Brady girds for next fight: tax reform
House leader says he’s learned from health care fiasco
WASHINGTON — Few lawmakers on Capitol Hill have a bigger stake in rebounding from the GOP’s failed health care reform plan than Texas Republican Kevin Brady.
Outside of President Donald Trump and House Speaker Paul Ryan, the House Ways and Means chairman from The Woodlands has become the face of the stalled Republican effort to “repeal and replace” Obamacare.
Brady, for his part, said he is “turning the page” to an even more ambitious project: a soup-to-nuts overhaul of the U.S. tax system, a reform project that happens, at best, once in a generation.
Republicans, still looking for the first big-ticket legislative win of the Trump administration, are eager to roll out a plan this spring. As they head out on a two-week Easter recess, however, they face deep internal divisions over the centerpiece of Brady’s plan, a so-called border adjustment tax designed to penalize imports and help exports.
The divisions extend in no small way to Texas, a border state that includes the import-export hub of Houston. Adding to Brady’s burden: The failure of the GOP health care bill means the loss of a potential $1 trillion in savings that could have helped him cut taxes without busting the bank.
“None of this is easy,” Brady acknowledged. “A big challenge just got a little bit bigger. But it’s not insurmountable.”
Looking on the bright side, Brady said he has learned a few lessons from the health care debacle: Let everyone weigh in, and don’t rush things.
“We’re setting no deadlines,” he said Thursday as lawmakers prepared to leave town.
A relaxed pace may be welcome in Congress. Although Republicans largely agree on tax cuts, the Obamacare battle exposed deep rifts in their caucus and festering doubts about Trump’s legislative strategy.
Though tax reform is supposed to be the administration’s next big legislative push, Trump did not bring it up Tuesday in a White House town hall with American corporate leaders to discuss the U.S. business climate.
“The contours of it, the details of it, are very much up for debate,” Texas U.S. Sen. Ted Cruz told a recent Federalist Society gathering. “There are disagreements within the House, within the Senate, between the House and the Senate, and with the administration.
“Other than that,” he continued, half in jest, “everyone’s on the same page.”
The political realities confronting Brady’s tax reform agenda also have splashed cold water on the stock market, which has sputtered in recent weeks.
“As a result of the health care debate, we think the odds of tax reform have slipped and at this point are no better than 50/50,” KBW analyst Brian Gardner told investors on Thursday.
For the 61-year-old Brady, those may not seem like great odds. Still, whatever the pitfalls of Obamacare repeal and tax reform, Brady is seen as a resilient conservative back home, even if some see a moderate streak.
Mindful of the ideological fractures in GOP ranks, Brady and other GOP leaders now are reaching out to Democrats, who were frozen out of the Obamacare discussions.
“What’s clear is nobody is satisfied with the current tax code,” Brady said. “We’re going to engage them on their terms going forward to see if we can find some common ground.”
Among those Brady met with last week was San Antonio Democrat Lloyd Doggett, the ranking Democrat on a House subcommittee on taxes. Doggett said he’s all ears, though his idea of reform centers more on tax relief for the middle class and making sure that wealthy business owners and corporations pay at the same effective rates as their workers.
Doggett, like most Democrats in Congress, is skeptical of Brady’s border tax, which would result in a 20 percent hit on imported consumer goods, from clothing and food to medicine and gasoline.
“That’s a real nonstarter,” Doggett said. “It would really hurt the Texas economy.”
Houston Democrat Gene Green said it would hit particularly hard in South Texas, which depends heavily on cross-border commerce, as well as the petrochemical plants in his district. “Are we going to tax the oil coming over that we send as a refined product back to Mexico?” he said.
The Democrats’ objections are significant because without bipartisan support, a long-term rewrite of the magnitude Brady and Ryan envision would be hard to get past the Senate. They hold 52 seats, eight short of the 60 needed to overcome a Democratic filibuster. Senate rules also require 60 votes for any tax reform proposal that increases the federal deficit after 10 years. That normally dictates tax increases or spending cuts. GOP orthodoxy holds that tax cuts pay for themselves, jump-starting the economy and creating jobs that engender new taxpayers and revenues to pay for lower tax rates. Democrats call that a fantasy.
Either way, the Senate’s accounting rules still could box Brady in as he aims for a sweeping long-term overhaul that cuts rates, flattens tax brackets and eliminates most deductions other than those for mortgage interest and charitable giving.
Among the lost deductions would be the state and local sales deduction, worth about $1 billion a year to Texas taxpayers. Brady said that would be more than offset by lower federal rates.
Brady’s challenge, however, does not end with the Democrats. The border tax that is supposed to make up for much of his tax
“There are disagreements within the House, within the Senate, between the House and the Senate, and with the administration. Other than that, everyone’s on the same page.” U.S. Sen. Ted Cruz, on tax reform
cutting has come under withering fire in his own party, particularly from the ultraconservative Freedom Caucus members who helped stymie the GOP’s Obamacare repeal legislation.
Some have argued that Brady’s plan essentially pays for tax cuts in some economic sectors while boosting taxes in others, raising taxes overall. They base that on a new study issued by Freedom Partners and Americans for Prosperity, two conservative groups that oppose the border tax.
Brady shot down the “so-called study” Thursday, saying it did not take into account the broad business and family tax relief his plan would provide.
Part of Brady’s plan relies on the effect of pushing up the value of the dollar to offset the higher costs of imports. Critics say that would hurt U.S. exports.
His ace in the hole is the fact that most U.S. trading partners boost exports by exempting them from their own domestic valueadded or consumption taxes. To Brady, the border tax would level the playing field.
Republicans’ traditional allies in the business community also are split.
“We want tax reform as much as anyone,” said George Kelemen, president and CEO of the Texas Retailers Association, which includes retail giants Target and Wal-Mart. “But there’s got to be a way of finding a balance without overly burdening one sector of the economy.”
If the border tax proves too hard a sell, Brady said there is no Plan B.
Brady also faces friendly fire from Texas Republican Rep. Roger Williams, who reintroduced his own tax reform package on Thursday calling for deep individual and business tax cuts. While Brady’s border tax would raise some $1.2 trillion over 10 years to offset corporate and personal tax cuts, Williams leaves the budget-balancing to an array of unspecified spending cuts.
“The government needs to make government smaller, that’s the ‘pay-for,’ as opposed to continuing to take taxes or raise taxes,” he said last week on CNBC’s “Squawk Box.”
For Brady, another lesson from the stalled Obamacare effort is that “the sooner President Trump and House and Senate Republicans unify behind a tax plan and an approach, the better.”
After talks with top administration officials, Brady said he sees little daylight between their goals. “The Trump tax plan and the House Republican plan started at 80 percent the same, and I think it’s grown to 90 percent or better,” he said.
Trump’s position on the border tax remains a moving target, however, even if it seems to line up with his campaign’s protectionist trade rhetoric. He initially dismissed it as “too complicated,” then floated it as a way to pay for a wall on the Mexican border.
White House spokesman Sean Spicer said the administration is “driving the train” on tax reform, though Trump largely has been silent on the details.