Republicans spike Trump tax bill over spending worries, Moody's cuts US rating

By David Morgan and Bo Erickson

WASHINGTON, May 16 (Reuters) - Hardline Republicans in the U.S. House of Representatives blocked President Donald Trump's sweeping tax bill on Friday over concerns it did not do enough to cut spending hours before Moody's stripped the federal government of its once top-tier credit rating.

Trump is pushing lawmakers in the Republican-controlled Congress to pass a bill extending the 2017 tax cuts that were his signature first-term legislative achievement, a move that nonpartisan analysts say will add trillions to the federal government's $36.2 trillion in debt.

Moody's, which was the last of the three major ratings agencies to rate U.S. AAA, warned that the nation's debt burden could reach 134% of gross domestic product by 2035, compared with 98% in 2024.

"Successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs," Moody's wrote, adding that they didn't see enough spending cuts "from current fiscal proposals under consideration."

The Republican-controlled House Budget Committee on Friday rejected the tax bill, which would also eliminate taxes on some tips and overtime income, boost defense spending and provide more funds for Trump's border crackdown. The committee's chairman, Representative Jodey Arrington of Texas, scheduled a rare Sunday night session to try again.

The federal government for years has spent more than it has taken in. Moody's said it expected the U.S.'s fiscal performance to deteriorate compared with other highly developed economies.

TRUMP BLASTS 'GRANDSTANDERS'

The Friday House Budget Committee vote rejecting the bill, represented a rare political defeat for the Republican president, who had urged Republicans on social media to "UNITE behind" the legislation, saying, "We don't need 'GRANDSTANDERS' in the Republican Party."

Five of 21 Republicans on the panel voted to block the measure, saying they would continue to withhold support unless Speaker Mike Johnson agreed to further cuts to the Medicaid healthcare program for lower-income Americans and the full repeal of green energy tax cuts implemented by Democrats.

Representative Ralph Norman, one of the hardline conservatives who voted against the bill, defended his decision.

"This isn't a grandstand," the South Carolina Republican told reporters. "We'll compromise somewhere, but just not giving the farm."

Republicans are divided between hardliners who view the package as their best chance to cut spending and more moderate Republicans from competitive districts, who have warned that deeper spending cuts to social safety net programs could jeopardize the 220-213 seat House Republican majority in the 2026 midterm elections.

Arrington told lawmakers at the hearing that the legislation would deliver on a promise to voters who elected Trump and gave the party full control of Congress last November.

"I am confident we will get to a good place this weekend and have the votes to pass it out of Committee Sunday evening," the Texas Republican said in a statement following the vote.

'WRITING CHECKS WE CANNOT CASH'

Republican Representatives Norman, Chip Roy, Andrew Clyde, Josh Brecheen and Lloyd Smucker joined all 16 Democrats on the committee in voting against the measure.

"We are writing checks we cannot cash and our children are going to pay the price. So, I am a 'no' on this bill unless serious reforms are made," Roy, of Texas, told the committee.

The lawmakers said they hoped to reach a deal with Johnson to amend the bill over the weekend.

Roy, Norman, Clyde and Brecheen are members of the ultraconservative House Freedom Caucus, which later said in a social media post: "We are not going anywhere and we will continue to work through the weekend."

Smucker said his "no" vote, changed from an initial "yes," was a parliamentary maneuver meant to ensure the measure can be taken up again once Johnson has brokered an agreement.

Congress' bipartisan Joint Tax Committee estimates the tax cuts would cost $3.72 trillion over a decade. In a May 16 letter, the nonpartisan Congressional Budget Office confirmed that the tax package would not exceed a $4.5 trillion ceiling imposed by the budget committee.

Trump has highlighted measures including lifting taxes on tips and overtime that Republicans say would boost working-class Americans, while critics say the bill will offer more benefits to the wealthy.

The sweeping bill would also eliminate a tax on silencers for firearms.

Democrats condemned the legislation as a vehicle for giving billionaires tax cuts, while citing a projection from nonpartisan congressional researchers that proposed spending cuts to Medicaid and federally subsidized private health insurance available through the Affordable Care Act could lead to 8.6 million Americans losing health coverage.

"No other previous bill, no other previous law, no other previous event caused so many millions of Americans to lose their healthcare. Not even the Great Depression," said Representative Brendan Boyle, the committee's top Democrat.

The proposed legislation would impose work requirements on Medicaid beginning in 2029. Hardliners want those to begin immediately and have called for a sharp reduction in federal contributions to Medicaid benefits available to working-class people through the Affordable Care Act - an option vehemently opposed by Republican moderates.