The Trump White House is already mapping out a major, historic overhaul of the tax code, just one week after the stunning collapse of its Obamacare repeal bill.
It’s a move that carries enormous political risks given the complexity of the code, the size of the package officials are eyeing and the administration’s already frayed ties to Capitol Hill. But the White House is eager to move on and hopes a more hands-on approach will avert another legislative failure — even if the details of the tax plan are far from figured out.
Just on Thursday, President Donald Trump huddled with Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, senior strategist Steve Bannon, son-in-law and consigliere Jared Kushner and staffers from the National Economic Council and Treasury to delve into the various policy trade-offs and ways to structure a plan.
The key takeaway: The White House is not outsourcing these details to anyone, including the speaker of the House.
“The president will put out principles, I’m sure, in terms of what his goals are and drive this as the process moves forward,” White House press secretary Sean Spicer said during Friday’s news briefing.
Whatever plan Mnuchin develops, it will be Trump’s third tax blueprint in less than a year. Campaign advisers and transition staff each developed separate blueprints, but no one seems to be paying much attention to those right now.
“There’s no reason for Treasury to rewrite the tax plan,” said Stephen Moore, a senior economist at the conservative Heritage Foundation who helped draft the Trump campaign’s tax plan. “Trump already has a great tax plan he ran on in the campaign.” That plan slashed tax rates for individuals and corporations to the tune of trillions of dollars.
The Trump transition team also developed its own 14-page tax proposal between Election Day and the inauguration, which hasn’t been previously reported.
Among the transition team’s ideas, according to a document obtained by POLITICO, was reducing the corporate tax rate to 15 percent; giving people a child care tax credit, inspired by Ivanka Trump; and keeping the capital gains rates as is — a nod to Trump’s populist campaign rhetoric. (Lower capital gains rates tend to benefit the wealthy, and this plan, unlike most GOP proposals, would leave that tax rate as is.)
Already Trump has been visibly more engaged in the tax debate than he was on health care. In fact, at the White House lunch where Speaker Paul Ryan told Trump they were short the needed votes on the health care bill, Trump steered the conversation toward taxes, as Mnuchin, Cohn and Trump’s senior policy adviser Stephen Miller joined in, according to a person familiar with the conversation.
One senior administration official said the plan being drafted by Mnuchin is unlikely to include Ryan’s controversial border adjustment tax. The trouble is that that proposal generates much of the revenue in Ryan’s plan, one potential blueprint from which the administration could work. Without it, one Hill staffer in favor of the plan said, “the offsets become a lot more ugly.”
Beyond Cohn and Mnuchin, officials say a key player to watch will be Commerce Secretary Wilbur Ross, who has the ear and respect of Trump.
The two men who spearheaded Trump’s tax plan on the campaign, Moore of the Heritage Foundation and CNBC business commentator Larry Kudlow, are urging the White House to pursue business tax cuts first because it would be politically simpler than simultaneously trying to strike a deal on individual rates.
Spicer, however, signaled Thursday that Trump continues to want to do both. “The team is weighing the best option to develop a plan that will provide significant middle-class tax relief and make American businesses more competitive,” he said.
Still, Kudlow said the focus should be on reducing business taxes. He outlined a four-point plan of cutting corporate rates; a onetime repatriation and taxation of funds from American firms stowed abroad; allowing for the immediate expensing of business investments; and, possibly, infrastructure, to lure Democratic votes.
Bannon is said to be particularly fond of so-called immediate expensing as a way to drive investment in manufacturing. The transition team’s tax plan gave that boost to U.S. manufacturers.
Both Kudlow and Moore said the border adjustment tax drafted by Ryan, which would whack retailers and other import-reliant industries, is a poison pill. One administration official told POLITICO that it’s already out of favor in the West Wing, while another said it would be premature to discount it yet.
“Bury the border adjustment tax,” Kudlow said. “Just bury it. Build a crypt and a nice grave and bury it.”
The border adjustment provision also has few fans among Senate Republicans. Sen. Lindsey Graham (R-S.C.) recently said Ryan’s proposal couldn’t get 10 votes in the upper chamber.
Logistically, the White House is trying to decide when to release its own plan following April’s congressional recess, as well as how far it should let the House go in pursuing its own proposal.
“The White House now realizes after the health care debacle that the political problem was that the president was lobbying for the House bill,” said one lobbyist. “The members were not forced to vote with the president or against him, and that made it a lot easier for [House Freedom Caucus members Jim] Jordan and [Mark] Meadows to be against it.”
Still, the White House lacks some of the in-house technical expertise it will need to pull off a tax code rewrite, a senior White House official acknowledged. The Treasury Department is currently without many top aides, and White House officials are still arguing with Mnuchin over who should be in some spots.
Much of the back-of-the-notebook scribbling and estimations are now coming out of the White House, where Shahira Knight of the NEC is the only staffer with any real tax experience. Just this week, Treasury settled on its new assistant secretary for tax policy, David Kautter.
There are also big disagreements within the White House ranks on key policy details — not just on the border adjustment tax, but also on other ways to raise revenue and what to do about its effect on the deficit.
The White House’s failure to repeal Obamacare also makes it far more difficult to cut taxes as deeply, because Republicans were counting on eliminating close to $1 trillion in taxes to help to pay for their sweeping tax cuts.
“They thought health care was very integral to tax reform,” said Chris Ruddy, a close Trump friend who keeps in touch with the president.
At the end of the day, the best-laid plans by Mnuchin may matter little in Trump’s White House, where the president likes to keep his advisers surprised and always supersedes them.
“Only one person really matters,” one senior administration official said — and his mood is known to change from one moment to the next.
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