Inside the House GOP clash over tax cuts

Prominent House Republicans are privately warring over how to advance tax cuts that are expiring and President Donald Trump’s long list of other tax demands — with Budget Chair Jodey Arrington and deficit hard-liner Rep. Chip Roy locked in a struggle against Ways and Means Chair Jason Smith and other senior Republicans.

The dispute is hindering Speaker Mike Johnson’s plan to advance a budget blueprint this week, as different GOP factions continue to squabble over the costs of the tax plan, how to offset them to reduce their deficit impact and possible cost-saving changes to programs including Medicare and assistance for low-income Americans.

Johnson confirmed Sunday that Republicans were continuing to work through several issues, again delaying his ambitious timeline.

Despite progress last week, one of the major hang-ups in negotiations over the GOP’s sweeping policy bill is that Arrington, fellow Texan Roy and other budget hawks are still scouring for additional and highly controversial spending cuts.

They are also pushing for changes to a critical piece of the complex process: the so-called “budget reconciliation instruction” for the tax writing Ways and Means Committee, according to two Republicans and another person familiar with the discussions who were granted anonymity to discuss the ongoing talks.

That instruction dictates the maximum amount by which the committee can increase the deficit, as lawmakers take into account a full extension of Trump’s 2017 tax cuts and the implementation of his other priorities, like exempting tips and overtime pay from federal income tax.

Smith (R-Mo.) presented a number at the GOP’s retreat in Doral, Florida last month — around $5.5 trillion — that reflected his committee’s understanding of how much it would cost to implement Trump’s priorities, after spending reductions and other revenue raisers Ways and Means can pull together.

Arrington, Roy and other fiscal hawks are trying to further constrain that committee’s deficit spending but are not on the same page as Smith on the reconciliation instruction. Other senior Republicans are worried they won’t be able to cram all of Trump’s tax demands into the package.

The number that lawmakers had tentatively settled on last Thursday — around $4.7 trillion — would make it virtually impossible to implement anything above an extension of the expiring tax cuts. House Republicans agreed during their White House meeting last week that they would permanently extend the 2017 tax cuts, which are estimated by Congress’ official accountants as costing $4.6 trillion.

The $4.7 trillion figure “is an implicit acknowledgement that something will have to give,” said Liam Donovan, a Republican strategist, in an interview.

“[T]here will absolutely have to be trade-offs. You simply can’t fit it all into that,” Donovan said.

Republicans have been discussing shorter timelines for some of Trump’s other tax priorities.

Arrington outlined to reporters last week that there were essentially two ways to adjust the cost of the GOP’s policy package.

“You got the tax dial and you got the spending reduction dials,” Arrington said.

But a senior GOP aide familiar with the discussions, granted anonymity to discuss the private deliberations, pointed out that “dials can only do so much.” Johnson, Smith and other GOP leaders are generally pushing to achieve all of Trump’s broad tax goals.

Roy also recently told reporters that if Republicans didn’t achieve deep enough spending cuts, then “we're gonna have to be thinking about shorter-term tax rates or…which ones we'll be able to address or not.”

Meanwhile, anger is rising across large pockets of the House GOP, who believe lowering the cost number would make it impossible to advance Trump’s tax priorities, including the extension of the expiring cuts and his add-ons

“Roy and Arrington will make the tax cut portion not passable,” said one GOP lawmaker.

Republicans will then be “facing the largest tax increase in history” or be forced to strike a bipartisan tax deal with Democrats before the current policies expire at the end of the year, the GOP lawmaker added.

The two Texans, the lawmaker said, should “listen to” GOP leaders and Smith.

The unrest is reigniting House GOP leaders’ concerns that Roy and other hard-liners are trying to burn time to undercut the leaders’ preference for a single bill that would include taxes, border policy, energy provisions and national security measures, according to two Republicans familiar with the conversations. The Senate favors a two-track strategy, that would include the border, energy and defense measures in one bill and leave taxes for later, in a separate bill.

Roy, Freedom Caucus Chair Andy Harris (R-Md.) and other hard-liners favor the two-bill approach and have been back-channeling with Senate Budget Chair Lindsey Graham (R-S.C.) as he prepares to mark up his budget plans this week in committee.

Centrists and even some more conservative Republicans are also increasingly alarmed that Arrington keeps raising Medicare reforms as a potential spending offset, according to three Republicans familiar with the ongoing talks. Trump made it clear on the campaign trail that he doesn’t want to touch Medicare, but Arrington has suggested a variety of changes to the program that would lower costs in the Ways and Means’ jurisdiction.

House Republicans from corn-growing states are also infuriated that Arrington has his eye on slashing tax incentives for biofuels, after a similar move almost blew up former Speaker Kevin McCarthy’s 2023 debt ceiling deal. Many agriculture-state Republicans are already irritated at Arrington for declining to help them press the Congressional Budget Office for additional revenue for the farm bill last year, and tempers are flaring again.

GOP leaders are also planning to use tariff revenue to help pay for the massive bill, even though many Republicans are skeptical of such a move. Trump said Sunday he’s planning to announce new levies this week.

Republicans are also planning to include enacting the first-ever work requirements for Medicaid in the package, according to two people familiar with the ongoing talks. They’re also planning to expand work requirements for SNAP food aid benefits that help feed more than 40 million low-income Americans and a smaller cash assistance program known as Temporary Assistance for Needy Families.

The work requirements can be adjusted depending on how big of a funding gap they need to fill, according to Republicans involved in the discussions. For example, they can increase the age range of the additional work requirements if needed, along with plans to rescind the ability of states to request federal waivers for SNAP work requirements for certain individuals and other flexibilities in the program.