Trump, GOP May Shift Strategy to Get Tax Reform

Trump, GOP May Shift Strategy to Get Tax Reform
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President Trump and congressional Republicans may forgo trying to pass tax legislation in the Senate with the narrowest possible GOP majority, instead looking for politically nervous Democrats as potential allies, a senior White House official said Monday.

“We’re not necessarily locked into that direction,” White House Legislative Affairs Director Marc Short said when asked about relying on budget reconciliation instructions to pass a major policy overhaul through the Senate.

He joined Treasury Secretary Steven Mnuchin at a business-backed event at the Newseum to kick off a GOP-led push for House and Senate action this fall.

The president’s tax advisers, who have quietly crafted various strategies with GOP lawmakers and representatives of the business community, unveiled a breakneck schedule that envisions House and Senate passage by November. They believe legislation can be drafted in August, marked up in September and passed by the House in October and by the Senate in November.

Short said the effort could spill over into early 2018, but in that case would delay some projected stimulus for economic growth and job creation. “I think we’re in for a long fall,” he said.

Reconciliation remains a complex legislative option, but it failed to help Republicans with health care proposals that did not attract simple GOP majorities in the Senate this month, after the House passed its own version in May.

The reconciliation technique, which depends on passing a fiscal 2018 budget and is laden with rules and protocols that Short likened to “threading a needle,” could be bypassed if eight Senate Democrats facing tough re-election bids next year decided to join their Republican colleagues to cut individual and corporate tax rates and eliminate what Mnuchin described as “huge” deductions.

If Republicans pried away that many Democrats in tight races, theoretically they could try to come up with 60 votes needed to break a filibuster under Senate rules. Trump has repeatedly called on Senate Republicans to change the chamber’s rules to eliminate the 60-vote threshold needed to end filibusters.

House and Senate Republicans and the White House last week released a vaguely worded joint statement that called for legislating tax bills under “regular order,” and abandoned a House proposal for a controversial border adjustment tax, which had divided the party for months.

Compared with the fraught health care efforts of the last six months, Republicans “are playing a different game this time, telling Democrats, `I double-dare you to vote against this tax cut,’” Democratic budget expert Joseph Minarik, the senior vice president and director of research for the Committee for Economic Development, recently told RealClearPolitics.

Minarik on July 28 published a short analysis of last week’s GOP tax principles, correctly discerning a strategic shift away from what had been tried in the Senate with health care this summer. Without the restraints and restrictions imposed by reconciliation under budget rules, policy horse-trading to try to pick off votes for tax benefits becomes potentially easier for the president’s party under a process that goes through committees of jurisdiction and can be amended in search of bipartisan Senate votes, he noted.

Regardless of the legislative strategy pursued, Republicans simply are more in sync to achieve tax reform this year than they were to resolve health coverage options, said Tim Phillips, president of Americans for Prosperity. And the stakes have only gone up as the congressional calendar grows shorter.

“You have a far broader array of outside organizations and groups that have been on board with the [tax] blueprint since the springtime,” he told RCP. Jettisoning the proposed border adjustment tax, which would have been a source of new revenue but at the expense of some U.S. businesses such as retailers, eliminated “a sticking point,” Phillips added. “It was a crucial moment when that was not included last week.”

Trump will not call for raising effective tax rates on the wealthiest Americans, but will instead seek to eliminate most deductions other than for mortgage interest and charitable donations. Most of the richest tax filers “won’t get a tax cut,” Mnuchin said. “We’re going to get rid of all those special interests.”

The fate of deductions for retirement income remains “under discussion,” Short told reporters. 

Setting various income cut-off demarcations and defining wealthy taxpayers in the tax code will be determined by Congress, the president’s legislative adviser said. 

The president’s tax advisers declined to describe other deductions and loopholes Trump seeks to eliminate to simplify the tax code, raise new revenues, and “broaden the base.”

The political battle pitting potential tax benefits granted to big corporations and upper-income families against proportionately smaller tax bonanzas for lower- and middle-income tax filers has already been joined.

“The level of resistance is pretty strong right now” among Democrats, Short said during an event sponsored by Americans for Prosperity and Freedom Partners, organizations backed by the Koch family -- generous Republican campaign donors.

The administration continues to support lowering the business income rate to 15 percent from the current top rates of 35 percent for corporations and 39.6 percent on business income reported on individuals’ tax returns. The administration also supports eliminating the existing estate tax, which kicks in for estates valued at more than $5.5 million.

Trump and Republicans believe Midwestern and Rust Belt Senate Democrats could have a tough time explaining to their constituents why they oppose reducing the tax burden on middle-class families and juicing the economy to rev job creation, Short said.

The interest in working with Democrats -- or at least punishing them if they try to block tax legislation -- is a relatively new strategy. At Trump’s 100-day mark in office, a senior West Wing official told reporters the president’s base would be frustrated if Trump sought to craft and pass legislation with agreement from the minority party.

“For us to waste three or four months to think that we can get a bipartisan bill done and then have to start over again with a partisan bill, and not get tax reform in 2017 so it’s effective in 2018 -- I think the voters would be disappointed with us, and they wouldn’t understand why we did that,” the official said three months ago.

The president plans to turn up the heat on Democratic lawmakers in states he won last year during travel and speeches. Trump will headline a presidential re-election rally in West Virginia Thursday.

“He’s going to be on the road, helping us sell it,” the Treasury secretary said. 

White House Press Secretary Sarah Huckabee Sanders declined to describe Trump’s August travel schedule into red states. The president is expected to begin a working summer vacation in New Jersey, perhaps beginning next week.

Following their August break, lawmakers face a September to-do list that includes raising the federal debt limit and possibly making another stab at an Obamacare replacement.

While the administration prefers to “offset” revenues that would be wiped out if tax rates go down, Republicans will seek to factor in controversial projections in the next 10 years of economic growth. The Congressional Budget Office customarily determines the projected revenue gains and losses of proposed tax legislation using “static” projections that are not allowed to assume that tax reductions springboard into more revenues flowing into the Treasury.

But that’s what Republicans plan to do. 

“We’re going to make sure it’s paid for on a reasonable basis with economic growth,” Mnuchin said.

Alexis Simendinger covers the White House for RealClearPolitics. She can be reached at  Follow her on Twitter @ASimendinger.

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