Push for tax cuts runs into old prob­lem: A di­vided GOP

Trump and Repub­li­cans agree on the goal but not how to pay for it

The Washington Post - - FRONT PAGE - BY DAMIAN PALETTA, SEAN SUL­LI­VAN AND KELSEY SNELL

White House of­fi­cials try­ing to jump-start work on the GOP’s top fall pri­or­ity — tax cuts — are com­ing up against the same ob­sta­cle that has vexed Pres­i­dent Trump all year: di­vided Repub­li­can law­mak­ers.

Trump ad­vis­ers and top con­gres­sional lead­ers, hop­ing to as­suage con­ser­va­tives hun­gry for de­tails, are work­ing ur­gently to as­sem­ble a frame­work that they hope to re­lease next week, ac­cord- ing to White House aides and law­mak­ers. But af­ter months of ne­go­ti­a­tions, the thorni­est dis­agree­ment re­mains in view: how to pay for the gi­ant tax cuts Trump has promised.

Ne­go­tia­tors agree with the goal of slash­ing the cor­po­rate in­come tax rate and also cut­ting in­di­vid­ual in­come taxes. But they have yet to agree about which tax breaks should be cut to pay for it all.

In pri­vate talks, Trump ad­vis­ers are press­ing to elim­i­nate or re­duce sev­eral pop­u­lar tax de­duc­tions, in­clud­ing the in­ter­est com­pa­nies

pay on debt, state and lo­cal in­come taxes paid by fam­i­lies and in­di­vid­u­als, and the hugely pop­u­lar mort­gage in­ter­est de­duc­tion.

Sev­eral of­fi­cials from the White House and Capi­tol Hill con­firmed that those op­tions are be­ing con­sid­ered — and that they are push­ing to re­lease broad out­lines in about a week.

But that is where the agree­ment ends. Con­gres­sional lead­ers, for in­stance, be­lieve the mort­gage de­duc­tion is too pop­u­lar to cut, ac­cord­ing to sev­eral of­fi­cials fa­mil­iar with the dis­cus­sions.

All of it has forced ne­go­tia­tors to con­sider scal­ing back their vi­sion. And that is be­fore any plan has even been pre­sented to the rank and file.

“It is al­ways dif­fi­cult, be­cause it means what do you cut?” said Se­nate Fi­nance Com­mit­tee Chair­man Or­rin G. Hatch (R-Utah). “Ev­ery­thing on the books has a con­stituency, and that’s one of the prob­lems.”

White House of­fi­cials are still hope­ful that they can lower the cen­ter­piece of their ef­fort, the cor­po­rate rate, from 35 per­cent to 15 per­cent. Many con­gres­sional Repub­li­cans, how­ever, think that goal is am­bi­tious.

House Speaker Paul D. Ryan (R-Wis.) said at a fo­rum hosted by the New York Times last week that in­di­vid­ual de­duc­tions for mort­gage in­ter­est, health in­sur­ance pre­mi­ums and char­i­ta­ble do­na­tions should all be pre­served. “We see those more as broad-based, im­por­tant things that should be en­cour­aged,” he said.

That leaves ne­go­tia­tors with lim­ited op­tions to pay for the tax cuts they all seek.

Un­der­ly­ing the whole en­deavor is the un­re­solved ten­sion over whether it will con­sti­tute the sort of “tax re­form” that Ryan has cham­pi­oned for years — an ef­fort to re­duce rates while main­tain­ing fed­eral rev­enue by elim­i­nat­ing “loop­holes.” A straight tax cut, mean­while, could leave the loop­holes in­tact but add tril­lions of dol­lars to the na­tional debt.

The process has taken on new ur­gency with Trump’s re­cent ex­hor­ta­tions to ex­pe­dite what he has called the largest tax cut in U.S. his­tory. He has trav­eled to Mis­souri and North Dakota in re­cent weeks to de­liver speeches; in Mis­souri, he promised to re­duce a “crush­ing tax bur­den on our com­pa­nies and on our work­ers.”

Marc Short, the White House leg­isla­tive af­fairs di­rec­tor, said ad­min­is­tra­tion of­fi­cials have met with “more than 250 mem­bers,” in­clud­ing Democrats, to dis­cuss tax re­form. “Our out­reach has been ex­ten­sive,” he said.

Na­tional Eco­nomic Coun­cil Di­rec­tor Gary Cohn and Trea­sury Sec­re­tary Steven Mnuchin hud­dled with key GOP law­mak­ers on Capi­tol Hill on Tues­day af­ter­noon to dis­cuss next steps on the bud­get and taxes, ac­cord­ing to Repub­li­cans fa­mil­iar with the plans.

They dis­cussed plans for a 2018 bud­get blue­print — a nec­es­sary first step be­fore tax leg­is­la­tion can be taken up. And they drilled down with House and Se­nate ne­go­tia­tors on tax cuts.

Mnuchin also told a con­fer­ence in New York on Tues­day that ne­go­tia­tors were still con­sid­er­ing a num­ber of un­re­solved is­sues. He said, for ex­am­ple, that they had not de­cided whether to cut tax rates for all 2017 in­come or just in­come in 2018 and be­yond. He also said Repub­li­cans would as­sume that their tax cut plan would cre­ate hun­dreds of bil­lions of dol­lars in new rev­enue just based on eco­nomic growth, an as­ser­tion that many bud­get ex­perts have said is sus­pect.

