House passes Senate budget, moving tax reform process forward

House Republicans voted Thursday to accept the Senate’s 2018 budget plan, overcoming internal differences and kick-starting a monthslong sprint to pass a massive overhaul of the federal tax code ahead of next year’s elections.

The plan, which passed on a 216-212 vote, allows for up to $1.5 trillion in tax cuts as part of the overhaul, giving lawmakers far more room than the original House budget but leaving them open to accusations that they are ruining the government’s finances in the quest for tax reform.

“This is a huge day for the American people,” said Rep. Kevin Brady, Texas Republican and chairman of the tax-writing Ways and Means Committee. “This allows us to move quickly toward a tax reform plan that’s going to create jobs, grow paychecks and leapfrog America into the lead as one of the best places on the planet for new jobs.”

Mr. Brady plans to release a full draft of the tax plan on Wednesday and begin voting on it in his committee the following week. Republicans are racing a self-imposed deadline of getting a bill to President Trump by the end of the year.

The White House cheered the development and said Mr. Trump’s priorities are all about cutting taxes for American families and creating jobs while streamlining a complicated tax code.

“This resolution sets the stage for Congress to put America first by providing economic relief for the American people in the form of tax cuts and tax reform,” press secretary Sarah Huckabee Sanders said.

The 2018 budget sets discretionary spending at about $1 trillion and projects deficits of $641 billion for the fiscal year, which began Oct. 1.

But those numbers are not binding and are likely to change when Congress approves a yearlong spending bill in December.

Instead, the budget’s chief purpose is to unlock a legislative fast-track tool, known as reconciliation, that lets Republicans pass a tax package with a simple majority in the House and Senate, bypassing the expected Democratic filibuster in the Senate.

The House passed a different budget this month but, rather than fight over a compromise, Republican leaders accepted the Senate plan. They figured it was more important to build momentum for tax reform than to argue over specific numbers.

The narrow margin on Thursday, though, indicates that Republicans have work to do to hold together enough of their members to pass a plan. They are hungry for a major legislative win after the Obamacare repeal debacle burned up most of the 2017 calendar.

Twenty Republicans joined 192 Democrats to vote no on Thursday, and the Senate passed the plan last week on a narrow 51-49 vote. Sen. Rand Paul, Kentucky Republican, voted no, along with all 48 members of the Democratic caucus.

Front and center for Republican negotiators now are leaders’ stated plans to ax the deduction for state and local taxes paid, which could generate $1 trillion to $2 trillion over 10 years to offset lower individual and corporate rates.

People who want to get rid of the break say it works to subsidize the high-tax behavior of certain states, usually those that lean liberal.

But Republicans from those states say axing the deduction would translate to a tax hike on their constituents. More than half of Republicans who voted no on the budget Thursday represent districts in either New York or New Jersey.

Rep. Thomas MacArthur, a New Jersey Republican who voted no, said some members felt pressure to vote yes to move the process along but might not support the final tax bill.

“The next vote is going to be on a tax bill that affects people’s pocketbooks. That’s a little more than a process vote,” Mr. MacArthur said.

“Yeah, there’ll be more pressure, but it’ll be coming from different directions,” he said. “I think people ultimately are going to have to look at their constituents and answer for their votes on how they affected their tax bill.”

Mr. Brady said he is not willing to simply write off lawmakers who voted no. He said their constituents need to feel like they benefit from the tax overhaul.

“We are working very seriously with them to find good solutions,” he said. “I’m convinced we can do this in a way that’s fair, that helps grow their economies in a significant way and allows us to [do] middle-class tax relief.”

Other Republicans, meanwhile, said they were concerned that the budget plan didn’t do enough to rein in federal spending. The Senate’s plan forecasts a $621 billion deficit in 2018 and projects to balance over time, but it also allows for up to $1.5 trillion in deficit-financed tax cuts.

“With a Republican House, Senate and president, our budget must establish our commitment to fiscal discipline and conservative principles and stop the generational theft of endless borrowing and ballooning debt,” said Rep. Matt Gaetz, Florida Republican.

Unlike the Senate plan, the House budget that passed this month called for a tax package that does not add to federal deficits.

Democrats, meanwhile, say the Republicans’ budget and tax plans would explode the deficit and that Republicans want to give tax breaks to the wealthy at the expense of the poor and the middle class.

House Minority Leader Nancy Pelosi, California Democrat, called the broader process a “massive con” and said Republicans who voiced objections have no leverage to get the changes they want because the vote showed the leadership doesn’t need their support.

“I think that the ability to have leverage would have been to defeat this and then go to their speaker and say, ’We want something different,’” Mrs. Pelosi said. “They’ve given leverage to the exploiters.”

Beyond the state and local tax debate, Republicans also have a number of other issues to confront, including whether to change retirement savings preferences in the code to try to wring out more money to pay for lowering other rates.

The president said this week that there would be no change to 401(k) retirement savings plans, to which workers can contribute up to $18,000 in tax-deferred money every year.

But Mr. Brady told reporters a few days later that the topic was still under discussion and that lawmakers were thinking about expanding the preference in part, not dialing it back.

“We are working together to find ways to strengthen retirement savings and help people save more and sooner, including discussions how we increase 401(k) limits so people can save more. We’ll continue that work with the White House,” Mr. Brady said Thursday.

The budget allows for up to $1.5 trillion in deficit-financed tax cuts, and Republicans say economic growth will more than make up for any initial loss in revenue over time.

But leaders have already junked plans for a trillion-dollar border tax and are vowing to protect high-cost preferences in the code that allow people to deduct expenses tied to mortgage interest and charity giving.

If they can’t find other major sources of revenue, such as axing or reducing the state and local deduction, Republicans could have to settle for a less-ambitious overall package.

Using reconciliation means that if the Senate passes a package that adds to federal deficits in the long run, lawmakers would also have to put an expiration date on the tax cuts, as they did during the administration of George W. Bush.