Obstacles mount for tax reform

President Trump and congressional Republicans will have to overcome mounting obstacles if they want to enact tax reform legislation this year.

The fight over legislation to repeal and replace ObamaCare has the potential to slow down the agenda, and there are serious disagreements among Republican lawmakers about what the tax-reform legislation should look like. 

Leaders of the tax reform effort have set an ambitious timeline. Treasury Secretary Steven Mnuchin said on Fox Business this month that his goal is to have legislation signed by August. 

But that timeline may slip. Senate Majority Leader Mitch McConnell (R-Ky.) on Thursday said that he thought finishing the bill would take longer than that. 

At an event hosted by Politico, McConnell said that tax reform is a “very complicated subject” and said it was easier to do the last time Congress overhauled the tax code in 1986. 

{mosads}Back then, Republicans and Democrats were both committed to tax reform, and lawmakers agreed that the legislation would not add to the deficit. Now, tax reform will need to be a Republican-only endeavor, he said. 

McConnell noted that Congress would have to finish ObamaCare repeal legislation before it turns its attention to tax reform. This is because congressional Republicans want to pass legislation on both topics using budget reconciliation — allowing the bills to clear the Senate with only a simple majority — and the fiscal 2017 budget contains instructions for healthcare legislation. 

“We do have to finish the healthcare debate — up or down, win or lose — before we go to taxes,” McConnell said. 

House Republicans introduced legislation to repeal and replace ObamaCare on Monday, and the bills cleared two House committees on Thursday. But the legislation has drawn criticism from both centrist and conservative Republicans, making its fate uncertain.

Congressional GOP leaders remain confident that the legislation will pass. They are aiming to get a bill on Trump’s desk by the mid-April recess. But any delays could also push back Republicans’ other priorities. 

“We can’t do tax reform until we finish healthcare, so that’s why it’s important we finish healthcare … by the end of this month really,” said Senate Majority Whip John Cornyn (R-Texas). 

Senate Finance Committee Chairman Orrin Hatch (R-Utah) told reporters Thursday that he hopes tax reform can be completed by August, but also said that the healthcare debate could slow things down. 

“It sure could, because it’s a very complex debate, but tax reform is complex too,” Hatch said. 

However, House Ways and Means Committee Chairman Kevin Brady (R-Texas) on Thursday said that the ObamaCare repeal debate shouldn’t affect the timeline for tax reform.

“I can tell you from the Ways and Means perspective, we’re staying right on the same track,” said Brady, whose committee has jurisdiction over both health and tax issues.

He added that he expects his committee to act on tax-reform legislation this spring “so it can be ready to move this summer.” 

Aside from wrapping up work on healthcare, lawmakers will also have to find agreement on the parameters and details of the tax-reform legislation. 

The Ways and Means Committee is working to create legislation based on a blueprint House Republicans released in June. But a key provision in that plan, known as border adjustment, has drawn concerns from some GOP lawmakers, businesses and conservative groups. 

The border-adjustment proposal would include imports in the U.S. tax base and exempt exports. 

House GOP leaders and top Republicans on the Ways and Means Committee argue that the provision is beneficial because it would remove incentives for companies to move jobs overseas.

But a growing number of GOP senators have expressed concerns about the proposal. Sen. Jeff Flake (R-Ariz.) said on the Senate floor this week that he was worried it would result in the middle class being a loser in tax reform.

The border-adjustment proposal has been estimated to raise more than $1 trillion that could be used to help pay for lowering tax rates. If it were dropped form the plan, lawmakers would need to make other tax and spending changes so that the legislation doesn’t increase the deficit.

Hatch has said the Senate is unlikely to just pass a House bill and instead is likely to undertake its own tax-reform process.

Flake told reporters that there are “other ways you could broaden the base,” but didn’t provide any specifics.

Cornyn said “there’s a number of different ideas” about alternatives to the border-adjustment tax. He said he would support spending cuts, though enacting those can be challenging, and that lawmakers might also look at making smaller cuts to tax rates.

Meanwhile, there is disagreement among Republicans over whether tax reform even needs to be revenue neutral.

“I think we should go for a tax cut,” Sen. Rand Paul (R-Ky.) said Wednesday. “I don’t think it needs to be revenue-neutral necessarily.”

The difficulty for GOP leaders is that, in order to be able to pass tax reform legislation under reconciliation, it can’t increase the deficit outside of the 10-year budget window. And using reconciliation is key to avoiding a Democratic filibuster in the Senate.

Gary Cohn, director of the White House National Economic Council, told CNBC Friday that, “we’re going to have to be deficit-neutral over a 10-year period.” 

“We are working on a bunch of really interesting ideas to reform the tax system in the United States,“ Cohn added.

Opposition to the border adjustability proposal isn’t just coming from lawmakers, with industry groups, particularly for the retail industry, lobbying heavily against it.

But Speaker Paul Ryan (R-Wis.) told reporters last month that tax reform shouldn’t be counted out, even when things look tough.

“It’s going to be up, it’s going to be down, it’s going to be on, it’s going to be off,” he said. “You’re going to report 150 stories on tax reform’s fate between now and when we get tax reform done.”