It was easy to miss, but last weekend President Trump floated a fundamental rewrite of the American tax code. In a social media post, and again in remarks to reporters, Mr. Trump suggested the United States could stop taxing income under $200,000 and instead rely on revenue from his extensive tariffs.
“It’ll take a little while before we do that, but we’re going to be cutting taxes, and it’s possible we’ll do a complete tax cut,” Mr. Trump told reporters on Sunday. “Because I think the tariffs will be enough to cut all of the income tax.”
The idea was news to Republicans on Capitol Hill already in the throes of translating Mr. Trump’s impulses for cutting taxes into law.
Senator Mike Crapo, a Republican from Idaho who leads the Finance Committee, said he had not heard from Mr. Trump or his staff about the proposal. “So I just don’t know what that’s referencing,” he said.
Likewise in the House, where Republicans are preparing to release their first stab at the tax bill in the coming days. “We aren’t having that discussion at all — it’s never come up,” Representative Lloyd Smucker, a Republican from Pennsylvania and a member of the Ways and Means committee, said of not collecting income taxes on earnings under $200,000.
Even if they take a pass on Mr. Trump’s most recent notion, congressional Republicans are straining to incorporate several of his previous tax proposals into the legislation. Those include not taxing tips, overtime pay or Social Security benefits, three of Mr. Trump’s campaign pledges that the White House has continued to push in his second term.
House Republicans are planning to include those ideas in their version of the bill, though their proposals are expected to be narrower than the blanket tax exemptions Mr. Trump has advertised, according to lawmakers, staff and lobbyists after the talks. Mr. Trump’s other ideas from the campaign trail, like allowing Americans to deduct the cost of buying a generator, seem very likely to fall by the way side.
While Republicans acknowledge they’ll now probably have to pass at least a couple of Mr. Trump’s tax proposals, some still grouse about them.
“My beef with what’s being proposed right now, there’s no guiding principle other than, ‘well, this is what President Trump promised on the campaign,’” said Senator Ron Johnson, a Republican from Wisconsin. “I understand the political message there, but let’s keep our tax code simple. I’d much rather lower the rates and keep it simple, rather than do another little special carve-out deal.”
As with all of the tax cuts Republicans are considering, a chief concern about Mr. Trump’s ideas is their cost. Without steps to curb their reach, the cost of the campaign promises could balloon into the trillions, according to estimates from the Committee for a Responsible Federal Budget.
Republicans are trying to limit how much they add to the deficit with the legislation, forcing a parallel and politically treacherous negotiation over cuts to spending on Medicaid and other programs that help low-income Americans. How far Republicans can cut taxes, and what Mr. Trump’s ideas look like in practice, will depend on how much in spending Republicans can ultimately agree to cut.
“I want to make sure that we get tax relief for hardworking Americans, which seems to be the focus of those, but there is a finite amount of money as well,” Senator Roger Marshall, a Republican from Kansas, said of Mr. Trump’s campaign promises. “So I think the big debate is: How much money does the House want to save?”
The leading proposal for not taxing tips — a bill crafted by Senator Ted Cruz, Republican of Texas, and Representative Vern Buchanan, Republican of Florida — would take a number of steps to limit the scope of the tax break.
Under their bill, Americans making more than a threshold that rises annually, set at $160,000 this year, would still have to pay taxes on their tipped income. People making under that limit would avoid income taxes only on the first $25,000 in tips they receive, though they would still owe payroll taxes. To prevent all types of workers from trying to claim the tax break, the bill tasks the Treasury Department with limiting it to people in industries that traditionally receive tips.
It also excludes gig workers from the tax break. Some companies, including the food-delivery service DoorDash, are lobbying for lawmakers to expand the tax break to independent contractors. The company has invited its drivers, who work as independent contractors rather than traditional employees, to write to members of Congress about the issue, with nearly 40,000 of them doing so already.
“This is a matter of basic fairness — tips are tips,” Max Rettig, global head of public policy at DoorDash, said in a statement.
While the details for not taxing tips are up in the air, Republicans expect their bill to ultimately include limitations similar to what Mr. Cruz and Mr. Buchanan had in their bill. Lawmakers said they were also trying to make sure the tax exemption for overtime pay was targeted toward middle-and-low income Americans — and would not create a gold rush in tax dodging for rich Americans. To hold down costs, Republicans may approve the tax breaks only for the duration of Mr. Trump’s term.
Mr. Trump’s wish to not tax Social Security benefits is more complicated. Republicans are using a special procedure called reconciliation to pass the tax legislation without Democratic support. Reconciliation requires lawmakers to follow a series of rules, one of which is that bills considered under the process cannot affect Social Security’s finances.
To work around that prohibition, House Republicans, rather than directly changing how Social Security benefits are taxed, are preparing to offer a more general tax break to older Americans. Americans over 65 are already eligible for slightly larger standard deduction, and Republicans have considered a further expansion.
“If we can do a deduction that erases the tax burden that our seniors pay on their Social Security income, for people within a certain income threshold, it equates to the same thing,” said Representative Nicole Malliotakis, a New York Republican and member of the Ways and Means Committee. “It’s eliminating their tax burden.”
