By Alan Rappeport
WASHINGTON – Reeling from the collapse of their plan to repeal the Affordable Care Act, Republican lawmakers are now trying to move on quickly to the next big thing: tax legislation.
On Tuesday, they took the first step with a budget proposal that calls for reducing tax rates for businesses and individuals.
But the failure of the health care plan complicates Republican efforts to overhaul the tax code. It also adds to the urgency Republicans face to secure a signature achievement in President Trump’s first year in office. For months, Republican leaders in Congress have said that it was crucial to cut the taxes imposed by President Barack Obama’s health care law so that they could introduce even deeper income tax cuts later on.
Now those Affordable Care Act taxes will remain, and the ability of the party to coalesce around ambitious tax legislation is in doubt.
The big question in Washington is whether rewriting the tax code, which has not been done since 1986, will be any easier than undoing the Affordable Care Act. Republicans are hopeful because they view cutting taxes as central to the party’s identity. Yet the requirement that they not add to the deficit, outlined in the House budget, means they are likely to face more broad and well-financed pockets of resistance.
The plan released Tuesday as part of the House Budget Committee’s 2018 budget resolution blueprint calls for consolidating tax brackets and cutting rates, repealing the alternative minimum tax and switching the United States from a worldwide tax system to a territorial tax system, which would tax only the domestic income of corporations.
It also calls for a $621.5 billion national defense budget for 2018 and $511 billon for nondefense spending. The most contentious part is at least $203 billion in cuts over a decade in “mandatory” spending on programs such as Medicare and Social Security. And it recommends repealing parts of the 2010 Dodd-Frank Act that ushered in financial regulations after the last recession. If enacted, it would result in a $6.5 trillion reduction in the federal deficit over a decade.
The resolution is of particular importance this year because Republicans must pass it to unlock a procedural tool that would allow them to overhaul the tax code without the support of any Democrats. But it will not be easy to pass.
The fact that the budget blueprint dictates that the rewrite of the tax code cannot add to the deficit could set up a clash between Republicans in Congress and the White House, which has been more open to temporary tax cuts that add to the deficit. Trump has promised the biggest tax cut in history.
“That’s a long way from talk about a large deficit-increasing tax cut,” said Ed Lorenzen, of the Committee for a Responsible Federal Budget, a nonpartisan group committed to educating the public on fiscal issues. “I’m very curious to see how the White House and conservatives who have been advocating for a tax cut react to this.”
The cuts to entitlement programs in the proposal also represented a direct rebuke of Trump, who promised not to touch those plans.
House Republicans were optimistic Tuesday that their road map could become reality.
“In past years, our proposals had little chance of becoming a reality because we faced a Democratic White House,” said Rep. Diane Black, R-Tenn., chairwoman of the House Budget Committee.
“But now with a Republican Congress and a Republican administration, now is the time to put forward a governing document with real solutions to address our biggest challenges.”
Mick Mulvaney, the White House budget director, praised the outline even though it differed from his fiscal vision.
“The administration urges the House Budget Committee, the full House and the Senate to move forward on a pro-growth budget resolution that supports the administration’s goals of a strong national defense, fiscal responsibility and sustained economic growth,” Mulvaney said.
However, the significant challenges awaiting the House budget effort were already evident this week. On Monday, Rep. Mark Meadows, R-N.C., who leads the conservative House Freedom Caucus, said he did not think the proposed budget could win full House approval. He said he wanted it to include deeper spending cuts. He also wants more details and to be assured that the border-adjustment tax is not included.
The House budget proposal calls for more military spending than the budget produced by the White House. That proposed increase would break the caps imposed by the 2011 Budget Control Act.
Raising those caps would require the support of Democrats.
The House Budget Committee is scheduled to debate the plan Wednesday, and any bill will have to be reconciled with the budget that the Senate eventually passes.
The Senate also turned its attention to overhauling the tax code Tuesday, when the Senate Finance Committee held its first tax hearing and questioned a bipartisan panel of former Treasury officials. It also held a separate nomination hearing for David J. Kautter, the nominee for assistant Treasury secretary for tax policy.
The challenges that Republicans face in getting tax reform done were again on display. Senators debated changes to provisions in the tax code, such as the deductibility of interest expenses for corporations and of state and local taxes for individuals, that many of their constituents hold dear. Some Democrats pushed for the creation of a new consumption tax – a tax potentially akin to national sales tax that is a nonstarter for most Republicans. Kautter said that as far as he was concerned, all options remained on the table.
For their part, Democrats remain steadfast that the wealthiest Americans should not see their tax bills shrink. Predictably, they assailed the House Republican budget.
“House Republicans have devised a toxic budget whose sole purpose is to hand tax breaks to billionaires on the backs of seniors and hardworking Americans,” said Rep. Nancy Pelosi of California, the House minority leader. “Instead of investing in good-paying jobs, the Republican budget would stack the deck even further against working families.”
Democrats also urged Republicans to learn the lessons of the health care legislation experience and work together. It is not clear if the rancor over the health bill will make this more or less likely.
At the hearing Tuesday, Sen. Claire McCaskill, D-Mo., implored Sen. Orrin G. Hatch of Utah, the Republican chairman of the Finance Committee, to commit to holding open hearings on tax legislation.
Hatch smiled but was noncommital. “I’d like to,” he said. “But I don’t know.”