Republicans need President Donald Trump to get tax reform back on track.
Lawmakers widely agree on the need for a major tax-code cleanup, but they are tied in knots over how. The main proposal, by House Speaker Paul Ryan, has taken a beating from many of the party’s erstwhile allies in the business community, not to mention a growing number of Republicans.
But it’s unclear what the critics could support in its place, with lawmakers offering a host of competing proposals.
That’s creating a big void that Trump, now working on a new tax-reform plan of his own, can fill — by resuscitating Ryan’s so-called border adjustment plan or perhaps with an entirely new vision for the tax code.
“I’m waiting to see what’s coming out of the White House because, at the end of the day, the most powerful voice is going to be the president’s,” said Rep. Mike Kelly, a Republican member of the tax-writing Ways and Means Committee.
Republicans have yearned for presidential leadership after trying for years, unsuccessfully, to launch reform from Capitol Hill when President Obama was more interested in other issues.
“If you’re going to get tax reform done, the president has to lead,” said Rep. Jim Renacci, another Republican tax writer.
Trump is set to address Congress on Tuesday, where he’s expected to lay out his legislative agenda, and the administration says its tax plan will be ready within weeks.
The most immediate, and difficult, question facing Trump is whether to throw his weight behind Ryan’s border adjustment plan, which would essentially tax imports but not exports. It would be hugely embarrassing if his proposal were discarded at virtually the outset of lawmakers’ tax-reform debate.
But it faces considerable obstacles in the Senate, where the No. 2 Republican John Cornyn, Finance Chairman Orrin Hatch and other influential Republicans have major concerns with the proposal. Sen. Lindsey Graham has said the plan wouldn’t get 10 votes from his colleagues.
Trump’s own advisers have been deeply divided over the proposal.
The president raised eyebrows when he told Reuters the border adjustment plan could create “a lot more jobs,” while stopping short of outright endorsing the plan. His press secretary Sean Spicer subsequently told reporters the proposal “benefits our economy, it helps the American workers, it grows more jobs, it grows the manufacturing base.”
Ryan, who has been quietly lobbying the administration on the proposal, quickly trumpeted Trump’s remarks in a blast to reporters.
Advocates like Ryan warn the entire tax-reform effort will implode without the border adjustment plan, because lawmakers have no other obvious way to raise the $1 trillion it would generate to finance tax cuts, and certainly no alternative that won’t create its own enemies. They also want the president’s bully pulpit — including perhaps his Twitter account — to overcome organized opposition to the plan from retailers, apparel companies and other big importers.
Business leaders are likewise pulling Trump in both directions, with the heads of Dow Chemical, Caterpillar, Boeing and other border-adjustment supporters meeting with him this week. Their conversation with him followed Trump’s meeting last week with the heads of the Gap, Best Buy, Walgreens and other retailers pushing him to kill the proposal.
Treasury Secretary Steven Mnuchin said the administration is working behind the scenes with Republicans in both chambers to develop a consensus plan.
“We’re working very closely with Paul Ryan and we’re working very closely with Senate leadership and we’re going to have a combined plan,” he told Fox Business News. “When we go to pass this, we’re going to have a plan that we all agree with.”
Asked about the border adjustment proposal, Mnuchin said: “These are complicated issues,” pointing to the plan’s uncertain effects on the U.S. dollar.
“We are taking this all into account, and I can assure you when we come out with the plan, we will have very carefully thought through all of these issues.”
Speaking Friday at a conference for conservative activists, Trump said: “We are going to massively lower taxes on the middle class, reduce taxes on American business and make our tax code more simple and much more fair for everyone.”
But Trump has hardly been a consistent leader on taxes.
During his presidential campaign, he repeatedly rewrote his own tax-reform proposal, sometimes taking multiple positions on various tax issues — leaving Republicans in Congress to wonder what he’d be willing to really fight for.
What’s more, Trump is still working with a skeleton crew on the issue. Neither Mnuchin nor economic adviser Gary Cohn are considered tax experts, and many key tax positions at Treasury — including assistant secretary for tax policy and deputy assistant secretary for international tax affairs – remain unfilled.
That’s raised questions among tax watchers about how detailed his plan will be or how much it will differ from his previous proposals.
There are other challenges.
Though the border-adjustment issue has dominated the tax reform debate in Washington, it’s only the beginning of the controversy. The House plan is chockablock with contentious ideas, including dumping a century-old tax break for corporate borrowing and plans to expand the standard deduction – which the housing and charitable sectors fear will hurt their bottom lines by making the mortgage interest and charitable deductions less attractive.
Republicans are unlikely to get much support from Democrats, thanks to the GOP’s plans to slash taxes on the rich, which means they will have little room for error, particularly in the Senate.
And their bid to repeal Obamacare has gotten bogged down, eating up precious time and political capital, while other must-do items like raising the debt limit and reauthorizing a children’s health program loom. Meanwhile, other administration controversies threaten to push tax-reform aside even more.
Many assume Republicans’ fallback plan is to simply cut taxes, a far easier task politically than tax reform. Any overhaul will necessarily create winners and losers, while there are only winners when it comes to tax cuts. Both George W. Bush and Ronald Reagan muscled big tax cuts through Congress in their first year in office.
In an op-ed today, a former campaign adviser urged Trump to focus on simply cutting taxes.
“What’s needed is a net tax cut for business,” wrote Stephen Moore. “Lawmakers shouldn’t get bogged down on the issue of how to ‘pay for’ it.”
The difference this time is the debt is far higher, with the CBO predicting the government will be running trillion-dollar deficits for the foreseeable future beginning in six years.
That will not only raise the hackles of deficit hawks. If Republicans cut taxes without doing much to clean up the code, that will leave less revenue available for any future overhaul — which could force them to choose between their love of tax cuts and their desire for tax reform.