Tax cut? What tax cut?
The middle-class tax relief that President Trump promised voters before the midterm elections has all but vanished from the conversation in Washington.
On Oct. 22, Mr. Trump said the White House and congressional Republicans would be “putting in a resolution sometime in the next week or week and a half, two weeks.”
“We’ll do the vote after the election,” Mr. Trump said of the tax cut, which he described at numerous rallies as a 10 percent cut for middle-class workers.
But since Election Day, there’s been no movement in the House Ways and Means Committee, where tax legislation starts. Nor was the tax cut mentioned in the wake of a closed meeting between the president and top Senate Republicans late last week on their priorities for the remainder of the year.
When lawmakers return from the Thanksgiving holiday, they’ll be working to avert a partial government shutdown by completing funding for the Department of Homeland Security and other agencies by Dec. 7.
The White House didn’t respond Monday to an inquiry on any plans for moving ahead with a tax cut in the lame-duck session of Congress.
A spokesman for Ways and Means said Monday that the committee “will stand by” the comments of Chairman Kevin Brady, Texas Republican, who has said another tax cut was “contingent on Republicans holding the House and the Senate.”
Republicans lost the House, of course, with Democrats scoring a net gain of at least 37 seats. The GOP says the prospect for another round of tax cuts under Democratic leadership next year is dim.
“Nonetheless, we’re going to continue to push for more relief for middle-class taxpayers and see if there is some common ground we can find with Democrats without triggering tax hikes on families or local businesses,” Mr. Brady said.
House Majority Whip Steve Scalise, Louisiana Republican, said after the election that GOP efforts to implement a middle-class tax cut and make permanent the tax cuts of 2017 will be “very difficult to get … accomplished once Nancy Pelosi is speaker for at least two-year period.”
Rep. Bill Pascrell Jr., New Jersey Democrat and a member of the Ways and Means Committee, indicated Monday that Democrats will be pushing at least one new tax measure early next year. He said he’ll lead an effort to fully restore state and local tax deductions that were limited by the 2017 tax cuts, an unpopular result in high-tax states such as New Jersey.
“With a new guard in Washington, a better day is coming,” Mr. Pascrell said. “Both through the Ways and Means Committee and legislation, I will be fighting tooth and nail to see the SALT deduction restored for New Jersey. We won’t rest until our taxpayers get their money back and are made whole again.”
The 2017 GOP tax bill set a $10,000 cap on state and local tax deductions. Mr. Pascrell’s office said in his district, the average deduction was more than $18,000, with the average taxpayer in Bergen County claiming $24,783.
Republicans were counting on the positive economic effects of last year’s major tax reform and individual rate cuts to bolster GOP candidates in the midterm elections, when the president’s party usually loses seats in Congress.
But as GOP voter enthusiasm lagged behind Democrats in the fall, Mr. Trump started promising a second round of tax cuts, this time to benefit only middle-class households. “We are studying very deeply right now round the clock a major tax cut for middle income people,” he told reporters on Oct. 20.
In September, the House passed a three-bill package known as Tax Reform 2.0, but the Senate failed to take up the measures. The bills would have made permanent the 2017 tax cuts for individuals, as well as expand retirement and education accounts. Republican leaders said it would have given another boost to the economy; the Joint Committee on Taxation said it also would have added $627 billion in deficits over the next decade.
A big part of the earlier, $1.5 trillion tax cut was a reduction of the corporate tax rate from 35 percent to 21 percent. A Republican National Committee poll before the election found that two-thirds of Americans believed that law benefited “large corporations and rich Americans.”
There is no consensus in Congress on how to offset another round of tax cuts in the budget. The Treasury Department said last month that the federal budget deficit increased to $779 billion in fiscal year 2018, a 17-percent increase from the previous year, partly due to the 2017 tax cuts.
It was the highest deficit in six years, as spending increased by about 7 percent and corporate tax receipts dropped by about a third. Overall, tax receipts were up slightly for the fiscal year but not enough to keep up with spending.
Interest on the national debt rose by $62 billion in fiscal 2018 over the previous year to $325 billion — twice as much as the government spends on the departments of Transportation and Homeland Security combined, according to the Committee for a Responsible Federal Budget. The nonprofit group said under current projections, annual interest payments on the debt could top $1 trillion by 2030.
Before the election, Mr. Trump said he expected that the middle-class tax cut would be “net neutral,” or offset with spending cuts. Tax analysts say failure to offset a tax cut of that size with spending cuts would add as much as $2 trillion in deficits over the next decade.
Treasury Secretary Steven T. Mnuchin told Congress in 2017 as lawmakers were debating the first tax cut that the relief would pay down federal debt. Instead, federal deficits are forecast to top $1 trillion within the next year and remain above that level.
Mr. Trump asked his Cabinet secretaries last month to cut at least 5 percent from their agency budgets and report back to him this month with the proposed spending reductions. The Defense Department, which received a record $716 billion budget for the current fiscal year, is raising objections to possible cuts.
The Congressional Budget Office predicts the 2017 tax cuts will improve the U.S. economy over the next 10 years by boosting household income and business revenue. CBO forecast that the tax cuts will increase total economic output, on average, by 0.7 percentage points per year. The nonpartisan office also predicted the tax cuts will increase wages and capital investment, and reduce the unemployment rate.
CBO projects that deficits will increase cumulatively by $1.9 trillion through 2028 due to the tax cuts.
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