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GOP pushes for ‘phase two’ of tax cuts

Republicans are increasingly talking about “phase two” of tax cuts — including a permanent extension of the new law’s individual tax cuts — in an effort to highlight their signature legislative accomplishment and force Democrats to take tough votes.

While Republicans could struggle to pass another tax bill this year, conservatives said that an effort to cement the new individual rates would be both smart policy and smart politics.

President Trump and some key lawmakers have made comments in recent weeks about pursuing additional tax cuts, following the enactment of the GOP’s tax-overhaul bill last year.

“We’re actually going for a phase two, which will help in addition to the middle class, will help companies, and it’s going to be something I think very special,” Trump said at an event in Missouri on Wednesday.

The same day, House Ways and Means Committee Chairman Kevin Brady(R-Texas) said he plans to release new proposals “this year.”

“We are exploring what good new ideas can be brought forward in tax reform,” he said on Fox Business Network’s “Varney & Co.”

It’s unclear what the exact contents or timing of another tax package would be, but lawmakers and administration officials have signaled that it would likely include a permanent extension of the new tax law’s cuts for individuals.

“It will lead with permanence,” Brady told Fox Business Friday. “The tax cuts for families and small businesses were long term, but they weren’t permanent. We think that’s important for growth and certainty.”

He also said he wants to make tax changes that encourage people to save for retirement.

The tax law Trump signed in December permanently lowered the corporate tax rate from 35 percent to 21 percent. But most of the changes the law made to the individual tax code, including rate cuts, expire after 2025.

The tax cuts for individuals were made temporary in order for the bill to comply with the budget reconciliation rules Republicans were using to pass the measure with only a simple majority in the Senate. Under those rules, the law could not add to the deficit outside of the 10-year budget window.

Republicans are unlikely to adopt a budget resolution with reconciliation instructions this year, so they would need 60 votes in the Senate to pass a second tax bill. The GOP only holds 51 seats, and it could be difficult to get nine Senate Democrats on board with another tax bill.

No Democrat voted for the tax bill last year, citing its large benefits for the wealthy and its impact on the national debt. Top Senate Democrats unveiled a proposal earlier this month to roll back some of the tax cuts, including the lower top individual rate, in order to pay for infrastructure investments.

Some Democratic lawmakers have already raised concerns about plans for additional tax cuts. Rep. Lloyd Doggett (D-Texas), a senior member of the Ways and Means Committee, said at a recent hearing that additional tax cuts that aren’t paid for “will make this [debt] situation even worse.”

Still, some Republicans said they think they could get enough Democrats to pass legislation cementing the individual tax cuts. They noted that many Democratic lawmakers complained that last year’s law included temporary cuts for individuals while making a permanent cut to the corporate rate.

“Democrats said all the time that these tax cuts should have been permanent, so I would expect them to support that legislation,” Walker told The Hill.

Conservatives see a vote on the individual tax cuts as a win-win: Either the legislation passes and Republicans get a victory on policy, or Democrats are forced to go on the record on the tax cuts in order to defeat the bill. Ten Senate Democrats are up for reelection this year in states that Trump carried in 2016.

“Getting Democrats on the record is always a good idea when Republicans are pushing their agenda,” said Andy Roth, vice president of government affairs at the Club for Growth.

Jason Pye, vice president of legislative affairs at FreedomWorks, said that if Senate Democrats don’t vote for permanent individual tax cuts, “it puts them in the corner of [House Minority Leader] Nancy Pelosi, who said dumb things about the tax cuts.”

Conservatives also view it as beneficial for Republicans to keep pushing forward on taxes, noting that the tax measure has become more popular since it was enacted.

“I think this is a good opportunity to build on that success and build on that popularity,” said Americans for Prosperity federal affairs director Mary Kate Hopkins.

Doug Heye, a former Republican National Committee spokesman, said that a push for more tax cuts would keep Republicans on the offense instead of forcing them to play defense on the White House crisis of the day.

“I think everything about this move would be positive,” he said.

Bills focused on cementing the individual tax cuts have already been introduced in the House and Senate.

A bill Rep. Rodney Davis (R-Ill.) introduced in January to make tax cuts for individuals and pass-through businesses permanent has 58 co-sponsors, including House Freedom Caucus Chairman Mark Meadows (R-N.C.). Meadows said he expects a vote on the measure around the time of the April tax-filing deadline.

On the Senate side, Sen. Ted Cruz (R-Texas) has offered legislation that would specifically cement the new tax law’s individual rates.

Besides making the individual tax cuts permanent, conservatives also said they would hope a second tax bill would lower capital gains taxes, which people pay when they sell investments. Republicans have long wanted to lower capital gains taxes, but they were largely left untouched in the new tax law.

White House principal deputy press secretary Raj Shah told Fox Business’s Maria Bartiromo Thursday that Trump and Brady have talked about potentially lowering the capital gains rate.

Conservatives have also argued that Treasury could take executive action to index capital gains taxes to inflation, a move that has been supported by incoming National Economic Council director Larry Kudlow. They argue that Kudlow’s new job will boost those efforts.

“Kudlow getting this job is a big step forward both for all marginal rate efforts but also for the reform of taxation of capital gains so that we don’t tax inflation, we only tax real gains,” said Americans for Tax Reform President Grover Norquist.

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