Ryan tries to save tax plan

Speaker Paul Ryan (R-Wis.) met with Republican senators Tuesday afternoon to quell growing opposition to a core element of the House GOP tax plan, a 20 percent across-the-board tax on imports, also known as border adjustment.

Ryan beseeched the senators to “keep your powder dry” while House tax writers hammer out the details of their plan and prepare to move it to a vote later this year, according to a GOP source ­familiar with the meeting. 

Senate Republicans say political momentum has begun to shift against the House’s border adjustment tax in recent days.

Walking into the meeting with the Speaker, Sen. Tim Scott (R-S.C.) said of the border tax proposal: It’s “going to be very difficult to get it through the Senate.”

“I think it’s tough,” said Scott, a member of the Senate Finance Committee, which has jurisdiction over tax issues. “The longer it takes to explain, the harder it is to implement.”

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He added that a “20 percent negative impact when [products come into the country] means those who bear the burden the most are the consumers in the country.”

The dispute over the tax plan comes at a time when GOP leaders already face serious internal struggles over ObamaCare repeal. If tax reform stalls, the two biggest items on the legislative agenda could be in doubt less than a month into President Trump’s term.

Companies opposed to the border tax say it would make their products more expensive and have mounted a lobbying campaign against it in recent weeks. The CEOs of several major retailers that oppose the proposal will be meeting with lawmakers Wednesday on Capitol Hill. 

Sen. David Perdue (R-Ga.), the former CEO of Reebok and Dollar General, is spearheading the effort in the Senate to kill the import tax.

He circulated a Dear Colleague letter last week stating that taxing imports “is regressive, hammers consumers and shuts down economic growth.”

Skeptical Senate Republicans have become more outspoken in voicing their reservations about the House’s plan. And some Republicans in the upper chamber grumble that the House has raced out ahead on tax reform without enough input from the Senate.

“It always concerns senators when they hear the House is going to send something over to us without thinking through what can get passed,” said a Senate GOP aide.

Senate Republicans say that Ryan needed to step in to save the House plan before opinion in their chamber turned decisively against it.

Ryan on Tuesday argued that keeping the border adjustment tax would be helpful to getting tax reform passed through both chambers, because it would raise $1.2 trillion in revenue and allow the overall plan to be scored as deficit-neutral, according to two lawmakers who attended the meeting.

By not adding to the deficit, Ryan argued, the reform package would be more likely to attract the support of fiscal conservatives in both chambers.

He said that moving a fiscally responsible tax reform package would likely be more important to passing it in the Senate, where Senate Majority Leader Mitch McConnell (R-Ky.) can only afford to lose two Republican votes.

“He said the Senate is more the problem because we’ve got to get 50 out of 52 votes. He was saying, ‘You guys have to figure this out, because we can pass something in the House but you’re going to have a harder time in the Senate,’ ” said one lawmaker.

Senate Republicans plan to pass tax reform with a simple majority vote under a special budgetary process known as reconciliation, which shields legislation from filibusters. But legislation is not eligible for protection under reconciliation if it increases deficits outside the 10-year budget window, as stated under the Senate’s Byrd Rule, named after the late Sen. Robert Byrd (D-W.Va.).

It’s essential that tax reform meets the budget rules, because few if any Democrats are likely to support it.

Ryan said that House Republicans’ plan would use dynamic scoring to assess the budgetary impact of tax reform, a process that takes into account greater economic activity spurred by lower tax rates.

While that scoring method will predict a smaller impact on the deficit than the traditional static scoring model — which does not take into account the stimulating effect of tax cuts — Ryan warned that it would not be enough to keep the legislation deficit-neutral.

“There could be $200 billion to $1 trillion in additional revenue from behavioral changes,” said one GOP source.

Dynamic scoring anticipates that tax cuts will encourage people to work more because they will get to keep more of their income. Under this model, the deficit impact of slashing tax rates would not be as severe as projected under a static model that assumes unchanging behavior.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) is counting on revenue from the border tax to cover the rest of the cost of cutting income and corporate tax rates.

Sen. Rob Portman (R-Ohio), who has worked with Senate Democratic Leader Charles Schumer (N.Y.) on tax reform, praised Ryan’s presentation as persuasive.

He said, “Tax reform could bring so much money into the economy.”

“Paul’s presentation was very effective. He has a unique ability to combine the details with the big picture,” Portman, a member of the Finance panel, added.

AshLee Strong, Ryan’s spokeswoman, said it was a “productive conversation.”

“Speaker Ryan was happy to update Senate Republicans on our progress on ObamaCare repeal and replace, and tax reform,” she said. “We look forward to continuing to work closely with our colleagues across the dome.”

But the GOP conference remains divided over the House tax plan.

Another member of the Senate’s tax-writing committee, Sen. John Cornyn (R-Texas), the second-ranking member of the GOP leadership, said after meeting with Ryan that he still has concerns.

“He’s certainly an effective advocate, but I can’t tell you whether any minds have been changed,” he said. “I’m still a question mark. I talked to a group of people from Texas today, from San Antonio, and I said the two things that concern me the most about the Texas economy are the negotiation of [the North American Free Trade Agreement] and the border adjustment tax.”

Sen. Jim Risch (R-Idaho) said after the meeting, “I’ve got a ways to go before I decide what I’m going to do,” adding, “There are good people on both sides of this issue.”

Sen. John Thune (S.D.), the third-ranking member of Senate GOP leadership, told reporters that he’s “keeping an open mind.”

He said he has reservations because he wonders whether the U.S. dollar is going to strengthen enough to offset the added cost to consumers of taxing imports.

He said Ryan, with whom he’s served in the House, has been twisting his arm in recent weeks.

“He’s been trying,” he said.

But Perdue and a new coalition of businesses opposed to the border tax, Americans for Affordable Products, which includes more than 100 companies, are working the other side just as hard.

“I’m talking with everybody that will listen to me about the border adjustment tax because I think it’s a bad idea,” Perdue said.

CEOs from several major retailers in the coalition allied with Perdue are meeting with lawmakers Wednesday, including Target, Best Buy, Gap and JC Penney. 

Naomi Jagoda contributed.