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After Healthcare Loss, GOP Taxwriters Regroup on Tax Reform

Posted on July 31, 2017 by Stephen K. Cooper, Asha Glover

After the Senate’s dramatic failure to repeal the Affordable Care Act on July 28, House GOP taxwriters said they will spend their August recess regrouping as they sell constituents on the idea of tax reform that lowers rates and simplifies the code.

House Ways and Means Committee Chair Kevin Brady, R-Texas, said the Senate’s inability to repeal the ACA means the law’s $1 trillion in taxes will remain in the U.S. economy; he won’t try to repeal them as part of GOP efforts to enact comprehensive tax reform.

“We can’t afford to import those into tax reform because the result would be higher tax rates for families and local business,” Brady told reporters, adding that trying to repeal them via tax reform would lead to another Senate logjam.

“They can’t pass the Senate now,” he said. “What makes you think they could pass the Senate later?” Brady added that congressional Republicans need time to reassess the situation following the failed effort to repeal the landmark healthcare 2010 law.  

The Senate’s failure came one day after Brady, other congressional Republican leaders, and Trump administration officials released a joint statement on tax reform that also included an acknowledgment that the border-adjustable tax — the hotly contested centerpiece of House Republicans' "A Better Way" tax reform blueprint — lacks the support to remain a viable option this fall.

The loss of roughly $1 trillion in revenue that would have been raised by the import tax will force Republicans to make tough choices if they intend to use fast-track budget reconciliation rules to pass permanent, deficit-neutral tax reform. GOP lawmakers have acknowledged that failing to repeal the ACA taxes would leave the current budget baseline intact and make it even harder to move forward on comprehensive tax reform.

Ways and Means Committee member David Schweikert, R-Ariz., noted the growth of mandatory spending in the budget that also complicates efforts to offset tax reform. But Schweikert said he is “absolutely fixated” on enacting permanent tax reform. “That’s permanent with dynamic scoring,” he said, adding that the loss of the border-adjustable tax will make it harder to lower corporate and individual rates.  

But Schweikert said that House taxwriters already learned their lesson from the panel’s work on healthcare repeal: Non-taxwriters need more information earlier in the process. “When you’re doing something complicated, get with your fellow members early because they may not be from the world of taxes, like you are,” he said.

Raising the Stakes?

For outside observers, the implications of healthcare reform’s failure for Republican lawmakers on tax reform remains unclear.

According to John Gimigliano of KPMG LLP, the failed healthcare vote could either “sap momentum” for GOP lawmakers going into the August recess, or it could raise the stakes and push them to try even harder to get something done so they can have a legislative accomplishment to point to.

For his part, Gimigliano thought that ACA repeal could make a return later in the year. “I’m still not fully convinced they’re not going to go away for August and come back completely reinvigorated around trying to do something on healthcare,” he told Tax Analysts. “As long as healthcare is alive in some way, shape, or form, it’s not great for the progress of tax reform.”

Gimigliano also pointed out that Republican leaders’ interest in working on tax reform through regular order runs the risk of dramatically slowing down the process. “While that’s a laudable goal, do they really have time to go through the full process of regular order if they really do intend to get this done in 2017?” he wondered.

Despite doubts, Senate Finance Committee Chairman Orrin G. Hatch, R-Utah, reiterated Republicans’ intentions to go through regular order on tax reform. “On tax reform, as we said yesterday, the administration and Congress are all headed in the same direction. We are united in our commitment to ensure regular order and allow the committees of jurisdiction to take the lead to produce legislation on our pro-growth vision,” Hatch said in a statement to Tax Analysts.

Republicans still intend to pass tax reform using the budget reconciliation process that allows passage of tax legislation with a 51-vote majority, a spokesperson for House Speaker Paul D. Ryan, R-Wis., said.

Democrats Willing to Play Ball

Democrats argued that the lesson to be learned from the Senate’s failed effort is that Republicans should work with them on tax reform and other congressional priorities.

“If they do anything, [they should] try to do it in a bipartisan fashion, including tax reform,” said Ways and Means member John Lewis, D-Ga.

Ways and Means ranking minority member Richard E. Neal, D-Mass., agreed, saying that other issues such as raising the debt ceiling and finishing the appropriations process should also be bipartisan efforts. However, he said that Republicans’ decision to pass tax reform using the budget reconciliation process isn’t a positive sign.

“I think reconciliation should be parked outside,” Neal said.

Senate Minority Leader Charles E. Schumer, D-N.Y., also said that using reconciliation — which enables passage with a simple majority — sends a message to Democrats that Republicans are prepared to work on tax reform alone. “If it happens under reconciliation, they're putting the same sign out on the door — No Democrats Wanted — as they did with healthcare, and it’ll . . . lead to the same result,” Schumer told reporters at a press conference.

Rep. Ron Kind, D-Wis., a taxwriter and chair emeritus of the New Democrat Coalition, said Brady has already begun reaching out to Democrats and sat down with leaders of his caucus on July 27. But he acknowledged that “it might be late in the game to get them to back off from reconciliation,” adding that the process sends “bad signals.”

Kind also said that he hoped that Republicans would not try to tackle tax reform the same way they handled healthcare reform, “behind closed doors, with no bipartisan discussion, no hearings being teed up so we can get expert advice and feedback from our constituents back home.”

Kind said that Brady assured New Democrat leaders that he would hold more committee hearings on tax reform.

Gimigliano counted himself skeptical that tax reform would now turn into a bipartisan affair, noting that Republican leadership has said all year they wanted it to be bipartisan, yet “in the next breath have always said they don’t expect it to be.”

“Tax reform is always hard to do, that’s a truism. But it’s even harder to do on a bipartisan basis,” according to Gimigliano. “In some ways, it’s a zero-sum game,” where gaining Democratic votes means losing Republican votes, he said, adding, “Sometimes the highest number of votes lies on one side of the aisle or the other.”

Jonathan Curry contributed to this article.

Follow Stephen K. Cooper (@ScoopOnTaxes) and Asha Glover (@AshaSGlover) on Twitter for real-time updates.