How the Trump tax law passed: The lobbying frenzy

When David French was driving home from the Republican National Convention in Cleveland in July 2016, he took a phone call with members of his team at the National Retail Federation (NRF).

The topic: Whether to do an economic analysis of Speaker Paul Ryan’s (R-Wis.) tax blueprint, which contained a proposal, known as “border adjustment,” to tax imports and exempt exports.

{mosads}“We had concerns right away about the blueprint,” said French, senior vice president of government relations for NRF. “It was a radical transformation of the tax code, and it was a consumption tax.”

The NRF officials ultimately decided to push forward with commissioning the analysis, even though they thought at the time that Donald Trump wouldn’t be elected president and the Ryan blueprint would go nowhere.

So when Trump won the election, the retail sector was able to mobilize quickly against the proposal. The analysis, which found that the blueprint could be challenging for the retail community, wasn’t completed until after the election. But the retailers were ready for the battle.

“We laid the groundwork to push back,” French said.

This is part six of a seven-part series on how President Trump’s tax law passed Congress and how it is playing out in the battle for Congress in the 2018 midterm elections.

(Part One: Breaking the gridlock)

 

Opponents mobilize

Border adjustability wasn’t a brand-new concept in the tax world — it was floated as an option by a tax-reform panel advising President George W. Bush in 2005 — but it was one of the more unique ideas in Ryan’s blueprint. The idea’s newness made it a top item of scrutiny following the election.

At the time the blueprint was being drafted, lawmakers were concerned about an erosion of the U.S. corporate tax base. A border adjusted corporate tax would help prevent base erosion because goods would be subject to U.S. tax if they were consumed in the U.S., regardless of where they were produced.

But opponents of the proposal were concerned that the proposal would drive up prices on products and mobilized quickly to try to kill it.

In December 2016, dozens of industry groups sent lawmakers a letter raising concerns about the border tax. On Feb. 1, 2017, retailers formally launched a coalition against the proposal called Americans for Affordable Products (AAP).

AAP held a number of events and released materials and ads advocating the demise of the border tax, and the two leading retail groups — NRF and the Retail Industry Leaders Association (RILA) also each undertook their own initiatives to kill the proposal.

RILA alone held about 260 meetings with lawmakers, mostly on the House side, said Brian Dodge, senior executive vice president of public affairs for the group.

Ryan’s plan drew opposition from several right-leaning groups and prominent conservatives, including wealthy GOP donors Charles and David Koch.

Club for Growth President David McIntosh said his group had reached out to Koch-supported groups and others to learn more about the economic impacts of the border tax proposal.

“They had very startling facts that became the facts we used in an advertising campaign,” he said.

(Part Two: Dealing with a health care hangover)

Other prominent conservatives, however, decided to publicly hold their tongue.

Americans for Tax Reform President Grover Norquist said his initial thoughts about the border tax were that “it was a very bad idea and it might be something you have to swallow to pass the bill.”

FreedomWorks also largely stayed out of the public debate though they told lawmakers privately that they opposed it.

The border tax did have supporters, particularly from large exporters such as General Electric, Boeing and Pfizer. A group of exporters who supported Ryan’s proposal, called the American Made Coalition, formed shortly after the retailers’ coalition did. But the opponents were able to shape the debate.

“By the time we were up and running, the retailers had already been on the ground for quite a while,” said Brian Reardon, who was involved in the American Made Coalition.

“It was a big reform, it was a big change,” he added. “And it takes time for big changes to be embraced in the legislative process. Period. So, from the get-go it faced a really high hurdle.”

Border adjustment’s opponents ultimately won the lobbying battle over the proposal, with key lawmakers and administration officials officially setting the idea aside in July 2017.

 

‘Those three held the pen’

Lobbyists working on the tax bill faced different realities in the House and Senate, with the Senate holding giant briefings for K Street and the House locking down most details.

While negotiating the tax bill, staff in the House kept the details very close to the vest.

Lobbyists say that the chief architects of the larger House tax legislation were House Ways and Means Committee GOP Staff Director Dave Stewart, the committee’s chief tax counsel Barbara Angus and Ryan’s chief tax counsel George Callas.

“Those three held the pen,” a tax lobbyist stated.

 (Part Three: Obstacles quickly emerge)

House Republican aides warned members and their offices that tax documents would be watermarked. If the documents were forwarded to people on the outside — including K Street — they would be found out. During discussions about the tax bill, GOP staff would offer handouts and then carefully collect them when the meetings ended.

