Behind the scenes. At a House Republican lunch this week, Budget Committee Chair Jodey Arrington (R-Texas) was presenting a series of slides when he landed on a suggestion that sent people on and off Capitol Hill into a frenzy — raising the corporate tax rate.
Preserving the 21% corporate rate from the 2017 Trump tax cuts is a red line for plenty of Republicans. President-elect Donald Trump has even called for cutting it further.
But the idea of raising corporate taxes somehow made its way into the Texas Republican’s presentation. Arrington told us there was a “mistake” and he emphasized that such a rate hike “wasn’t even on the table” as part of his presentation.
Yet at that Republican Study Committee lunch, Arrington intentionally floated other examples of ways to raise revenue in the tax code.
These included clawing back clean energy tax credits from Democrats’ Inflation Reduction Act — a common, though politically fraught, GOP goal — and a SALT cap for corporations. Addressing “corporate SALT” would entail limiting what companies can deduct in state and local income taxes, much like Republicans did for individuals in 2017.
There’s some frustration in GOP circles brewing with Arrington over his ambitious plans for cost savings, which include ideas under other committees’ jurisdictions.
This episode also underscores just how hyper-intense the Republican discussions already have become around their massive reconciliation package. And the really tough bargaining hasn’t even begun.
The GOP hunt for spending cuts will become even more painful quickly, as the mere possibility of some offsets is already riling Washington. The prospective Republican reconciliation package is expected to cover taxes, spending cuts, border security and energy, as well as addressing the politically difficult issue of raising the debt limit. All this will have to be carried by Republicans alone without any Democratic support.
Beyond the tax arena, Arrington is pushing for trillions of dollars in cuts to Medicaid and discretionary spending over the next decade, as well as controversial changes to food stamps and federal welfare programs. The Texas Republican’s budget proposals, aka “Reverse The Curse,” are being pitched across the House GOP Conference. And they’ll be part of what Arrington discusses when top House Republicans head to Mar-a-Lago this weekend to talk reconciliation with Trump.
“I can’t tell you where it will end up, but there are trillions of dollars” in savings outlined in his budget plan, Arrington told reporters on Thursday.
Trump and his top aides also project that a wave of new import tariffs ordered by the president-elect once he takes office could generate trillions more in revenue. Tariffs aren’t expected to be legislated through reconciliation.
We’ll note also that Arrington’s budget proposals never made it to the House floor last Congress, with GOP leaders deciding against doing so given their tight margins of control. Plus, new American tariffs could set off an international trade war with unpredictable fallout for the U.S. economy.
But with extending the Trump tax cuts projected to cost more than $4 trillion over a decade, and the budget deficit running at nearly $2 trillion annually, Republicans can’t afford to add to the tidal wave of red ink. Global debt markets are already nervous, and anything that adds significantly to the $36 trillion national debt is going to be a problem for Republican deficit hawks.
“We’re going to be having conversations with each chairman to make sure that the targets they’re given are achievable within their committee, and then ultimately get pulled back into budget reconciliation to give us the ability to do all the things you want to do,” House Majority Leader Steve Scalise told us.
“It’s going to be difficult,” acknowledged Rep. Mike Simpson (R-Idaho), a House Appropriations Committee cardinal. “If you’re going to find $2 [trillion], $2.5 trillion dollars in cuts, or whatever, you’re not going to be able to do that without going after mandatory spending.”
When asked about Medicaid cuts, which could include new work requirements and block grants among other changes, Simpson responded: “I would want to see how you’re going to do it. If all you’re doing is going in and slashing and burning, I don’t know if that’s the right way to do it.”
However, there will be tremendous pressure on rank-and-file Republicans to buckle under pressure from Trump and party leaders.
“The president has made it clear he just wants results,” noted House Ways and Means Committee Chair Jason Smith (R-Mo.). “He is willing to wait longer. And if senators try to delay, that can create problems. If members decide to delay, that can create problems.”
We’ve even begun to see signs that conservative hardliners would back a debt-limit increase as part of reconciliation — if there are real efforts to rein in federal spending, including entitlement programs.
“I can see myself doing it again if there’s the right bill,” said Rep. Thomas Massie (R-Ky.) “I don’t know, we’ll have to see. Has to be more than lip service.”
Rep. David Schweikert (R-Ariz.), another deficit hawk, believes that unless Congress and the incoming Trump administration communicate to world debt markets that they understand the precarious position the country is in, simply raising the debt limit could cost more due to higher interest rates in the long run.
Also: In case you missed it, Speaker Mike Johnson is looking to replace the House chaplain.
