New Offset Cuts Proposed for GOP Reconciliation Tax Bill

New Offset Cuts Proposed for GOP Reconciliation Tax Bill

By: Donny Simcha Guttman

President Donald Trump is looking to settle an ongoing impasse between Republican congressional leaders on a strategy to pass major legislation. Today, Trump met with leaders for a 5-hour meeting to settle on a strategy. The dispute revolves around whether Republicans should attempt to pass two bills under the process known as “reconciliation”, which wouldn’t require Democrat votes, or to pass one large bill to avoid unnecessary votes in the precarious close Republican House.

Back in December, NBC News reported that Ways and Means Committee Chairman Jason Smith, who will play a major role in the tax bill, giving his support to a one-bill strategy, “People above me will make the decision, but I’m telling you: I know how to get votes. I’ve been very successful in getting votes. I know the House on tax policy better than anyone else. If they want to give me the best opportunity to pass the president’s tax plan, make it all in one bill.” However, leaders in the Senate prefer a two-bill approach, to pass quickly a border/defense bill, and later a tax bill. Senate Majority Leader John Thune in support of the strategy said, “In my view, it makes sense to move quickly on things we know we can do quickly — border, defense, energy. And then come back with another package that would address some of the savings that can be achieved through reductions in cost in various agencies and bureaucracies and government programs and then also deal with the expiring Trump tax cuts in a package later this year. But I think we can do both. We’ve got an opportunity to have a couple of different chances at a reconciliation package that would achieve all those objectives.” Though the two sides made progress during the meeting, no final strategy has been settled.

In response to reporters’ questions in front of the White House today, the New York Post reported that White House Press Secretary, Karoline Leavitt read out a list of demands Trump wants for a tax bill, “This will be the largest tax cut in history for middle-class, working Americans. No tax on tips, which is obviously a very public campaign promise that the president made. No tax on seniors’ Social Security, no tax on overtime pay, renewing President Trump’s 2017 middle-class tax cuts. Adjusting the SALT cap… [and] Tax cuts for ‘Made in America’ products.” Many of the demands cover campaign promises Trump made last year, but notably, two news proposals were added by the White House, “…Eliminat[ing] all the special tax breaks for billionaire sports team owners; [and] Clos[ing] the carried interest tax deduction loophole…”  Recognizing “reconciliation” rules, which requires offsetting loss revenue from a tax cut, the Trump administration is advancing their strategy with these new proposals to offset spending.

According to the Budget Lab at Yale, abolishing taxes on payrolls would cost $1.3 trillion in the next 10 years. Furthermore, according to the Committee for a Responsible Federal Budget, cutting taxes on Social Security benefits would cost the government $1.8 trillion in the next decade. Trump has suggested that tariffs would cover some tax cuts, but some of today’s proposals suggest a more complicated picture.

On the meeting, the NY Post reports that House Majority Leader Steve Scalise (R-La) commented, “We got into a lot of detail on what we need to do both for the budget and the reconciliation side. President Trump was very engaged throughout the meeting and we are narrowing down the areas [of] differences. We spent a lot of time on a whiteboard, literally putting down different numbers so we could all be on the same page. We made serious progress, [and are] very close to bringing this to Budget Committee.”

  On the new proposals of offsetting cuts, Trump wants to abolish or modify a tax loophole that gives sports owners, investment managers, and private equity partners a lower tax rate on profits they earn. Americans for Financial Reform estimates that eliminating the so-called “carried interest”, would save $1.2 billion to $18 billion a year. However, reform for “carried interest” has faced opposition from business leaders, and free-market Republicans including Leader Thune. In response to the proposal, a strategist who works with private equity firms told the Financial Times, “The battle over carried interest is likely going to be the toughest yet. Trump wanted it gone in 2017 and was stymied by Congress, but today’s congressional Republicans hardly resemble darlings of high finance and are far more willing to fall in line behind the president.” On the flip side, Trump’s proposal has been injected with bipartisan support, as Democrat senator Tammy Baldwin (D-Wi) wrote on X in response, “Perfect timing. I introduced a bill today to end the carried interest loophole and make Wall Street investors pay their fair share. Glad you agree, @POTUS. Time to get this done.” In any case, the legislative battle remains unsettled in light of a 1-seat majority in the House for Republicans.