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NEC Director Looks Beyond August for Passage of Tax Reform

Posted on April 10, 2017 by Stephen K. Cooper, David Van Den Berg

Comprehensive tax reform might not pass Congress until the end of the year, a senior Trump administration official said April 7, one day after members of the House Freedom Caucus raised concerns about the border-adjustable tax proposal in the House GOP’s tax reform blueprint.

National Economic Council Director Gary Cohn said the administration’s August deadline for moving a tax code rewrite through Congress is secondary to getting the policy right. “We are coming up with a cohesive plan. Getting it done well and getting it done right is more important than getting it done soon,” he said during an interview on Bloomberg Television. “We are committed to getting it done this calendar year.”

Cohn said the administration expects to meet with congressional leaders after their two-week Easter recess, but several GOP members left Washington criticizing a major proposal of the Republican tax plan that has been heavily promoted by House Speaker Paul D. Ryan, R-Wis., and House Ways and Means Committee Chair Kevin Brady, R-Texas. Brady has said that approximately 90 percent of the House tax reform plan is similar to Trump’s coming tax proposals.

At an April 6 Politico event presented by the Peter G. Peterson Foundation in Washington, Freedom Caucus Chair Rep. Mark Meadows, R-N.C., said Republican leaders must handle the tax reform debate differently from how they handled the American Health Care Act, which never generated enough support to receive a floor vote.

“This fundamentally comes down, in my mind on tax reform, to a question: Do you have the border adjustment tax or do you have it where it’s not revenue neutral?” Meadows said. “And at this point we need to go ahead and really start having those discussions today. Let’s look at legislative text, what it means for our constituency.”

Some lawmakers expect the proposed destination-based cash flow tax -- which would tax products based on their place of consumption -- to raise roughly $1 trillion in revenue that can be used to lower corporate tax rates. However, because the proposal would impose a 20 percent tax on imports, other lawmakers are concerned about rising consumer prices.

Rep. Jim Jordan, R-Ohio, another Freedom Caucus member, said during the same event that the border-adjustable tax is problematic for him in a philosophical sense.  “You’re adding a whole new tax, a whole new revenue stream on the American economy, and not getting rid of another one,” he said. That’s dangerous, Jordan said, because it adds another tax than can rise over time.

Jordan also threw cold water on the concept of revenue neutrality. “Since when is Republican orthodoxy that it’s got to be revenue neutral?” he asked. “The idea that, oh, allowing families and companies to keep more of their money somehow means the government’s losing money? I’ve never bought into that line of thinking.”

Reconciliation Unavoidable?

Following the demise of the GOP healthcare bill, Brady began making overtures to House Democrats on tax reform the week of April 3, holding meetings with the New Democrat Coalition as well as Democrats on the taxwriting panel.

After Ways and Means Democrats met with Brady April 5, the committee's ranking minority member, Rep. Richard E. Neal, D-Mass., told reporters that the session focused more on “what they would like to do” than a sales pitch for the Republican blueprint. Brady asked Democrats to start by acknowledging the nation’s defective tax code, said Neal, who advised staffers from Democratic committee members to thoroughly review every proposal the Republicans might lay out.

That staff work may be for naught, however, as Senate Majority Leader Mitch McConnell, R-K.Y., is already predicting that tax reform would pass Congress only via the budget reconciliation process because of fundamental differences between the political parties.

He told reporters April 7 that Republicans will use reconciliation -- which allows Senate passage with a simple majority vote, not the 60 votes needed to stop a filibuster -- because Democrats believe that “tax reform is about income redistribution, how much can we get out of successful people in order to push down to those who have been less successful.”

Follow Stephen K. Cooper (@ScoopOnTaxes) and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.