Senators Lindsey Graham, second left, and John McCain head to vote on amendments to a budget resolution © Getty
Republicans have swung behind one of the few issues they believe can unite their fractured party and provide a sorely needed legislative victory, as they took a step towards tax reform after months of flops.
Party leaders on Friday were congratulating themselves after a previous late-night Senate vote in favour of a crucial budget resolution that is meant to pave the way towards the passage of tax legislation without any need for Democratic Party support.
Tax reform is seen as fundamental to GOP hopes of maintaining control of both the Senate and the House of Representatives next year, but lawmakers face a complex route ahead as they scramble to meet a self-imposed goal of putting legislation on President Donald Trump’s desk before the end of the year.
“They have cleared a major hurdle,” said Steve Moore, who advised the Trump presidential campaign on tax. “From the political perspective the Republicans just have to get this done — there is no room for failure. It has finally dawned on everyone that they have to hang together or hang separately.”
Equities rallied on Friday morning, as investors marked up the chances of a tax bill being passed following failures including the attempted healthcare overhaul. Mr Trump said on Twitter that the budget deal was the first step towards delivering “massive tax cuts for the American people”.
He is seeking to follow in the footsteps of previous Republican presidents such as Ronald Reagan and George W Bush, who pushed through big tax overhauls during their administrations.
Underscoring the emphasis that the White House is putting on passing tax reform, Gary Cohn, head of the national economic council, will remain in Washington next month when Mr Trump makes a week-long trip to Asia for the Apec economic forum and meetings in Beijing, Tokyo, Seoul and Manila.
The Senate approved a budget resolution by 51 votes to 49 with only one Republican — Rand Paul of Kentucky — opposing the measure.
The resolution is a key vehicle in the tax reform effort because it unlocks a procedure called reconciliation that will strip away Senate Democrats’ ability to filibuster the ultimate tax legislation. That means the Republicans should be able to pass a law overhauling the tax framework without being blocked by the other party.
The intense pressure GOP leaders put on Senators this week to support the budget resolution reflects how high the stakes are perceived to be.
Lindsey Graham, a South Carolina senator, warned before the vote that if the GOP does not cut taxes after all its years of promises, “then I think the party comes unravelled”. Mr Trump has shown little compunction about openly lambasting Republicans for previous legislative flops, exacerbating party tensions.
While Republicans spent the Obama years warning about government debt, now that they are in power most appear reconciled to a tax-cutting package that could, in official estimates at least, lead to widening deficits. Senior players including Steven Mnuchin, the Treasury secretary, have argued that tax reform should unleash quicker growth that prevents a budget blowout.
But Michael Strain at the American Enterprise Institute said many economists doubt there will be sufficient growth to cover the deficit, even if the ultimate size of the budget shortfall remained unclear given the many missing details in the tax plan.
Some Republican senators could still come forward with concerns about the deficit implications of the package. But, Mr Strain added: “We now know the Senate is at least open to losing a significant amount of revenue as a consequence of tax reform — that doubt has been removed.”
The barriers that still stand in the way of tax reform are mountainous, and many tax lobbyists believe a package is unlikely to become law before early next year.
The first hurdle is the need for the two congressional chambers to come up with a harmonised budget resolution; the House version, passed in early October, envisaged a deficit-neutral tax package rather than the Senate’s $1.5tn cut, and it was founded on different revenue assumptions.
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Some Republicans have been pushing for the House simply to adopt the Senate resolution, to avoid the need for a conference that could take several weeks. Once the final resolution is promulgated, the key tax-writing committees ——Ways and Means on the House side, and then Finance in the Senate — need to publish draft tax legislation.
To date, many lawmakers have been flying blind on tax reform because only a sketchy framework has been published by the so-called Big Six — a group of key Republican players on tax from the administration and Congress.
A key moment will come when Kevin Brady, chair of the powerful Ways and Means Committee, releases a detailed draft bill. Even without the prospect of a Democratic filibuster, the Republicans’ razor thin majority in the Senate means the final vote on a tax bill is likely to be close. Assuming it passes, the two chambers will have to bridge any differences before it can be signed into law by the president.
As the Senate and House committees ramp up efforts to convert the skeleton proposals into concrete legislation, companies, lobbyists and industry-organisations are pressing their cases with lawmakers.
While Republicans are unified on the need for major tax cuts, there are a myriad of disagreements when it comes down to specific proposals because of the different impact on different industries.
“There are lots of issues that special interests here in DC and around the country . . . are raising,” said one GOP lawmaker. He spoke ahead of a meeting with members of the real estate industry who are concerned that efforts to simplify the tax code would end up making people less likely to take advantage of provisions that allow the offsetting of some mortgage interest payments against their income tax bill.
“Groups like that, instead of complaining about losing folks to simplification, frankly, should be saying, we support this idea of getting this economy moving,” he observed.