Ryan's Affection for His Own Plan Leaves Tax Measure in Limbo

  • White House and Senate GOP resist his border adjustment plan
  • Speaker says he’s open to alternatives but hasn’t proposed any

Why Corporate Tax Reform Might Need a Plan B

Paul Ryan’s tenure as House speaker will be judged in part on whether he can deliver a Republican tax plan. But rather than spearhead the effort to reach consensus, Ryan is still clinging to his own widely rejected proposal.

The resulting impasse could relegate the House to the sidelines as the Trump administration and Republican senators try to come up with an alternative plan. The worst-case scenario for Republicans is that they never find one.

Blame Ryan’s wonky streak. Unlike most of his predecessors -- who don’t usually hatch their own proposals but rather sift through the options to find the one that can pass -- Ryan has been unusually invested in the details of major legislation. 

And on taxes, he still maintains that the rest of the party will come around to the merits of his idea, namely a border-adjustment concept Ryan has proposed to help pay for a steep cut to the corporate tax rate.

“At some level, these ideas are your children and you love them. It’s pretty hard to say, well, now you’re an orphan, sorry, bye,” said Doug Holtz-Eakin, president of the American Action Forum, who personally supports the border adjustment concept but recognizes the tough political sell.

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Influential Critics

Ryan so far is just about the only major fan of the Ryan plan. Treasury Secretary Steve Mnuchin has told some House Democrats that a border-adjusted tax is dead. Senate Majority Leader Mitch McConnell of Kentucky said the proposal’s chances in the Senate are “rather bleak.”

On Tuesday, Ryan joined top White House economic adviser Gary Cohn, Mnuchin, McConnell and other GOP leaders for the latest in a series of meetings to discuss a tax proposal. But those meetings have yet to produce a clear path forward.

Holtz-Eakin said that it’s possible other Republicans will eventually reach the same conclusions as Ryan about the wisdom of a border-adjusted tax, but that it might take too much time.

“And time is our enemy here,” he added.

Ryan’s plan would cut the corporate rate to 20 percent and adjust the code to tax imports but not exports. Praise for the proposal has mostly come from academic economists, while industries such as retail that rely on imported goods warn that the plan would be prohibitively disruptive and raise consumer prices.

‘Smart Way to Go’

The 47-year-old speaker from Wisconsin has said he’s open to other options, but he still thinks a border adjustment concept is the best.

“As an old tax writer I would say this, you have to weigh alternatives off one another,” Ryan said on May 18. “I obviously think border adjustment’s the smart way to go, I think it makes the tax code the most internationally competitive of any other version we are looking at.”

Ryan might have learned a lesson from the GOP’s recent Obamacare repeal plan. After the health-care bill was drafted in secret, Ryan said the main elements of his proposal weren’t open for discussion as Republicans sought to scrounge up enough GOP support to pass the measure. There were no public hearings, and the committees that addressed the bill declined to accept any amendments.

When this approach failed to win enough Republican votes, the House speaker relinquished control of the process. For more than a month, the “member-to-member discussions” Ryan vaguely referenced in public statements were run by conservatives in the House Freedom Caucus speaking directly with their GOP colleagues and White House officials, including Vice President Mike Pence. Eventually, the Trump administration helped scrape together enough votes to squeak it through.

The result was a cobbled-together bill that still hasn’t been sent to the Senate amid procedural concerns. Even worse for Republicans, the last-minute changes negotiated by conservatives and the White House were blasted by the Congressional Budget Office, which warned in a report released nearly three weeks after the vote that the provisions could leave less healthy people in certain states unable to purchase any health-care coverage.

To avoid these kinds of problems with the tax overhaul, Ryan promised to “get a bill together that’s unified,” with Republicans in the House, Senate and Trump administration on the same page. But Ryan is even more invested in his tax policy than he was in health care.

Balancing Priorities

Matthew Green, a politics professor at Catholic University who has studied House speakers, said the challenge for them is to balance their personal policy goals with the needs of their party. He said he couldn’t think of another modern speaker cast in the same “policy guy” mold, as Ryan likes to describe himself.

