Republicans at state level fret over GOP tax overhaul

by Reid Wilson - 12/16/17 6:34 PM ET

CORONADO, Calif. — While Congress races to pass a massive tax overhaul by the end of the year, Republicans in state capitals across the country find themselves in a bind as they plan their own state budget requirements.

On one hand, Republicans at the state level say their party must prove it is able to handle the responsibilities of leadership by notching legislative victories that voters will be able to judge next November.

On the other, some legislative leaders say the tax package being pushed by congressional Republicans will undoubtedly impact their states in a negative way, foisting new uncertainty into the budgetary process as tax collections have already begun to sag.

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“The Republicans have got to show they can do something, they can do something good, and they can get it done while they have the power so people can judge for themselves,” said Brent Hill, the Republican president of the Idaho state Senate.

“If Republicans go into [the midterm elections] without having accomplished anything, people get impatient, and they’re going to be looking at another way.”

Iowa House Speaker Linda Upmeyer (R) said in an interview that “we’re affected in different ways by different pieces” of the tax-reform package.

“We’re waiting to get excited about it until we figure out what’s in it moving forward,” she said.

State legislators said they will closely examine key elements of the tax overhaul released Friday by members of the congressional conference committee.

The agreement appeared all but guaranteed to have the necessary support to pass next week after Sens. Marco Rubio (R-Fla.) and Bob Corker (R-Tenn.), two key holdouts, backed the bill on Friday.

But state legislators had not yet seen the final bill, which was released Friday evening. And the details matter, because many states make their tax codes conform to the federal code. That means a change in Washington will necessitate changes in capitals across the country.

“I think we’re all grappling with the uncertainty of the federal government,” said Joyce Peppin, the Republican majority leader in the Minnesota state House.

What makes the balancing act more difficult is that the overhaul in the federal code will mean some states will be guessing about the fiscal impact those changes will have on their budgets.

Forty-nine states have constitutional requirements to balance their budgets, and making significant changes can lead to an imbalance quickly.

“When you’re guessing, you don’t have to be off very far to find yourself with a shortfall,” said Hill, a retired accountant.

Many states are teetering on the brink of budgetary crisis even before the tax package passes.

State and local government tax revenue increased by 1.8 percent in the second quarter of 2017 compared with a year before, a significant slowdown from the 2.2 percent average growth rate for the prior four quarters, according to a new report from the Rockefeller Institute of Government. Eleven states showed a decline in total state tax revenue.

Other Republicans said the tax overhaul might inadvertently harm small businesses in their states. Deb Peters, a Republican state senator from South Dakota and president of the National Conference of State Legislators, said she worried there would be “unintended consequences” from provisions relating to pass-through corporations.

“They’re going to see an automatic increase in jobs because people are going to have to close their small service business and get a job because the tax liability is going to go through the roof. It’s not going to be affordable,” Peters said.

The political consequences of passing the Republican tax overhaul is uncertain as well.

Some Republicans warned that members of their party in Washington simply had to secure a major legislative win before their first full year of government control came to an end.

“If Republicans cannot get their act together in Congress, there will be a trickle-down effect on our states,” said David Long, the Republican president of the Indiana Senate.

Others point to poll numbers that show the plan is deeply unpopular. A Harvard CAPS-Harris survey found 64 percent of Americans oppose the tax plan, including seven in 10 independents. More voters in that survey said they thought the plan would raise their taxes than said it would lower them.

A CBS News poll last week also found that 76 percent of Americans believed the plan would benefit corporations, and 69 percent said it would help the wealthy. Just 35 percent said they backed the plan.

The opposition does not come solely from Democrats and independents.

In the Senate, Corker had long been concerned about the bill adding to the deficit, while Rubio wanted higher child tax credits before signing off on the plan.

Hill, the Idaho Republican, said he too was concerned about deficit spending.

“Not all Republicans are really all that happy about the tax reform and the way that’s going, too,” he said.

Tags 115th United States Congress Bob Corker Economic policy of Donald Trump Marco Rubio Marco Rubio Presidency of Barack Obama United States