Congressional Moderates Critical to Tax Success as GOP Splinters

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By Laura Davison, Kaustuv Basu, and Colleen Murphy

Moderates in Congress could end up playing a key role in tax reform efforts, especially if the House’s most conservative members continue to spar with Republican leadership over the direction of tax reform.

Tax reform, in some format, has been a point of consensus for all Republicans this year. The urgency to do something to lower tax rates and simplify the tax code became more pronounced after a health care bill failed to pass this summer.

Republicans are planning to pass a tax reform bill using budget reconciliation, a fast-track process that requires only 51 votes in the Senate. But it’s unclear if the budget resolution will pass, after some members of the conservative House Freedom Caucus said they would withhold support until they see tax plan details, which might not be available for several weeks.

If a budget doesn’t pass, or the Freedom Caucus balks at the plan because it doesn’t cut rates sharply enough, GOP leadership will need to lean heavily on moderate Republicans—plus a few Democrats—to pass a bill.

As Republicans seek to bring Democrats on board, they can look to moderates for ideas on how to make the bill appeal to those in the center.

“I think we need bipartisan support to get it done. We saw what happened with health care in the Senate, losing three votes,” said Rep. Chris Collins (R-N.Y.), an early Trump supporter. “My optimism is more in the bipartisan approach rather than letting Republicans do it on their own.”

Across the Spectrum

The need for moderate support comes after President Donald Trump brokered a three-month deal on the debt ceiling, government spending, and disaster relief with Democratic leadership, instead of siding with GOP leadership.

House Ways and Means Committee ranking member Richard E. Neal (D-Mass.) told reporters it’s too soon to know if Trump wants a bipartisan tax reform bill, but said the president has held out “the prospect that there could be a deal with Democrats.” Treasury Secretary Steven Mnuchin and White House economic adviser Gary Cohn are also looking for a deal that pulls in moderate Republicans and some in the minority, Neal said.

“In our tax reform hearings, something that stood out for me is that Republicans and Democrats spoke with one voice about the need for permanence and revenue-neutral tax reform,” Rep. Carlos Curbelo (R-Fla.) said. “That is still a priority for us in the House.”

Moderate Republicans will carefully weigh what kind of bill they can support. Republicans from districts with nearly equal numbers of Democratic and Republican voters seem to be growing wary of their prospects for re-election. Two lawmakers—Reps. Charlie Dent (R-Pa.) and Dave Reichert (R-Wash.), both from split districts —announced in early September that they won’t seek re-election in 2018.

There are also relatively noncontroversial elements of tax reform—lowering the corporate and individual rates and moving to a territorial tax system—that will find widespread support across the Republican spectrum.

Reps. Patrick Meehan (R-Pa.) and Pete Sessions (R-Texas) flagged those changes as their top priorities. Meehan and Sessions represent districts that Hillary Clinton won in the 2016 presidential election.

Republicans must find a way to pay for desired tax cuts if they want to make the changes permanent. But Meehan, a Ways and Means member, said lawmakers are still considering a mix of temporary and permanent provisions.

“If you give businesses 10 years of predictability, oftentimes they tell you that’s sufficient for them to make calculations on investments and how they’re going to use their resources,” he said.

Ways and Means Tax Policy Subcommittee Chairman Peter Roskam (R-Ill.) represents a district that was won by President Barack Obama and Hillary Clinton. Roskam said his district wants “tax relief” and simplification. “That’s what we are working on,” Roskam told Bloomberg BNA.

Outside Pressure

Given the current level of polarization, “moderate Republican” is a relative term, said Chris Tausanovitch, a political science professor at the University of California, Los Angeles.

Republicans who have won in the past with narrow margins are hoping that a tax bill passes quickly, he said.

“They would like to give their middle income constituents a tax cut, but they may be concerned more than in the past about a tax cut that is perceived as overly beneficial to the wealthy or to corporations,” Tausanovitch said in an email.

And that’s where the difficulty begins.

Republicans remain ideologically committed to what Tausanovitch called “fairly regressive” tax changes, such as lowering capital gains and dividend taxes, repealing the estate tax, and lowering the top rates.

“So-called moderate Republicans would like to see token simplification, but they know that more aggressive simplification of the tax code would ostracize some of their supporters,” he said.

Speaking to Bloomberg BNA, a former Senate Democratic staffer who requested anonymity because they weren’t authorized to speak, said Republican members may be worried about the kind of individual tax relief they can secure.

Revenue Raisers

Lawmakers looking to bring centrists on board should tap revenue raisers—such as capping the amount of itemized deductions a filer can claim—that have historically been embraced on both sides, David Brown, deputy director of the economic program at Third Way, a centrist think tank. Capping itemized deductions “is a great way to raise a lot of revenue in a progressive way,” he said.

Mitt Romney, as the 2012 Republican presidential candidate, suggested capping the value of deductions an individual filer can claim at $25,000. That cap would have yielded roughly $1.3 trillion, according to a 2012 estimate from the Urban-Brookings Tax Policy Center.

Obama included a similar cap in budget proposals that would have raised about $529 billion over a decade. Doing so would have limited itemized deductions to no more than 28 percent of the amount of the exclusion or deduction, which would have increased taxes for individuals with a marginal tax rate exceeding 28 percent.

“On the corporate side, I think there is consensus about putting business deductions and expenditures on the table,” Brown said. “If you put all of them on the table, and you use that money to lower the corporate rate, that’s a workable strategy.”

To contact the reporters on this story: Laura Davison in Washington at lDavison@bna.com; Kaustuv Basu in Washington at kbasu@bna.com; Colleen Murphy in Washington at cmurphy@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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