenditures Madness bracket contest.

‘No Way to Run a Two-Car Parade Let Alone the House’ – Jonathan Martin, Politico:

From the moment the president signed his 2017 tax legislation, which limited so-called SALT deductions at $10,000, congressional Republicans from high-income districts have been vowing to raise the cap. And now a handful are angry, and more than a little perplexed, that the initial House draft of the bill renewing those Trump tax cuts doesn’t do more to address what’s a central concern for their districts: the double-taxing of the large swath of their income that goes to state income taxes, property taxes, sewer taxes, personal-property levies and the like.

But these lawmakers, who are overwhelmingly from the two coasts, shouldn’t be surprised. Just as that great sage of our times, John Edwards, once spoke about Two Americas, the GOP is bifurcated. Our tribal silos, it turns out, also exist within the same parties.

Tax Bill Primer: These 10 Cuts Make Up 94 Percent of Total – Doug Sword, Tax Notes ($):

Keeping the lower tax rates for individual income taxes, swapping a higher standard deduction while terminating personal exemptions, and extending the increased alternative minimum tax exemption are the $1 trillion-plus giants that were expected to be part of the net $3.8 trillion tax bill approved by the House Ways and Means Committee early May 14. Like much of the bill, those provisions are all extensions of policies enacted in 2017 as part of the Tax Cuts and Jobs Act.

On the next tier are the bill’s second largest pay-for, $916 billion from extending the state and local tax deduction cap; the fourth largest tax cut, an $820 billion extension and expansion of the section 199A passthrough deduction; and the $798 billion cost of keeping the $2,000 child tax credit and temporarily expanding it to $2,500.

Senate Republicans Eye Changes to House GOP’s Massive Tax Bill – Chris Cioffi and Lauren Vella, Bloomberg Tax:

Republicans have floated changes with House policy decisions on issues ranging from the child tax credit to energy credit clawbacks, and even pieces in the international tax code. Senate Finance Committee Chair Mike Crapo (R-Idaho) hasn’t committed to whether the Senate will hold a markup to consider the bill or take it directly to the floor.