After their humiliating loss on health care, Republicans in Congress could use a quick victory on a big issue. It won’t be an overhaul of the tax code. Overhauling the tax code could prove harder to accomplish than repealing and replacing Barack Obama’s health law. Congressional Republicans are divided on significant issues, especially a new tax on imports embraced by House Speaker Paul Ryan. And the White House is sending contradicting signals on the new tax, adding to the uncertainty.
House Republicans also can’t decide whether to move on from health care. Ryan canceled a scheduled vote on a House GOP plan after it became obvious that Republicans didn’t have the votes.
“This is a setback, no two ways about it,” Ryan said of the loss on health care. “I will not sugarcoat this, this is a disappointing day for us.”
Ryan said he will continue to work on the issue but one of his top lieutenants on health care, Rep. Kevin Brady, R-Texas, says he is now “100 per cent” focused on a tax overhaul. Ryan says Congress can work on both at the same time. It won’t be easy. Here’s why:
House and Senate Republicans largely agree on the broad outlines of a tax overhaul. They want to lower tax rates for individuals and corporations, and make up the lost revenue by scaling back tax breaks.
But they are sharply divided on a key tenet of the House Republican plan.
The new “border adjustment tax” would be applied to profits from goods and services consumed in the U.S., whether they are domestically produced or imported. Exports would be exempt.
House GOP leaders say the tax is key to lowering the top corporate income tax rate from 35 percent to 20 per cent.
But good luck finding a single Republican senator who will publicly support the tax. Sen. Rob Portman, R-Ohio, is the latest in a long line of Republican senators to come out against the tax.
Senate Finance Committee Chairman Orrin Hatch, R-Utah, says he wants to work with Democrats to overhaul the tax code.
“A bipartisan bill would allow us to put in place more lasting reforms and give the overall effort additional credibility,” Hatch said.
Majority Leader Mitch McConnell, R-Ky., has said it is bad policy to pass major legislation without bipartisan support.
“Without some meaningful buy-in, you guarantee a food fight,” McConnell wrote in his memoir last year. “You guarantee instability and strife.”
But in the House, Republicans haven’t reached out to Democrats in any meaningful way.
WHERE’S THE WHITE HOUSE?
“Obviously we’re driving the train on this,” White House press secretary Sean Spicer said.
But President Donald Trump’s administration has been all over the map on tax reform. Trump at one point said the House border tax is too complicated, then said it’s in the mix.
Treasury Secretary Steven Mnuchin told a Senate panel that “there would be no absolute tax cut for the upper class” in Trump’s tax plan.
However, the plan Trump unveiled during his presidential campaign would provide big tax breaks to high-income households.
Since taking office, Trump has promised “massive” tax cuts for the middle class.
A former Treasury official under President Barack Obama says the White House needs to stake out clear goals on tax overhaul to guide the debate in Congress.
“I think it’s important for the administration to signal early the general shape” of what they would like to accomplish so that there are fewer proposals vying for attention, said Michael Mundaca, a former assistant Treasury secretary now at Ernst & Young.
TAX CHANGE IS DIFFICULT
There is a reason it’s been 31 years since the last time Congress rewrote the tax code. Since then, the number of exemptions, deductions and credits has mushroomed. Taxpayers enjoyed USD 1.6 trillion in tax breaks in 2016 – more than the federal government collected in individual income taxes.
That huge number could provide plenty of tax breaks that lawmakers can scale back so they can lower tax rates significantly. There is just one problem – all of the biggest tax breaks are very popular and have powerful constituencies.
Nearly 34 million families claimed the mortgage interest deduction in 2016. That same year more than 43 million families took advantage of a deduction of state and local taxes.
The House Republicans’ tax plan would retain the mortgage deduction and eliminate the deduction for state and local taxes.
Both Trump and Republicans in Congress made big campaign promises to repeal and replace Obama’s health law, so the issue won’t go away.
However, several players say negotiations on a way forward are non-existent. In the meantime, Trump is stoking animosity among a key voting bloc by criticizing them on Twitter.
Two factions in the House GOP had members oppose the health plan: the hard right Freedom Caucus and the moderate Tuesday Group.
Ryan has suggested that they get together to sort out their differences, but it’s not happening, according to one key lawmaker.
“We are not currently negotiating with the Freedom Caucus. There was never a meeting scheduled with the Freedom Caucus. We will never meet with the Freedom Caucus,” said Rep. Chris Collins, R-N.Y., a member of the Tuesday Group.
Trump tweeted: “The Freedom Caucus will hurt the entire Republican agenda if they don’t get on the team, & fast. We must fight them, & Dems, in 2018!”
To quote a favorite saying of the president, Not nice.