Trump Talks Tax With Democrats as Budget Deal Remains Elusive

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By Laura Davison

Congressional Republicans expect they can pass a tax bill without needing Democratic votes.

But if they can’t, President Donald Trump has begun courting Democrats in states he won who he thinks could be persuaded to sign onto a tax plan. He invited Sens. Heidi Heitkamp (N.D.), Joe Manchin III (W.Va.), and Joe Donnelly (Ind.) to dinner Sept. 12 to talk tax reform. The three lawmakers are up for re-election in 2018 and could face political pressure from voters in their states to back tax legislation.

The purpose of the dinner is “to find out where some of the moderate-leaning Democrats in the Senate might be and if there is a way we might be able to get a bipartisan tax bill,” Sen. John Thune (R-S.D.), who was also invited, told reporters Sept. 12. Finance Committee Chairman Orrin G. Hatch (R-Utah) and Sen. Patrick J. Toomey (R-Pa.) were also included in the meeting.

Heitkamp, Manchin, and Donnelly could provide a buffer to the Republicans’ two-seat majority in the Senate. If some Republicans were to object to the tax bill, as was the case with the health care measure, having a back bench of Democratic supporters could be enough to win a vote.

Every other Senate Democrat, except for those three, signed an August letter that said they wouldn’t support a tax bill that increased the burden on the middle class, went through reconciliation, or added to the deficit.

Manchin said he, too, would oppose a bill that added to the deficit and he doesn’t like the idea of using reconciliation, because it breaks with the traditions of the Senate.

“This is a bipartisan gesture, and I think the President is approaching us because he needs 60 votes,” Manchin told reporters.

Reconciliation Road

“It most likely will get done through reconciliation,” Thune said. “It would be great if it gets done with Democrat votes, but I don’t know how you get eight Democrats to vote for something.”

Trump has been reaching out to Democrats more in recent weeks. Earlier this month, he sided with Senate Minority Leader Charles E. Schumer (D-N.Y.) and House Minority Leader Nancy Pelosi (D-Calif.) on a debt limit and government funding deal. Heitkamp traveled with Trump when he spoke in North Dakota about taxes.

Democrats “are not irrelevant,” Sen. John Cornyn (R-Texas), the No. 2 Senate Republican, said. “But we control the agenda.”

Republicans are planning on using budget reconciliation to pass a bill, but they don’t yet have a budget. The Senate Budget Committee is considering whether to do a “full-blown” budget or a bare-bones version similar to the one used to pass the reconciliation instructions for the health care bill, Thune said. The Budget Committee could also include instructions that would allow a tax bill to lose up to $1 trillion in revenue, meaning that tax rates could be cut more sharply, but lawmakers would face another fiscal cliff in 10 years, Thune said.

A shell budget would likely face opposition from the conservative House Freedom Caucus, whose members have already said they wouldn’t vote for a resolution similar to the one used in health care. Freedom Caucus members say they want to see tax reform details before agreeing to support the budget in the House.

The House Budget Committee passed a budget earlier this year, but the measure won’t receive a vote until at least the end of September. It could be well into October before the House and Senate agree on a budget that frames the parameters for tax reform. There is a less than 50 percent chance that Congress passes a budget resolution, Henrietta Treyz, managing partner and director of economic policy research at Veda Partners, said in a note to clients.

Tax Rate Negotiations

As details about how much revenue the bill can lose and how many votes it will need to pass are being negotiated in Congress, Trump administration officials are signaling a willingness to compromise on the 15 percent tax rate the president has touted.

“The president wants to get corporate rates down to 15 percent. I think it doesn’t help ourselves to negotiate against ourselves,” White House Legislative Affairs Director Marc Short said at a Christian Science Monitor breakfast Sept. 12.

“Ultimately there is probably compromise” to get to a deal on a tax package, Short said, adding that he prefers a 15 percent rate. Short also said he is committed to extending the corporate tax rate reduction to S corporations.

“What the exact number is, we’ll see,” Treasury Secretary Steven Mnuchin said at a separate event, CNBC’s Delivering Alpha conference, when asked what level of corporate taxes would be considered a win. Mnuchin also said that the special passthrough rate won’t apply to service firms, such as accounting and law firms. He added that the administration is considering plans to make a tax package retroactive to the start of this year.

Ways and Means ranking member Richard E. Neal (D-Mass.) said he sees Trump’s efforts toward bipartisanship and the willingness to negotiate on the tax rates as a sign that the White House is getting more serious about tax reform.

“I don’t think anybody really believed we were going to have a 15 percent rate,” Neal said. “When you are dealing with taxes, you are dealing with arithmetic and it can be stubborn.”

With assistance from Laura Curtis, Justin Sink, and Saleha Mohsin (Bloomberg) and Colleen Murphy (Bloomberg BNA).

To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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