The Senate, meanwhile, was more openly involved with K Street.

At a high profile gathering in 2017, more than 100 lobbyists sat in rows of chairs and lined the walls of a large meeting room in the Capitol Visitor Center, a polished annex adjoined to the U.S. Capitol Building that opened 10 years ago.

Organized by senior Senate aides, it was one of multiple gatherings that brought together officials and lobbyists during the tax reform process.

Led by Brendan Dunn, who was chief aide to Senate Majority Leader Mitch McConnell (R-Ky.), and Jay Khosla, then a top Republican lawyer on the Senate Finance Committee, that meeting helped give lobbyists a window into how the bill was progressing.

But it also aimed to keep them in line.

“The message to industry and conservative groups was don’t fight any battle on any particular issue that loses the entire war,” said a lobbyist who had previously worked as a senior aide. It was, in essence, to “be a team player.”

Lobbyists at firms and within corporations and industry groups were asked to get letters of endorsement of the GOP effort from their chief executives, with Republicans on Capitol Hill convinced that buy-in would provide the necessary momentum for the bill.

A key meeting occurred the same day the House Ways and Means Committee marked up its version of tax reform. In attendance were senior aides from the House and Senate and plenty of lobbyists in the panel’s spacious hearing room.

“Everybody on the planet was there, to walk through the process and how this is going to unfold,” a Senate aide said, including a “couple hundred” people from K Street.

Following the setback for House Republican leadership following the failure of the border adjustment tax, lobbyists say that Capitol Hill began to take a different approach and solicit feedback.

The massive “cattle calls” as they’re known on K Street and Capitol Hill were an attempt at avoiding hundreds of other meetings from lobbyists wanting an explanation of the progress, the process or specific provisions.

 

The lives of tax staffers 

GOP lawmakers often worked long hours while crafting the tax bill — but their staffs may have worked even harder.

Aides had to draft the legislative language, find ways to address lawmakers’ concerns and work to figure out how to ensure that the law complied with budgetary rules. The work only escalated in the fall, once legislation started moving through Congress.

“Because we’d started off working on the blueprint, we’d been busy for a while and this had been building, but there’s still, no matter how many years of preparation had been done, it still gets intense when you’re right in the middle of the process,” said Angus.

(Part Four: Bipartisanship wasn’t an ingredient)

Ways and Means Republican staff spent many late nights in the Capitol and ordered a lot of pizza. Since they held a lot of meetings with lawmakers during the week, staff often held internal meetings on the weekends, Angus said.

“There were a couple of times where I had to get out of here in time to change my clothes before somebody caught me in yesterday’s clothes,” she said.

They also had a cabinet of “tax reform snacks,” Angus said.

“I did go out to the grocery store often to replenish them, none of them healthy,” she said. “Then occasionally one person on the staff would insist on getting some vegetables for the refrigerator.”

Mark Prater, Angus’s counterpart on the Senate Finance Committee during the tax-reform process, said that from Labor Day 2017 through the end of the tax process, he got an average of three-to-four hours of sleep.

“It was a very physical thing,” said Prater, who now works at PricewaterhouseCoopers.

Prater decided to maintain his five-day-a-week exercise routine while the tax bill was moving through Congress, even though it meant he got less sleep — a decision he called “really important” and improved his effectiveness.

“The clearest, most uninterrupted time to think was at the gym,” he said. “I could think about different things, and get creative, and think about how does this idea fit with this other idea, and what does this member want and what is this member opposed to.”

He also made it to all of his son’s soccer games.

“I didn’t miss any of them,” he said.

(Part Five: GOP adds sweeteners)

Prater described the Finance Committee’s room on the first floor of the Capitol as the “nerve center” of the tax operations in the final weeks of the process. Lawmakers would have meetings there and staff would work there to keep track of the ongoing developments and work on talking points.

Lawmakers praised the work of their aides, along with the staff at the Joint Committee on Taxation that provided revenue and distributional estimates of the various versions of the bill.

“As proud as I am of our members, we’re equally proud of our tax team,” Ways and Means Committee Chairman Kevin Brady (R-Texas) said.

 

Business groups balk

It was a Saturday evening, and the head of the homebuilders industry group was standing on the sidelines of his son’s football game when his phone rang.

