By Richard Rubin
Bruised and beaten by an intraparty fight over health care,
Republicans are heading for what they see as safer political
ground: A major tax bill. But they might be heading right into
another minefield.
In theory, rewriting the tax code could be easier than revamping
the whole health-care industry. Republicans pride themselves on
ideological unity in favor of lower tax rates. And the stakes
appear lower for Americans -- paperwork and money are far different
than matters of life and death.
"Tax reform is less visceral," said Rep. David Schweikert (R.,
Ariz.) "I can pull up a calculator and say 'it's this or
this'...it's hard legislating to anecdotes and stories."
Treasury Secretary Steven Mnuchin said Friday that a tax bill
would be "a lot simpler" than a health-care overhaul. "There is
very, very strong support."
But scratch deeper, and the GOP quest for a full overhaul of the
tax code is fraught with squabbles, procedural hurdles and
difficult trade-offs. The party's failure on health care -- after
having seven years to prepare -- shows how hard it is for
Republicans to write complex legislation that attracts support from
their moderate and conservative wings.
"It's just a reminder of how incredibly hard transformational
legislation is," said John Gimigliano, a former GOP congressional
tax aide now at KPMG LLP.
To succeed, Republicans need to bridge at least three big
gaps.
First, they need to balance competing desires to cut tax rates
sharply and to slow the rise of national debt. Republican leaders
in Congress say they want a revenue-neutral plan -- one that brings
in about as much money as today's tax system. Faster economic
growth might help, but it doesn't fully bridge the divide. To
accomplish revenue neutrality while sharply lowering rates, they
will attempt to whack popular tax breaks, such as business
deductions of interest on debt and individual state and local tax
deductions. They will meet resistance from groups that want to
protect those breaks.
Second, they have to reconcile alternate visions of what they
are setting out to accomplish and who will benefit. Mr. Trump has
said his priority is middle-class tax cuts for individuals. "Not
the top 1%," said Mr. Mnuchin. House Speaker Paul Ryan (R., Wis.)
and Ways and Means Chairman Kevin Brady (R., Texas) want an
overhaul primarily focused on promoting economic growth, even if
that means tax cuts that favor the very top of the income scale.
The plans they all campaigned on are tilted to the top, according
to independent analyses.
Third, the party is at odds over the Ryan-Brady plan for border
adjustment -- taxing imports and exempting exports. The Trump
administration has been ambivalent and sometimes critical of the
idea. Senate Republicans are outright cold to it. Messrs. Ryan and
Brady say it's crucial because it provides about $1 trillion to
offset corporate-tax-rate cuts and it discourages companies from
shifting profits abroad.
None of those divisions inside the GOP have been resolved yet,
and dozens more are lurking, including debates over tax breaks for
renewable energy, credits that aid low-income households, and the
treatment of carried interest income for private-equity
managers.
"The notion that tax is easier than health is not borne out by
the facts, " said a Senate GOP aide. "Having discussed health care
for seven years, Republicans were 75% in agreement on the policy.
On tax, none of the foundational questions have been answered."
The big-picture tax debate -- higher taxes vs. lower -- breaks
down along party lines, but little issues can quickly turn
parochial. For example, Republicans from high tax states such as
New York and New Jersey may be less willing to kill the state and
local tax deduction than their counterparts from Texas and Florida,
which lack income taxes.
"A million details come out of the woodwork that you never
thought of," Mr. Gimigliano said.
Procedural challenges also loom. Democrats are unlikely to go
along with deep tax cuts, so Republicans are likely to use rules
that allow a party-line vote in the Senate. That means they can't
increase deficits outside of the budget window, typically 10
years.
That constraint is why the 2001 and 2003 tax cuts under
President George W. Bush were set to expire at the end of 2010.
Eventually, many of the tax cuts were extended permanently, but not
all of them. Democrats restored the estate tax and raised the
Bush-era rates on high-income households.
A repeat of temporary cuts is possible, but potentially
counterproductive, particularly if Republicans want to achieve a
corporate-tax overhaul. Business owners want permanent policy so
they can plan for the long-run. Without permanence, an overhaul
might damp the boost to spending and investment that Republicans
want.
Mr. Mnuchin said the administration will soon release its plan.
Mr. Brady is aiming to push a bill out of his panel by the end of
the spring.
So far, said Rep. Kenny Marchant (R., Texas), Ways and Means
members have been reviewing concepts. He said he doesn't expect
text of a tax bill for weeks and said he learned from the
health-care bill's collapse about the dangers of an accelerated
legislative process.
"Deadlines," he said, "are not helpful."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
March 26, 2017 08:53 ET (12:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.