Healthcare debacle raises pressure for GOP on taxes

The GOP’s setback on healthcare is raising pressure on Republicans to deliver a win for their party and the White House on taxes ahead of the midterm elections.

ObamaCare repeal and tax reform were two of the GOP’s biggest priorities at the start of the year, and expectations for success were high given the party’s control of the House, Senate and White House.

{mosads}With the collapse of the Senate’s effort to pass healthcare legislation, the stakes are even higher for Republicans on tax reform.

Tax reform is “now increasingly important to the economy, and increasingly important to Republicans’ political prospects in the future,” Americans for Tax Reform President Grover Norquist said.

In fact, given the healthcare debacle, Norquist warns GOP lawmakers up for reelection that tax reform “better be spectacular.”

The GOP had promised that repealing and replacing ObamaCare would boost economic growth, showcasing the value of Republican rule. Now, the GOP needs tax reform to give an even bigger boost to the economy, Norquist said.

Key Republicans on Tuesday also stressed that they should continue to press ahead with tax reform that would increase economic growth.

“Important for Senate GOP to stay at table. #obamacare is collapsing. Regardless we are moving forward on bold #taxreform this year,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) tweeted Tuesday.

Brady is spearheading the tax reform effort in the House.

Senate Finance Committee Chairman Orrin Hatch (R-Utah) said he’s worried that the healthcare setback will eat into the time lawmakers have for tax reform. But he also said he’s going to push ahead.

“It’s always going to be difficult to do both,” Hatch said. “There’s nothing easy around here, and especially with the close numbers that we have.”

Some suggested that the latest healthcare disappointment could actually increase lawmakers’ resolve to get something done on taxes.

“I think probably it will make people even more determined to get tax reform,” Rep. Tom Cole (R-Okla.) said.

Dean Zerbe, a former Finance Committee aide who now works at Alliantgroup, said he could see a “more fervent effort” from Republicans on tax reform as a result of the healthcare challenges.

“People are going to be focused because they need a win on the board,” he said.

To some extent, comprehensive tax reform becomes more difficult if healthcare legislation isn’t exacted first.

Congressional Republicans had wanted to tackle healthcare first because they wanted to repeal ObamaCare’s taxes ahead of tax reform. If lawmakers want to repeal any of the ObamaCare taxes as part of a tax-code rewrite, they’ll likely need to find a way to pay for those tax cuts.

One ObamaCare tax that lawmakers will likely face pressure to repeal in tax reform is the 3.8 percent tax on net investment income. The tax, which applies to those with high incomes, is disliked by conservatives who want to keep capital gains taxes low, and the White House’s tax plan calls for repealing it.

In the healthcare debate, however, centrists had argued against repeal, arguing it was politically damaging and that the revenue from eliminating it could be used to shore up insurance markets.

“You already sort of had that hurdle going into this vote,” said Lisa Zarlenga, co-chair of the tax group at Steptoe & Johnson.

While tax reform may not be as divisive for Republicans as healthcare, the effort does face hurdles.

Republicans want to pass tax legislation through a process known as reconciliation so that the bill doesn’t need any support from Democrats. But to use reconciliation, Congress first has to agree on a budget resolution, and some conservative lawmakers have already expressed reservations about the measure the House Budget Committee released Tuesday.

Additionally, GOP lawmakers and the White House are divided on some of the elements of tax reform, such as whether a bill should be revenue-neutral or include a tax on imports.

Rohit Kumar, a former aide to Senate Majority Leader Mitch McConnell (R-Ky.) who now leads the tax policy practice at PwC, said that at the margins, if Congress isn’t able to pass healthcare legislation and also has trouble reaching a consensus on tax reform, lawmakers may be more willing to enact temporary tax cuts instead.

To voters in 2018, tax relief for 10 years “looks and feels pretty much the same” as permanent tax reform, Kumar said.

There are already signs that Republicans are trying to apply the lessons they learned on healthcare to tax reform. Unlike with the healthcare effort, administration officials and House and Senate Republicans are trying to reach consensus on a single tax reform framework before legislation is introduced.

Republicans also argue that tax reform is less difficult than healthcare.

Of the two issues, “tax reform was always going to be the easier,” Norquist said.