Four Things Congress Must Move Before Tax Reform

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By Colleen Murphy and Laura Davison

Republicans are staring down a shrinking number of days to check off their list of priorities as the August recess looms.

With a tax reform bill no longer expected before September, lawmakers say it is too complicated to fast-track as they had initially hoped—though Republican leaders still hope to move a bill this calendar year. But the longer they wait, the closer they get to the pressure cooker of 2018 elections. An overhaul of the tax code, especially one that is revenue-neutral, will have winners and losers. Lawmakers hope to put as much time as possible between a vote on a tax bill and the day taxpayers go to the polls.

“It seems the window of opportunity for tax reform is really shrinking. That’s despite, I think, best efforts to get it done,” said Marc J. Gerson, a member at Miller & Chevalier Chartered. As legislative days start to dwindle in number, there will be a certain amount of year-end legislation—fiscal or otherwise—that Congress will have to deal with, he said. “I think members will start to feel that the election is coming really early.”

Lawmakers and observers agree that the scope of tax reform, combined with a health care reform bill that languished before passing the House in May, has complicated the legislative agenda. To give themselves the best chance of passing tax reform in the fall, lawmakers can’t afford delays.

Here are the four must-move items to address before the five-week August recess:

1. Resolve Health Care

Senate Republicans say they plan to vote on their version of a health care bill before the July 4 recess, which is welcome news across the Capitol, though in June 12 comments to reporters, Senate Majority Whip John Cornyn (R-Texas) said he expects a vote by August. Passing the bill would give Republicans momentum, but even if it fails, it is necessary to move on and focus solely on tax reform, lawmakers, staffers, and practitioners told Bloomberg BNA.

The House passed the American Health Care Act (H.R. 1628), which would repeal and replace the Affordable Care Act, on May 4, a check mark that came months after lawmakers began working on the legislation and weeks after pulling the bill from the floor before a scheduled vote. While health care legislation faces a more difficult route to passage in the Senate, the final product likely will include elements of the House bill and the ACA itself.

Senate Majority Leader Mitch McConnell (R-Ky.) “doesn’t really care about health care. He wanted it to die in the House, but now he is forced to deal with it,” said Henrietta Treyz, managing partner and director of economic policy research at Veda Partners. “It is slowing the movement in every other area.”

Senate Republicans plan to increase the bill’s refundable tax credits for older and low-income individuals, and are debating more contentious elements of the measure, like Medicaid funding. They can afford to lose only two votes and still pass the bill, and many Republican senators come from states that saw Medicaid coverage expand under the ACA.

Senate passage of a health bill, “whether it is a good bill or a bad bill,” will buoy Republicans’ spirits, said Jason J. Fichtner, senior research fellow at the Mercatus Center at George Mason University. Not voting on the plan or voting down a bill would sour the mood, he said.

2. Pass a Budget

Republicans plan to use a fiscal year 2018 budget resolution as the legislative vehicle for tax reform—a strategy they are using to move a health care bill through the filibuster-safe reconciliation process.

“We won’t even see the House start on a budget resolution until late June. That really crunches it in terms of budget resolution,” said G. William Hoagland, senior vice president at the Bipartisan Policy Center and a former Senate staffer. “I’m not confident that they will get a budget resolution conference agreement anytime soon.”

There is a Sept. 30 deadline to pass 12 regular appropriations bills for the upcoming fiscal year that begins Oct. 1, though that deadline likely won’t be met. Lawmakers have yet to pass any of the measures, though hearings are beginning. It’s likely Congress will roll those bills into a continuing resolution or an omnibus package, Hoagland said.

Lawmakers also aren’t likely to get much more direction from the White House. President Donald Trump released his fiscal year 2018 budget request on May 23, but it doesn’t provide any details on tax reform or how proposed cuts will be paid for.

Passing the budget will be “a fight in and of itself,” so it’s best to tackle it soon, Chris Condeluci, principal at CC Law & Policy PLLC, told Bloomberg BNA.

“In addition you have the motivation of doing it just because you want reconciliation instructions for tax reform,” said Condeluci, who was a Republican tax staffer on the Senate Finance Committee and helped craft portions of the Affordable Care Act.

3. Address the Debt Ceiling

Lawmakers will need to agree on an increase to the debt limit, Gerson said.

Treasury Secretary Steven Mnuchin requested such an agreement during a May 24 House Ways and Means Committee hearing. The increase should be “clean,” and free of partisan riders, he said.

Health and Human Services Secretary Tom Price, a former member of the House, echoed Mnuchin in a June 8 hearing.

Despite calls for a “clean” bill, the debt ceiling vote will likely shape up to be a political fight. Conservative lawmakers could look to attach provisions on other policy priorities, such as defunding Planned Parenthood or spending for a border wall, to the legislation.

The vote, which is often a tough one for Republicans, will need to be at least a month before a tax vote, Treyz said. They need some “breathing room” before they take another controversial vote, she said.

Congress is “laser-focused on achieving its goals,” Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) told Bloomberg BNA June 9 in an email statement. Ensuring the nation doesn’t default, repealing and replacing the ACA, and overhauling the tax code are all priorities, he said.

“It’s a heavy lift, but we’re doing the work and certainly able to walk and chew gum at the same time,” he said.

4. Shape Tax Reform Plans

Although Republicans won’t pass tax reform before the August recess, they need to settle on the “basic parameters of a tax package that could then be put together into an actual piece of legislation,” Gerson said.

House Republicans released their tax reform blueprint in June 2016, but haven’t put out more detailed language since. The White House initially said it would release a more detailed plan this month, but now nothing is expected until after August recess, allowing the House, Senate, and White House more time to pre-negotiate a bill.

“They want a unified bill, but there isn’t one,” Treyz said. “Everyone assumes there is some secret Republican tax plan. There is not.”

Hashing out a bill ahead of time, and getting buy-in from industry groups, shows Republicans have learned from the struggles they faced passing a health care bill in the House, a Republican aide told Bloomberg BNA June 9. Members need to see a path forward for the bill, and won’t want to vote on a measure that couldn’t pass, the aide said.

The idea of taxing imports and exempting exports remains a sticking point—and it’s a provision the Senate isn’t likely to pass . It also has House opponents: In a May 23 committee hearing, several members raised doubts about the provision, known as border adjustment. Rep. Erik Paulsen (R-Minn.) came out against the idea publicly for the first time. His district includes many employees of Target Corp., a staunch opponent.

“I think we’ve just got to continue to do the hearings we’re doing, get some input and come to consensus—that would be important between now and August,” Rep. James B. Renacci (R-Ohio) told Bloomberg BNA June 7. Renacci has also raised concerns about border adjustment.

And if Republicans are determined to have comprehensive tax reform, they may have to revisit an idea they’ve previously dismissed: getting buy-in from Democrats, a Democratic aide told Bloomberg BNA June 9. To do that, Democrats will need to buy into a bill sooner rather than later, the aide said.

In Fichtner’s mind, the chances for comprehensive tax reform have fallen from about 95 percent to “slim to none,” he said. Now, the discussion turns to tax cuts, which will still require negotiations. Republican leaders have previously said they hope to avoid tax cuts, which would have to be temporary and thus don’t bring lasting policy changes.

“At this point, that would be a success,” Fichtner said.

With assistance from Laura Litvan and Steven T. Dennis (Bloomberg)

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

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com; (Bloomberg BNA); Derek Wallbank at dwallbank@bloomberg.net Chelsea Mes, Kim Chipman (Bloomberg)

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