On the other end of the line was Brady. He was calling to ask Jerry Howard, CEO of the National Association of Home Builders (NAHB), if he and the group would ease their criticism of the tax bill.

Howard recalls gingerly telling the head of the tax-writing committee in the House that he, unfortunately, would not be able to do that.

Earlier that day, Ryan had told Howard that the tax incentives he’d been working on with tax committee staff for years — and assured would be included — had now been stripped from the bill.

“Mr. Speaker, I thought we had a deal here,” Howard says he told Ryan.

Howard subsequently told The Wall Street Journal that NAHB was opposed to the bill. The story was quickly picked up by other media outlets, including The Hill.

“I talked to my leadership,” Howard recalled in a telephone conversation with The Hill this summer. “My orders were to oppose the bill as aggressively as we had supported it.”

Howard went to work getting support from Republicans and Democrats on the Ways and Means Committee. Ultimately, NAHB secured some of the language it wanted.

Howard said he doesn’t hold any ill feelings toward Brady.

“The amount of respect I have for Chairman Brady not only as a legislator, but as a man of his word and a man of integrity could not be higher. He is a tremendous asset to Congress,” he said.

NAHB backed the final bill that was signed into law.

In the minutes after House Republicans formally released their tax bill, a leading small-business group dropped a bomb. The National Federation of Independent Business (NFIB) said it couldn’t support the measure.

Ahead of the bill’s release, the NFIB had been hearing that the bill’s benefits would be skewed more toward large corporations than small businesses, which are often organized as pass-through businesses taxed through the individual code. This prompted discussion within the group about how they might want to respond.

When the bill emerged, it included a special tax rate for the income of the highest-earning pass-through businesses, but it didn’t include a special tax rate for low- and middle-income small-business owners. This wasn’t satisfactory for NFIB.

NFIB decided that it “was important to take a principled stand for small business,” said Brad Close, senior vice president of public policy and advocacy for the group. The group was an outlier among business groups in opposing the legislation.

“I think looking back on it, our willingness to take that stand was a turning point in how the tax bill came together. It’s not a position we took lightly,” Close said.

During the House Ways and Means Committee markup, the NFIB went back and forth with Brady and his office about ideas on how to address the group’s concerns.

“It was a very intense process but at the end of the day, the last day of markup, Chairman Brady put together an amendment that we were able to support and endorse,” Close said. “I think that helped get it out of committee. It certainly helped it pass on the House floor.”

Senate Republicans watched NFIB come out against the initial House bill and later unveiled legislation that took a different approach to providing a benefit to pass-throughs. Instead of special tax rates for income from pass-throughs, senators proposed a deduction.

NFIB favored the Senate’s approach, arguing that it was simpler.

“We thought it was a very simple, easy way to address the small-business side of the equation, so it made a lot of sense,” Close said.

The final bill ended up adopting the Senate’s provisions on pass-throughs, with some modifications. NFIB backed the final bill.

 

The push to get the bill done in 2017

Trump wanted the bill done in 2017 and wouldn’t relent.

Many Republicans in Congress were skeptical they could keep to that timetable. At a meeting in the spring of last year, press aides representing GOP leaders on Capitol Hill had a message for their counterparts in the Trump administration: Please tell your boss tax reform can’t happen in 2017 — it’s putting our members in a tough spot.

Senior Trump administration officials at times also had their doubts it could get done before the election year. But Trump kept pushing.

In November 2017, Trump publicly announced, “We’re going to give the American people a huge tax cut for Christmas — hopefully that will be a great, big, beautiful Christmas present.”

It was a tight timetable for everyone — lawmakers, aides and lobbyists. The Christmas goal didn’t sit well for everyone, but it kept Republicans focused on the end game.

To get a bill to the president’s desk by Christmas “everything had to go right … and everything went right,” said White House adviser Ivanka Trump.“Now we’re benefiting from hindsight bias, we all looked back at it and say, ‘Of course we thought this was going to happen.’ No, we didn’t,” said a Republican lobbyist and former leadership aide. “Very few people were telling their clients that it’s going to happen at this scale and scope until the summer of 2017.”

 

Sunday: The final stretch of tax reform

Members of The Hill’s staff who have worked on this tax reform series over the past several months are Alexander Bolton, Juliegrace Brufke, Timothy Cama, Jordain Carney, Bob Cusack, Niv Elis, Naomi Jagoda, Mike Lillis, Peter Sullivan, Megan R. Wilson and Melanie Zanona.