Trump's Pre-Election Tax-Cut Promise Leaves GOP Leaders Baffled

(Bloomberg) -- President Donald Trump has promised a new middle-income tax cut plan to land days before the midterm election, a move aimed at boosting his party’s chances of holding its Congressional majorities -- yet Republican tax policy-makers know nothing about it.

Party leaders were caught off-guard by Trump’s comments, made Saturday after a rally in Nevada, that “we’re looking at a major tax cut for middle income people,” and that House Republicans, including Speaker Paul Ryan, are working on a possible bill.

Trump’s surprise announcement came as the fight to control Congress intensifies in the final weeks before the mid-term election. Republicans had hoped the landmark tax overhaul last year would help carry them to victory in the midterms. But the policies -- widely viewed as having mainly helped corporations and the wealthy -- are turning out to be less popular than they thought. Many forecasters believe Democrats are likely to take the House in November.

Treasury Secretary Steven Mnuchin, who played a key role in crafting Trump’s 2017 tax overhaul, could offer no further details on Sunday beyond echoing his boss in an interview.

White-House Driven?

A Republican tax lobbyist with ties to GOP leadership said he’s unaware of any effort in Congress to address tax policy before the midterm elections. The lobbyist, who asked not to be identified to discuss internal matters, said he met with White House officials recently, and came away believing that no additional effort at tax legislation was imminent.

Trump on Saturday offered no details on the proposal. The White House did not respond to repeated requests to explain the details of the plan the president was referencing.

Even if policy makers hastily pulled something together at the White House’s insistence, lawmakers are out until after the election. After that, in the lame-duck session, it would be tough to take up a bill when the House may have flipped to Democratic control for the new Congress. At the same time, the Senate has already been reluctant to address a tax bill already passed by the House in September.

“We’re looking at a major tax cut for middle-income people,” the president told reporters on Saturday after a rally in Elko, Nevada -- the final leg of a three-state swing through the West to bolster support for Republican House, Senate and gubernatorial candidates. “Not for business at all; for middle-income people.”

Deficit Blowout

The 2017 overhaul has been criticized for mainly benefiting the wealthy and corporations and also for increasing the federal budget deficit. It’s possible that a second round of tax cuts could face resistance from some Republicans concerned about increasing the deficit even further.

No Democrats supported last year’s tax bill, and they’ve been critical of the prospect of a second round of tax cuts since they were first discussed by Republicans. Unless offset by spending reductions, any new tax cut would further add to the deficit, which reached $779 billion, a six-year high, in Trump’s first full year in office.

Senator Thom Tillis, a North Carolina Republican, said Sunday that the government needs to make “tough choices so that we can balance our books.”

Asked on NBC’s “Meet the Press” how Republicans would pay for the tax cut that Trump is apparently proposing, Tillis, reverting to a talking point used by many Republicans about the 2017 tax bill, said it has to pay for itself through faster growth.

Pressed by NBC correspondent Chuck Todd that the current tax cut isn’t paying for itself,
Tillis said “there is a way to rationalize that this tax cut will pay for itself through sustained economic growth.”

The International Monetary Fund this month downgraded its forecast for U.S. growth in 2019 to 2.5 percent, down 0.2 percentage point from July and down from 2.9 percent this year, citing Trump’s tariff war with China and other countries.

The White House has regularly suggested the U.S. economy can grow at 3 percent or more based on its policies. After quarterly GDP was reported at 4.1 percent for April-June, Trump termed that level of growth “very, very sustainable.” Third-quarter GDP figures are due on Oct. 26 and forecast an an annualized 3.3 percent.

5-Percent Solution

Faced with the rising deficit, Trump this week told his Cabinet that each federal agency needed to trim its budget by 5 percent.

For many Republicans, though, the book-balancing choices skew more to cutting social programs than dialing back spending in general, or reconsidering tax rates.

Senate Majority Leader Mitch McConnell has blamed rising budget deficits on a failure to constrain spending on Social Security, Medicare and Medicaid. Entitlement spending is “the real driver of the debt by any objective standard,” McConnell said in an interview with Bloomberg on Oct. 16.

Brady and Ryan

Trump said on Saturday that Ryan and Representative Kevin Brady, chairman of the House Ways and Means Committee, were working on the possible legislation.

He added that the plan could be announced as soon as Nov. 1, days before the Nov. 6 elections that will decide the control of Congress. Mnuchin said, “We hope to have something soon.”

“There is continued interest in building on the success of the Tax Cuts and Jobs Act and constantly improving the tax code for hardworking families and America’s small businesses,” said Rob Damschen, a spokesman for Brady. He referred any further questions on Trump’s remark to the White House.

The Republican-led House passed legislation in September that would make permanent the 2017 tax cuts for individuals and pass-through businesses which otherwise would expire at the end of 2025. That measure is unlikely to be taken up in the Senate anytime soon, though, as party leaders are hesitant to push a bill they don’t expect could garner the 60 votes needed to pass.

Trump’s pitch for middle-class tax relief comes as a survey commissioned by the Republican National Committee showed that voters overwhelmingly believe the 2017 overhaul helped the wealthy instead of average Americans.

By 61 percent to 30 percent respondents said the law benefits “large corporations and rich Americans” over “middle-class families,” according to the survey, which was completed on Sept. 2 by the GOP firm Public Opinion Strategies and obtained by Bloomberg News.

Trump isn’t the only politician thinking about taxes. Senator Kamala Harris, a California Democrat seen as a possible 2020 presidential candidate, has proposed repealing the 2017 tax law and replacing it with a tax credit or direct payment to middle-class and poor individuals and families.

--With assistance from Saleha Mohsin.

To contact the reporters on this story: Joshua Gallu in Washington at jgallu@bloomberg.net;Justin Sink in Washington at jsink1@bloomberg.net;Sahil Kapur in Washington at skapur39@bloomberg.net

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Joshua Gallu, Ros Krasny

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