Donald Trump is set to steamroll Paul Ryan on tax reform, the issue the speaker has devoted his political career to achieving.
But don’t expect Ryan to relinquish his pet cause easily.
The White House on Wednesday will drop the outlines of a tax plan that insiders expect will contradict the blueprint Ryan has been working on for more than a year. It won’t include the House speaker’s controversial new tax on imports, which was expected to bring in $1 trillion to finance lower tax rates. And top Trump officials are insisting their tax plan need not be paid for, rejecting Ryan’s stance that any package should not add to the deficit.
The administration’s sudden change of course came as a surprise to the speaker’s office, which didn’t get a heads-up before Trump announced on the fly last week that he would drop a tax plan Wednesday. Ryan had been working with the administration on a tax proposal “hand in glove,” as he put it, and the administration seemed content to let him take the lead.
But after Ryan failed to get his Obamacare replacement bill over the finish line last month, the White House changed its mind. Trump decided the administration needed to take a more hands-on role in tax reform rather than leaving the details to the speaker, three administration sources told Politico. Indeed, Ryan’s team has been kept largely in the dark on some key details of the plan, congressional and White House sources say.
“We made a mistake last time” in having Ryan take the lead on health care, one senior administration official told Politico. “We learned our lesson.”
Still, the White House strategy could backfire, namely because it’s far from certain that it can pass.
If the administration were to pursue a tax cut that’s not paid for — sticking instead with the supply-side theory that tax cuts pay for themselves — it would take at least eight Democrats to get it through the Senate. That’s a tall order, because Democrats generally are loath to pass tax cuts for corporations, especially without corresponding cuts for individuals.
Trump’s plan would drastically lower the corporate rate from 35 percent to 15 percent — at an eye-popping price tag of $2 trillion.
“The best chance to have tax reform is through reconciliation,” said a senior House Republican, referring to GOP leadership’s plan to use a fast-track tool to pass the bill on simple-majority votes.
Ryan’s office stressed that talks are ongoing and nothing is decided.
“We all agree on the benefits of tax reform and the place we want to land, and the question is how you reach that place,” Ryan’s spokeswoman, AshLee Strong, said in a statement. “We continue to have productive discussions with the administration about all ideas on the table.”
To be sure, only the House — not the White House — has the power to write a tax bill. In that regard, Trump can’t force the hands of Ryan or Ways and Means Chairman Kevin Brady (R-Texas), who’s been writing the tax plan with the speaker.
It’s unlikely that Ryan and House leaders would completely step aside for the White House. Ryan’s expertise on tax reform carries significant weight with members, and even Senate Majority Leader Mitch McConnell (R-Ky.) has said he, like Ryan, believes a tax overhaul should be done through reconciliation, not on a bipartisan basis.
But should Ryan forge ahead with his own proposal, without White House blessing, he would almost certainly find himself lacking votes to pass his tax bill. It would also likely further undermine his relationship with Trump, who badly wants a legislative win after the troubles with health care reform.
Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn were expected to huddle Tuesday evening with Ryan, Brady, McConnell and Senate Finance Chairman Orrin Hatch (R-Utah) to talk about tax reform. But even before the meeting, reports circulated suggesting Trump told staff he is serious about wanting to lower corporate rates to 15 percent, a promise he made on the campaign trail. (Ryan’s plan would reduce the rate to 20 percent because that’s the lowest level he could realistically pay for.)
Other top White House advisers have also hinted in TV interviews in recent days that tax cuts need not be paid for, an idea the White House has discussed since January.
Administration sources also confirmed to Politico that Ryan’s controversial so-called “border adjustment” idea is unlikely to be included in the White House plan. Under that idea, companies that import products would have to pay income tax on the value of those products, which they don’t have to do now. And companies that export would no longer have to pay income tax on their earnings from those exports.
Senate Republicans and several White House advisers have panned the idea, and several members of Ways and Means have expressed skepticism about the proposal. But few have offered alternatives to generate the estimated $1 trillion it would produce. A senior administration official said the White House is looking at “three or four” possible revenue replacements.
It’s unclear whether Ryan and Brady will continue to push the border adjustment idea. Also unknown is whether they’ll move forward with their strategy to use reconciliation to pass a tax overhaul plan along party lines.
Under the Senate’s complex reconciliation rules, legislation that’s fast-tracked must not add to the deficit in the long term, which is defined as anything beyond a 10-year window. That’s why Ryan and his team are so focused on making sure any proposal is paid for.
The White House, however, is not yet sold. It is considering courting Democrats and trying to clear the 60-vote threshold to invoke cloture. One administration official said it would be wise to seek bipartisan buy-in after “what happened in the health care fight” — watching a GOP-only bill fall victim to party infighting.
There’s another possibility being tossed around: a temporary tax cut that is not paid for but could still be approved under reconciliation rules because it would not add to the deficit in the long term. President George W. Bush sidestepped reconciliation rules using that loophole, passing major tax cuts that expired after a decade.
Lawmakers later voted to extend most of those tax cuts.
But GOP leaders say going that route would not constitute true comprehensive tax reform because the tax cut would end after 10 years unless Congress intervened. They argue that it would not provide the kind of lasting assurance to the business community needed to produce long-term investments and economic growth.
Leaders are also not certain a temporary tax cut would be scored as deficit neutral, even if it were to sunset in 10 years. A letter Tuesday to Ryan from the Joint Committee on Taxation, obtained by Politico, suggests the cost of a mere three-year corporate tax cut to 20 percent — from 2018 through 2020 — would spill over into the second decade window, thus barring the bill from being fast-tracked.
“We project a non-negligible revenue loss in the tax years immediately following the budget window,” the letter states.
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