While other speakers had their own priorities -- Sam Rayburn focusing on tax allowances for oil depletion or Newt Gingrich working on protections for endangered species -- they were usually side issues, not the central items of an ambitious agenda, Green said.

But Green said Ryan knows how to count to 218, the number of votes needed to guarantee passage of a bill in the House, and he should know when to let go of his own proposal.

“Listen to the members of your party, don’t get too far out ahead of them, be willing to compromise your policy goals if you need to,” Green said, when asked about historical lessons that Ryan should take to heart. “Don’t insist on a particular outcome at the expense of what your members want.”

Estimates suggest a border-adjusted tax would raise about $1 trillion over the next decade, which is key to getting the rate cuts President Donald Trump promised in his campaign. Under Senate rules, the tax bill must be revenue-neutral if Republicans want to make the tax changes permanent, if it is to proceed using the budget reconciliation mechanism for fiscal year 2018 to avoid a filibuster by Democrats.

The border adjustment concept is part of the House GOP’s “Better Way” blueprint, with its roots in Ryan’s work as head of the tax-writing Ways and Mean committee, which he often describes as his dream job. Ryan says it was with great reluctance that he left that chairmanship to lead the House when his predecessor, John Boehner, stepped down amid Freedom Caucus pressure in 2015.

Next Steps

Ryan will eventually have to give up on a border-adjusted tax, said Matt Schlapp, chairman of the American Conservative Union, who has known Ryan since they were Senate staffers together two decades ago.

“I know the speaker well enough to know that he realizes that the BAT will not be in the tax bill, but he wants to make sure he takes every second to explain why he believes it needs to be,” Schlapp said, using an acronym for the border-adjusted tax.

Schlapp praised Ryan’s policy chops and his commitment to conservatism, but he said he worries about the legislative window closing for a bill as consequential as a tax overhaul.

“This is what’s hard -- this is about getting the policy right, but it’s also about understanding the politics,” Schlapp said. “Everybody who has great strengths is accompanied by things where you need to improve.”

This sentiment is echoed by Ryan’s own members, many of whom say they greatly respect the speaker but recognize how hard it is to get a fractured party behind any one bill.

‘Growth Phase’

Tom Reed, a New York Republican on the Ways and Means committee, said Ryan is “going through a growth phase” to be a more effective speaker.

“Sometimes when you just lead with policy,” Reed said, “the votes are difficult to attain.”

Jim Renacci, an Ohio Republican also on the Ways and Means Committee, applauded the public hearings already held on taxes as a vast improvement over the rushed discussion on Ryan’s bill to repeal and replace Obamacare.

“The best leaders are those that allow the process to occur, allow regular order to occur,” Renacci said in an interview. “I’m hoping that we learned our lessons on health care.”

Yet Renacci, a certified public accountant and former businessman, said he doesn’t see a way forward for a border-adjusted tax. He said the plan would only get “seven or eight” votes in the Senate and face considerable opposition in the House.

“When you see that there were several Republican members that were not BAT-friendly, I think that tells a story in itself,” Renacci said of last month’s committee hearing. “The only way to move the ball forward is to make sure we have 218 votes in the House with something that will pass.”

Shift in Tone

Ryan has shifted his tone in recent weeks to say that “full, immediate border adjustment would be too disruptive,” but he said he still isn’t giving up on the plan altogether. Supporters have said the tax would strengthen the dollar against other currencies, evening out the effect on the price of imported goods over time.

Ryan says Republicans are discussing phase-in options, and weighing his plan against other ways to pay for tax cuts to get them through Congress without any votes from Democrats.

House Ways and Means chairman Kevin Brady has said he’s working on changes to the border adjustment concept to ease the impact on industries that would be most affected.

Gary Cohn, the head of Trump’s economic council, said last week the White House won’t send its detailed tax plan to Congress until September.

Ryan and other Republicans frequently say they agree on 80 percent of the tax overhaul, but the remaining 20 percent -- how to pay for a balanced plan -- will be the toughest part. To resolve it will require consensus and difficult compromises.

“It is unlikely that you’d ever get everything you want in tax reform” Holtz-Eakin said of Ryan’s proposal. “Whatever his heart is saying, his head knows that.”

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