Moderate Republicans warn of trouble for tax reform

WASHINGTON (Reuters) - Twenty moderate Republicans in the U.S. House of Representatives warned on Friday that efforts to overhaul the federal tax code could be jeopardized by demands for including major spending cuts in a fiscal 2018 budget resolution.

In a June 30 letter to House Speaker Paul Ryan, lawmakers from the moderate Tuesday Group said that including hundreds of billions of dollars in cuts to mandatory programs could be "extremely problematic" for tax reform and asked for a budget delay until Senate Republicans finish their debate on healthcare legislation.

"We fear that if the House persists on pursuing this course, it could imperil tax reform," wrote the lawmakers, who were led by Representative Charlie Dent of Pennsylvania.

Republicans must pass a 2018 budget resolution to unlock a key legislative tool known as reconciliation, which the party needs to move a tax bill forward without support from Democrats.

But members of the conservative House Freedom Caucus say they will back a spending plan only if it cuts mandatory programs including Medicaid and food stamps, reductions that moderates oppose.

"House Republicans have made significant progress on budget decisions and these family discussions will continue amongst the conference," Ryan spokeswoman AshLee Strong said in a statement.

The Freedom Caucus and Tuesday Group each represents enough House Republicans to stymie legislation on its own.

Outside organizations including powerful business lobby groups are increasingly worried that the disagreement could lead to a political stand-off that prevents tax reform from occurring.

"No other reforms under consideration rise to the importance of pro-growth, comprehensive tax reform," the U.S. Chamber of Commerce, the Business Roundtable, the National Association of Manufacturers and the National Federation of Independent Business said in a joint letter to Republican and Democratic congressional leaders on Wednesday.

Republican moderates also worry that adding mandatory cuts to a reconciliation bill would create unpalatable legislation that reduces benefits for the poor while granting tax cuts to corporations and wealthy individuals, according to aides.

The House Budget Committee canceled plans to send a resolution for fiscal 2018 to the floor this week, after the chairmen of several other committees rejected efforts to wring $250 billion in mandatory spending from spending.

Freedom Caucus members want much larger cuts.

(Reporting by David Morgan)