Mnuchin also sug­gested Tues­day that com­pa­nies could be treated var­i­ously un­der the GOP’s tax pro­posal. He said, for ex­am­ple, that he fa­vored charg­ing a higher tax rate for ac­count­ing firms as op­posed to man­u­fac­tur­ing firms, which he says cre­ate jobs.

Later Tues­day, the pres­i­dent hosted a bi­par­ti­san din­ner with three se­nior Repub­li­can mem­bers of the Se­nate Fi­nance Com­mit­tee and three con­ser­va­tive Democrats from states Trump won whose votes the pres­i­dent is court­ing for tax leg­is­la­tion. Each of the Democrats who at­tended said in state­ments after­ward that they were will­ing to work with Trump — un­der cer­tain con­di­tions.

Still, con­gres­sional GOP lead­ers are plan­ning to use spe­cial bud­get pro­ce­dures that would al­low them to pass the tax bill with only Repub­li­can votes, skirt­ing a po­ten­tial fil­i­buster from Democrats. But they have made lit­tle progress in pass­ing a key pre­req­ui­site, the bud­get blue­print, thanks to par­ti­san in­fight­ing.

In the House, hard-line con­ser­va­tives have de­manded a more de­tailed tax plan be­fore pony­ing up votes for a bud­get, which has cre­ated a chicken-and-egg prob­lem for GOP lead­ers. In the Se­nate, the com­pli­ca­tion is a Bud­get Com­mit­tee where Repub­li­cans have a sin­gle-vote ma­jor­ity, em­pow­er­ing any sin­gle GOP sen­a­tor on the panel to ne­go­ti­ate the pa­ram­e­ters of the tax bill.

House Free­dom Cau­cus Chair­man Mark Mead­ows (R-N.C.) said it is “crit­i­cally” im­por­tant to have a bet­ter sense of what the emerg­ing tax re­form plan will look like be­fore vot­ing on a bud­get blue­print. He said he was hope­ful about see­ing more specifics “in the next cou­ple of weeks.”

There is also talk among some Repub­li­cans of what hap­pens if GOP lead­ers are un­able to work out their dif­fer­ences. One, who spoke on the con­di­tion of anonymity to speak can­didly, spec­u­lated that the White House is ly­ing in wait to cut a deal with Democrats if Ryan and Se­nate Ma­jor­ity Leader Mitch McCon­nell (R-Ky.) are un­able to pass a bud­get.

Democrats, mean­while, have launched a cam­paign called “Not One Penny” aimed at pres­sur­ing Repub­li­cans to avoid send­ing more re­lief to cor­po­ra­tions and the wealthy than to the mid­dle and lower classes.

House Mi­nor­ity Leader Nancy Pelosi (D-Calif.) said Tues­day that Democrats would be will­ing to dis­cuss tax pro­pos­als with Repub­li­cans — just not the ideas that GOP lead­ers are dis­cussing.

“Trickle-down economics is what they have out there,” Pelosi said. “It has noth­ing to do with tax re­form. It only has to do with their warmed-over stew.”

A key el­e­ment of Trump’s blue­print would dras­ti­cally re­duce rates for busi­nesses and in­di­vid­u­als, changes that could elim­i­nate more than $5 tril­lion in govern­ment rev­enue over 10 years. The pres­i­dent also wants to re­duce the num­ber of tax brack­ets for fam­i­lies and in­di­vid­u­als from seven to three — and es­sen­tially to lower rates for th­ese earn­ers.

Com­pli­cat­ing mat­ters is the fact that two of the largest tax breaks eyed by the White House — elimi- nat­ing the de­duc­tion for state and lo­cal taxes, and scal­ing back the mort­gage in­ter­est de­duc­tion — have in­ter­est groups that have made it more dif­fi­cult for the GOP to co­a­lesce around a plan.

Other goals un­der dis­cus­sion in­clude elim­i­nat­ing the es­tate tax and the al­ter­na­tive min­i­mum tax, and dou­bling the stan­dard de­duc­tion that many Amer­i­cans can claim when they file their taxes.

Push­ing leg­is­la­tion through with­out re­ly­ing on Democrats for sup­port would re­quire them to use a bud­get mech­a­nism known as rec­on­cil­i­a­tion.

But rec­on­cil­i­a­tion comes with a strict rule that any tax change must not in­crease the deficit af­ter 10 years. Many bud­get ex­perts be­lieve Trump’s cur­rent plan would vi­o­late the rule.

Repub­li­cans con­trol just 52 of the 100 Se­nate seats, giv­ing them a very slim mar­gin that just three de­fec­tions would im­peril.

“Tax re­form is hard and hasn’t hap­pened for 31 years for a rea­son,” said Doug Holtz-Eakin, a Repub­li­can and for­mer di­rec­tor of the Con­gres­sional Bud­get Of­fice. “If you are do­ing tax re­form through rec­on­cil­i­a­tion, it’s like do­ing tax re­form on a tightrope. There’s just not a lot of room for ma­neu­ver­ing.”

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