Trump to Launch Tax Reform Push, But Hurdles Are Steep
President Trump, after prioritizing the federal government’s focus on hurricane-ravaged Texas early this week, is scheduled to kick off his party’s next big policy push: enactment of major tax relief this year as a way to rev economic growth.
While a quarter of Texas’s population struggles with destruction and flooding, the president will comment for the first time Monday during a joint news conference alongside the visiting president of Finland. Trump is prepared to fly to the devastated Lone Star State as early as Tuesday.
Then, on Wednesday, he is scheduled to explain during an afternoon event in Springfield, Mo., why U.S. competitiveness, economic expansion and job creation depend on whether Congress can overhaul the country’s tax code.
The odds of passing significant tax reform legislation through both the House and Senate and into law this year are long, according to interviews and statements from lawmakers and tax experts. But the politics of reducing America’s tax burden could figure prominently during the 2018 midterm elections.
On Sunday morning, the president tweeted that taxes are a potent weapon against vulnerable Democrats next year, including Missouri Sen. Claire McCaskill. What he didn’t address are the political risks if the GOP comes up empty-handed on both an Obamacare replacement and lowering taxes, as Republican candidates prepare to face the voters.
I will also be going to a wonderful state, Missouri, that I won by a lot in '16. Dem C.M. is opposed to big tax cuts. Republican will win S!— Donald J. Trump (@realDonaldTrump) August 27, 2017
There are numerous tax-policy hurdles for Congress in the remaining four months of 2017. Here is a partial list:
Time is short. Major tax legislation historically takes years, not months, to achieve, and election seasons are not usually auspicious for significant legislation developed along starkly partisan lines.
Congress has numerous distractions this fall as key House and Senate committees begin to craft tax measures. Congress must agree to raise the nation’s cap on federal borrowing by the end of September to avert U.S. default. And to procedurally address tax laws and projected revenues, lawmakers must first agree on a budget for the fiscal year that begins Oct. 1.
Everything from Trump’s controversial border wall to recently announced troop deployments to Afghanistan to billions of dollars in funding needs after Hurricane Harvey represent unresolved budget negotiations. And the president threatened last week to shut down the government if taxpayers – not Mexico – fail to back funding for new wall construction to curb illegal immigration.
The administration miscalculated how easy it would be to legislate with GOP control across Washington. In April, former White House Chief of Staff Reince Priebus said the president wanted to unveil his tax plan with “breakneck speed,” But the administration’s timetable for tax reform has slipped.
“Earlier in the year, I said I thought we'd get it done by August, and I was wrong, OK,” Treasury Secretary Steve Mnuchin said Friday. “I am now going to say that I'm very hopeful and I think we can get this done by the end of the year, but we will continue to revisit that.”
Republicans are in sync on tax principles, but not the thorniest specifics. Just a few months ago, the president’s spokesmen said the White House would take the lead on tax legislation, contrary to the strategy Trump pursued with health care. Unhappy with the Obamacare results, the president initially wanted to control his next big initiative.
But by July, Mnuchin and White House national economic adviser Gary Cohn had shifted gears to say the Ways and Means Committee in the House, and the Finance Committee in the Senate would craft legislation, with input from the administration. It took months before the key GOP players took the next step, scrapping a proposed new border adjustment tax that retailers and major companies opposed, but which would have raised hundreds of billions of dollars in new revenues.
Other differences of opinion persist. Trump continues to say he favors a 15 percent corporate tax rate, while Finance Chairman Orrin Hatch cautions that getting sufficient votes for 25 percent would be a big deal. The president favors raising revenues by eliminating federal deductions for state and local income taxes, which many lawmakers oppose.
Trump initially favored raising taxes on the wealthiest individuals while offering them other tax benefits as part of a package, but GOP lawmakers have signaled they are uninterested in raising anyone’s taxes before Election Day next year.
While administration officials and key GOP lawmakers and their staffs have privately constructed what the White House calls a legislative “skeleton,” few specifics are yet public, and the president is not expected to be newly prescriptive during his Missouri speech.
