×

UPDATE 1-U.S. House to vote on budget plan amid Republican fight on taxes

(Adds quotes from lawmakers, background on Republican proposal)

WASHINGTON, Oct 26 (Reuters) - The U.S. House of Representatives was set to vote on Thursday on a budget blueprint central to efforts by President Donald Trump and congressional Republicans to enact big tax cuts, but party moderates from high-tax states could cast a cloud over its passage.

The Senate has already passed the budget plan, which is important because it would enable that 100-seat chamber to later pass tax legislation with a simple majority rather than a 60 vote super-majority. This higher bar would be tough to reach given Democratic opposition.

Republicans hold a comfortable majority in the House but just a 52-48 margin in the Senate, meaning they would need support from Democrats, who have called the tax plan a giveaway to the rich and corporations that would swell the federal deficit.

The White House and congressional Republicans excluded Democrats as they developed the plan, and it appears unlikely that any significant number of Democrats will get behind the proposal.

Trump, who promised major tax cuts as a candidate last year, has asked Congress to pass the tax legislation by the end of the year. Trump, who took office in January, is still looking for a first major legislative win even though Republicans control the White House and both chambers of Congress.

Some House Republicans said they would vote against the budget measure in an effort to protect a popular deduction for state and local income taxes that would be eliminated under a Republican outline of their tax plan.

Eliminating the deduction would hit middle-class voters in high-tax states like California, New York, Illinois, Pennsylvania and New Jersey.

During debate on the House floor, Republican Peter Roskam of Illinois called the state and local tax deduction a "nettlesome issue."

"I'm of the view that tax reform does not simply mean redistribution of tax liability from one part of the country to another, but it means tax relief for everybody," Roskam said.

But House Majority Whip Steve Scalise, the No. 3 Republican in the chamber, predicted victory, and the Republican leadership set a vote for 10:30 a.m. (1430 GMT). "We're going to get it done," Scalise told Fox News Channel.

The White House and Republican congressional leaders last month unveiled a broad outline of the tax proposal but detailed legislation is not due to be unveiled until next week.

The outline called for slashing the corporate tax rate to 20 percent from 35 percent, the small business rate to 25 percent from 39.6 percent and the top individual rate to 35 percent from 39.6 percent.

"In short, the wealthy win, the middle class is ignored and we all get saddled with more debt," Democratic Representative Deborah Wasserman Schultz said.

Independent analysts last month forecast that corporations and the wealthiest Americans would benefit the most and many upper middle-income people would face higher taxes under the tax outline unveiled by the Republicans.

Independent analysts said the proposal would cut taxes for companies and individuals by up to $6 trillion over the next decade.

The battle within Trump's own party over the state and local income tax deduction offers a preview of the tough fights ahead as Republicans seek to do away with other popular tax breaks.

Another area of dispute is the possibility of scaling back a popular tax-deferred U.S. retirement savings program in order to raise revenue to pay for the sweeping tax cuts.

Trump and Representative Kevin Brady, the Republican chairman of the tax-writing House Ways and Means committee, reopened the door on Wednesday to capping annual contributions into these 401(k) plans, which for four decades have helped millions of Americans save for retirement.

(Reporting by David Morgan; Additional reporting by Richard Cowan, Amanda Becker and Susan Cornwell; Writing by Tim Ahmann and Will Dunham; Editing by Peter Cooney and Frances Kerry)