Backed by Kudlow, GOP Dares Democrats With Phase Two of Tax Cuts

(Bloomberg) -- Republicans are looking to act a lot faster than originally expected to keep the new individual tax cuts from expiring in 2025, daring Democrats to put up a roadblock during a congressional election year.

Incoming White House economic adviser Larry Kudlow added momentum to the effort by calling this week for a “phase two” of the tax cuts to make breaks for individual taxpayers permanent. The undertaking was first suggested by President Donald Trump during a GOP retreat in West Virginia last month, joking with House Ways and Means Chairman Kevin Brady that he wanted to get rates even lower.

But the GOP’s second attempt at tax cuts faces a formidable hurdle, since it would need support from Democrats, who were cut out of the historic revamp that Trump signed in December. Passing a fresh bill before year’s end to make individual cuts permanent remains a long shot, but raising the issue now lets Republicans force Democrats to take an uncomfortable stance against middle class tax relief.

“I’d like to see us bring that forward to make those tax cuts permanent,” House Majority Whip Steve Scalise said during a Bloomberg Television interview on Thursday. “Ultimately, let’s have a vote on that -- every single Democrat voted against cutting taxes, so I’m not sure where they would be on this.”

The new GOP push to make the individual breaks permanent would also undermine one of the Democrats’ key criticisms of the tax overhaul -- that it benefits corporations (which received a permanent rate cut to 21 percent from 35 percent) at the long-term expense of American families.

‘Symbolic Standard’

Passing another big tax bill would be unlikely any time soon because GOP leaders can’t rely again on the procedural trick they deployed last year to bypass Democratic opposition. To get the bill through on a simple majority in 2017, Republicans -- who control both chambers -- had to comply with Senate budget rules that prevented the cuts from adding more than $1.5 trillion to the deficit over the next decade.

Making the individual cuts permanent is estimated to cost another $1.5 trillion in the decade after 2025, according to a Tax Foundation analysis using numbers from the Joint Committee on Taxation. Given the deficit impact, Republicans would have to gain at least nine Democrats’ support to get the 60 votes needed to advance a bill.

While extending the individual cuts would be politically popular, it wouldn’t come with the economic gains that are expected to accompany a lower business rate. That’s one of the reasons why the corporate rate cut was made permanent and the individual adjustment was allowed to expire after estimates showed that earlier versions of the overhaul lost too much revenue to fit into Senate rules.

“There are sort of a lot of different ways that this proposal could go, depending in part on whether they want this to be an actual legislative endeavor or a symbolic election-year standard for the party,” said Scott Greenberg, a senior analyst with the conservative Tax Foundation.

If the GOP is serious about the effort, they’ll have to make the bill more appealing to Democrats, possibly by making just the middle class benefits permanent or boosting the earned income tax credit, Greenberg said.

Technical Corrections

Meanwhile in the Senate, Republican leaders have given no indication that they plan to act now to make the individual side of the the changes permanent.

When Senate Majority Whip John Cornyn of Texas was asked whether he took Trump’s phase two call seriously, he said he envisioned the chamber advancing a more simple measure that would just make fixes to last year’s legislation.

“There may have to be some technical corrections and I’d be open to any suggestions he has,” Cornyn told reporters.

‘Serious Proposals’

Brady said phase two would be separate from a bill including technical corrections. He said the focus for the next round of long-term cuts for families would be to create more jobs, raise wages and bring jobs back from overseas.

During an interview on CNBC after the White House announced his appointment, Kudlow denied that a second phase of the tax overhaul is a political stunt. Still, he acknowledged that it’s a message that could help Republicans in November when they try to hold onto both chambers of Congress.

“I understand politics and election years, but these are serious proposals,” Kudlow said.

©2018 Bloomberg L.P.