Among the back-and-forth questions this summer: Will tax reform proceed this fall using budget reconciliation procedures (relying primarily on GOP votes in the Senate), or will Trump persuade red-state Democrats, including McCaskill, to cross the aisle? Earlier this summer, administration officials said Democratic support was worth seeking, but Senate Majority Leader Mitch McConnell subsequently said reconciliation remained his plan.
“If the Democrats want to work with us on a bipartisan tax bill, we are excited to have them on board,” Cohn told the Financial Times last week. “But if not, we will just do reconciliation.”
Budget reconciliation was also the agreed-upon strategy among Senate Republicans to repeal and replace the Affordable Care Act. The benefit is that it sidesteps the 60-vote threshold for most bills. But on health care, Republicans could not get the 51 votes to move a substitute measure out of the Senate. Tax reform, Republicans insist, is a far more unifying cause than health care among conservatives.
Democrats are motivated, too. The minority party has plenty of practice countering the GOP argument that lowering taxes on corporations and wealthy households is a boon for the economy. Tax fairness and middle-class tax relief were vivid themes during the 2012 and 2016 presidential elections, and Sen. Bernie Sanders made the issues part of his brand.
“To Democrats, tax reform is clear,” Senate Minority Leader Chuck Schumer said in a statement last week. “We believe strongly that not one penny go to the top 1 percent, and that any tax reform must be deficit neutral. When Republicans figure out what they want to do, we’d be happy to work with them if they can agree on these broadly supported principles,” he said.
House Minority Leader Nancy Pelosi turned to similar talking points early this month. She warned that Trump’s favored tax cuts would emulate policies enacted by President George W. Bush, which she said did not create jobs and helped turn surpluses into deficits. Pelosi repeated a decades-old mantra: Medicare, Medicaid, and Social Security would suffer because of GOP tax cuts. Resources for infrastructure, education, and job training would dry up, she added.
Democratic groups, including MoveOn, paid for a new “not one penny” ad campaign seen in at least eight GOP congressional districts. “Let Congress know: not one penny more. Not one penny in tax cuts to millionaires, billionaires and wealthy corporations,” the ad said.
The GOP’s economic arguments for tax reform will be scrutinized. Congressional Democrats agree the tax code could use a major overhaul for the first time since 1986. But they dispute the GOP’s basic economic argument about the essential benefits of lowering taxes and eliminating regulations: nudging GDP above 2 percent.
Cohn said the president will be “selling” tax relief to the public in something akin to green-eyeshade terms.
“Why are we so compelled to do taxes?” Cohn said. “If you look at U.S. GDP since 2008, we have been averaging less than 1.5 per cent GDP growth [including the recession]. Before that, we had much higher growth. We don’t think that a 2 percent growth economy is good enough — we need to raise that.”
Banking and economic experts, however, do not agree about the cures for sluggish growth and sagging productivity, which have been dissected intensively since the 2008 financial downturn. At an annual meeting of top analysts and thinkers in Wyoming over the weekend, the experts simply “gave up” and chose to shift to other topics, the New York Times reported.
GOP lawmakers and the White House could complicate their economic-stimulus arguments, and play into the hands of Democratic critics, by conceding that their proposed tax policies will produce less revenue for the treasury in the early years, if enacted, but boomerang into a bonanza in later years. The projections are based on suppositions, rather than current law, adding controversy to the endeavor.
Economists debate how federal spending aided the recovery following the recession. In general, Trump and fellow Republicans seek to shrink the size of government. But there is bipartisan agreement that federal spending for research and science, and for infrastructure benefit the economy in the long run. The president and his advisers began the year promising a $1 trillion public-private program to pay for new roads, bridges and ports.
Instead, Republicans put health care and tax legislation first. The nation’s aging infrastructure tumbled down the priority list -- except for the border wall. Mexico has said it will not pay for it. Critics say it is unnecessary. But the president has said the campaign promise his supporters cheered will get built, or else.
RCP Congressional Correspondent James Arkin contributed to this report.