5 obstacles Republicans will face on the road to tax cuts

Republicans are facing some tough decisions regarding their desired tax cuts as one of their top legislative priorities, some of which have dogged the conference for years.

While there is broad GOP support for renewing key parts of President-elect Trump's 2017 Tax Cuts and Jobs Act, there are divides over other details.

Disagreements over the state and local tax (SALT) deduction cap, the child tax credit (CTC), and the extent to which Republicans want to do away with green energy subsidies passed by Democrats are all bubbling beneath the surface of single-party control.

Disputes over individual provisions are likely to be compounded by bigger-picture dynamics within the party, such as the degree to which Republicans feel loyal to Trump after he delivered a big win over Democrats in the general election.

“There are so many different factions that Mike Johnson and Trump are going to have to round up that getting consensus on something as big as extending the Tax Cuts and Jobs Act … is going to make it really complicated,” Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, a left-leaning think tank, told The Hill.

Here's a look at five different points of contention within the party that could muddle the path to a second round of Trump tax cuts.

Trump vs. Congress on additional tax cuts

Congressional Republicans have had their eye on an extension of the Trump tax cuts since they were passed in 2017. From a Republican policy perspective, they were only made temporary in the first place so that they wouldn’t add more to the deficit than the $1.5 trillion that Republicans agreed to in that year.

But Trump made a host of additional tax cut promises on the campaign trail, including canceling taxes on tips and Social Security, ending double taxation for Americans living abroad and doing away with taxes on overtime pay.

These propositions would add to the cost of the package and may not fly with all Republican lawmakers, even as voters are eager to see Trump make good on his promises.

“I would prefer those things to be completely off the list,” Daniel Bunn, president of the Tax Foundation, a leading conservative think tank in Washington on tax policy, told The Hill.

There is likely a “decent number of members who would prefer not to expand the scope of the work to include those things, both for budgetary reasons and for policy reasons,” Bunn said.

Tariffs, which were the centerpiece of Trump’s economic pitch during his campaign, could also prove to be a point of tension between the White House and the Republican Congress.

If Trump enacts tariffs through executive authority alone, they wouldn’t be permitted from an accounting perspective to help pay for any expensive tax legislation Republicans want to pass. If they’re enacted legislatively, it could involve a messy and drawn-out process that could frustrate the White House's efforts.

Tougher deficit standards in the House than in the Senate

In 2017, a Republican House emboldened by Trump was keener on a major tax cut package than a more deficit-conscious Senate. When former Sen. Bob Corker (R-Tenn.), one of the leading budget hawks, flipped to support the $1.5 trillion tax cuts, he surprised many in Washington.

Now the tables have turned. Republican senators are sounding less concerned about adding to the deficit, while budget hawks in the House are sounding an alarm.

“It’s not going to increase the deficit, even though the Joint Tax Committee scores it that way. The committee does not take into account the growth in the economy that will occur with a pro-growth tax policy,” soon-to-be Senate Finance Committee Chair Mike Crapo (R-Idaho) said in an Idaho Statesman opinion piece published Tuesday.

Adam Michel, director of tax policy at the right-leaning Cato Institute, told The Hill that a priority mismatch exists between Republican tax writers in the Senate and the House.

“The tax writers in the Senate are comfortable operating on a current policy baseline, which assumes you extend the tax cuts without any additional tax changes or spending offsets. There are more House members that are more concerned,” he said.

Unspoken assumptions within the reconciliation number

Before Republicans debate the specific tax provisions they want to include, they’ll need to agree on a top-line number for how much they’re willing to add to the national debt, which exploded after the pandemic following trillions sent out in fiscal stimulus.

Even with that number locked down, different groups of Republicans are likely to see their own policy priorities as baked into it. These could pertain to controversial provisions like the SALT cap, the CTC and others.

“Let’s say you get a nice round number. I’m not sure how many trillions it would be, but I imagine it would be in the trillions. There’s going to be an eye-of-the-beholder situation with that number where different groups will look at it and think that means, ‘I get X, Y and Z,’” Bunn said.

“If there’s not clear communication ahead of time about what really gets into that number, then there’s going to be a challenge down the road,” he said.

Green energy credits in the Inflation Reduction Act

Getting rid of parts of Democrats’ sweeping 2022 climate package, known as the Inflation Reduction Act (IRA), has already been floated by Republicans as a way to pay for additional tax cuts. Trump is reportedly intending to do away with the $7,500 consumer credit for electric vehicles.

But getting rid of the green energy production credits could be a nightmare for certain House Republicans from districts where the credits are praised for boosting the local economy and reshaping various industries.

Eighteen Republicans wrote to Speaker Mike Johnson (R-La.) in August, telling him not to repeal the law, arguing that it would “undermine private investments and stop development that is already ongoing.”

The SALT cap and the Child Tax Credit

The most contentious individual provisions under consideration by Republicans are likely the SALT cap and the CTC.

The CTC has widespread Republican support and was augmented in the 2017 Tax Cuts and Jobs Act, but it is expensive, and a major expansion of it is likely to be resisted by GOP budget hawks.

The SALT cap of $10,000 has both Republican supporters and detractors. Lowered in 2017, it was opposed by Republicans in high-tax blue states like New York and California, along with Democrats. Senate Majority Leader Chuck Schumer (D-N.Y.) has called it a “nasty” piece of legislation.

With just a thin Republican majority in the House, the GOP SALT cap caucus could wield outsized power in the negotiating process.

“The more you do to weaken the SALT cap … or the more you do to preserve the green energy credits that are satisfying [Republican] members, the more expensive the bill gets, and something’s got to go,” Gleckman said.