Tax Overhaul in Doubt as House GOP Stuck on Budget Disagreements

  • Republicans in dispute on spending levels, border-adjusted tax
  • Ryan had hoped to have budget in place before August recess

Kimmitt: Tax Reform This Year Possible, but Difficult

The House is set to leave for its August recess without having taken the first essential step to overhauling the U.S. tax code: agreeing on a 2018 budget resolution.

Disputes among House Republicans over spending levels and the controversial border-adjusted tax proposal are preventing Speaker Paul Ryan from winning enough support to schedule a floor vote on the budget that a House panel approved last week. With House members planning to leave Washington Friday for a five-week recess, the lack of a budget is raising doubts that a tax rewrite -- one of President Donald Trump’s top priorities -- can get done this year, or even before the 2018 elections.

Paul Ryan

Photographer: Andrew Harrer/Bloomberg

“Clearly, no budget, no tax reform,” said the House’s chief tax writer, Representative Kevin Brady, a Texas Republican.

While Ryan has abandoned his original dream of completing by August a tax overhaul that would slash individual and corporate rates, the speaker had until recently hoped to have an agreed-upon budget by now.

The budget is a key part of the process known as reconciliation, which Republicans want to use to enact a tax code revamp without Democratic support. The House and Senate previously approved a detail-free 2017 budget resolution that they intended to use to repeal the 2010 health-care law with only Republican votes.

Senate Republicans, who’ve been focused on that repeal effort for months, have said they’ll wait to see what the House does with the 2018 budget resolution.

Entitlement Cuts

“The budget resolution is absolutely critical for tax reform. I don’t think there’s a workaround,” said Jonathan Traub, a tax specialist at Deloitte Tax LLP and former staff director for Ways and Means Committee Republicans. “It sounds like there are pretty strong battle lines now.”

House conservative leaders have said they fear they’ll be forced to vote to advance the budget vehicle for tax changes without knowing tax-plan details, setting up a repeat of Congress’s troubled efforts on health care. They’ve called for deep tax cuts to be paid for by reductions in spending, rather than solely by raising new revenues through limits on deductions, exemptions and credits.

“What you hear from people who aren’t there yet on the budget is I’d like to see the tax bill,” said Representative Tom Cole, an Oklahoma Republican who’s a member of the Budget committee.

Representative Mark Meadows, chairman of a caucus of about three dozen conservatives, told reporters this month that his members need to see more than $200 billion in entitlement cuts required as part of any final tax bill.

Meanwhile, the moderate Tuesday Group has said $200 billion in cuts is too much.

"We’ve still got a long way to go," Budget Committee member Mario Diaz-Balart said this week.

Border Tax

Some GOP conservatives are also demanding that leaders use the budget to rule out the use of a border-adjusted tax. The border adjustment proposal, which is endorsed by Ryan and Brady, would replace the 35 percent corporate rate with a 20 percent levy on companies’ domestic sales and imported goods, while exempting their exports. It’s been under attack by retailers and other industries that rely on imported goods and criticized by White House officials and Senate Republicans.

During the House Budget committee vote last week, conservative Mark Sanford attempted to offer an amendment to the budget that would have blocked the eventual tax bill from including a border-adjusted tax. Committee Chairman Diane Black wouldn’t allow the committee to vote on the amendment.

Dave Brat, a Virginia Republican, told reporters Wednesday that he had two conditions to obtain his vote for the budget -- first, make clear the border-adjusted tax won’t be part of a tax bill, and second, suggest other ways to account for the $1 trillion or so in revenue the proposal has been estimated to raise over a decade.

If the budget doesn’t specify that the border-adjusted tax won’t be adopted, “then the gang of six should pull what they worked on, they should deep six it,” Meadows said to reporters Wednesday, referring to the White House officials and congressional leaders who meet weekly to discuss tax priorities.

Spending Bills

The budget technically sets the top-line amounts for 12 annual spending bills. Idaho Representative Mike Simpson said one way to jump-start its progress would be to pass those spending bills separately. That would at least take disputes over next year’s military and domestic spending off the negotiating table.

Steve Bell, a senior adviser at the Bipartisan Policy Center and former staff director for Senate Budget Committee’s Republicans, pegged the chance of Congress adopting a 2018 budget resolution this year at no more than 30 percent.

“Right now, it’s my impression that they don’t have the votes in the House, and they are far, far, far away from getting anywhere in the Senate,” Bell said of a fiscal 2018 budget resolution.

Ryan has insisted that a tax overhaul must happen in 2017 since 2018 midterm elections could complicate the task next year.

If Republicans can’t agree on a budget, tax overhaul efforts would be dead unless the Senate can get Democratic support. That’s unlikely if the legislation includes tax cuts for top earners.

September Vote

Mark Walker, chairman of the conservative Republican Study Committee, said that Ryan had told him he was confident the House budget could be ready for a full vote the first week of September. Meadows told reporters that his faction wasn’t part of any deal to bring up the budget in September. A House leadership aide was unaware of a plan to vote on the budget that week.

A statement about the progress of ongoing tax discussions between congressional leaders and White House officials is coming before week’s end, Brady said after a meeting of the so-called Big Six Wednesday. Areas of agreement among House, Senate and White House leaders could be highlighted in the statement, which would likely be more than the one page outline that the White House released in April, but shorter than draft legislation, according to a person familiar with the negotiations.

Those principles could be incorporated into the budget and help put tax legislation back on track for completion before the end of the year.

“I think it is possible to do tax reform this year,” Diaz-Balart said.

Grover Norquist of Americans for Tax Reform said Republican leaders need to break the impasse by deciding whether they want tax changes to be permanent or temporary -- as they’d have to be if they add to the long-term deficit. Even temporary cuts would help stimulate growth, he said.

“There is a growing consensus that this needs to be about economic growth. It doesn’t need to be a thing of beauty, it doesn’t need to solve all problems,” Norquist said. “This can get done.”

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