Four Ways Tax Reform Can Avoid Health Bill’s Fate

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By Laura Davison and Kaustuv Basu

House Republicans may have emerged from the battle over repealing and replacing the Affordable Care Act with bruises, but they also gained a better understanding of what it will take to move a tax reform bill.

The American Health Care Act is in the past, President Donald Trump said in a March 24 news conference shortly after House leadership announced they wouldn’t vote on the bill. Republicans are moving on to other priorities, and atop that list is an overhaul of the tax code.

This was the first test for Trump and House Speaker Paul D. Ryan (R-Wis.) to work together on passing significant legislation. In the days leading up to the scheduled vote, many rank-and-file members were hopeful their leaders could cut a deal that would give them momentum to push through large-scale tax cuts.

Failing to reach any agreement is both a political and budgetary setback going in to tax talks. Repealing Obamacare’s taxes would have given them a nearly $1 trillion buffer zone to cut tax rates. These obstacles will carry forward as the GOP looks to reset the agenda.

The health care failure makes tax reform more politically necessary but also more difficult to achieve. “Not just because of the baseline effect that the AHCA would have had, but also because there will likely be a period of finger pointing and recrimination,” said Rohit Kumar, a former top aide to Senate Majority Leader Mitch McConnell (R-Ky.).

“Republicans, especially House Republicans, will need to figure out how to work better with each other if there’s to be any hope for tax reform or for the broader Republican agenda for 2017,” said Kumar, now with PricewaterhouseCoopers LLP.

With those growing pains come some realizations. Here are four lessons the House GOP can take with them as they move toward tax reform.

1. Room for Compromise

Ideas that are presented as non-negotiable could turn out to have more wiggle room once the negotiations get going.

The health care bill moved through committee markups with no amendments. Once it became clear that the legislation needed policy changes and political concessions to make it more appealing to both moderate and conservative members, Ryan was willing to introduce two manager’s amendments.

“What we’ve been doing for the past two weeks is what we should’ve been doing for the past two months,” said Rep. James B. Renacci (R-Ohio).

Ryan could find himself in a similar situation with the border adjustment provision in the House tax reform plan. He and Ways and Means Committee Chairman Kevin Brady (R-Texas) have remained resolute that the border tax, which taxes imports but not exports, will remain in the legislation, despite stark opposition from industry groups and some Senate Republicans.

Still, Brady did signal that changes were coming to the import tax provision after the failure of the health care bill. “It will be in,” he said, but modifications will be made.

“The health care bill illustrates one risk of going it alone. It’s tough to manage disparate views if there is only a small margin of error,” a Republican aide said. “So a bipartisan approach in the Senate may be the wise path to comprehensive tax legislation.”

That approach could open the window to some kind of an infrastructure plan linked to tax reform. Trump and Senate Minority Leader Charles E. Schumer (D-N.Y.) have raised the issue repeatedly.

2. Let Freedom Ring?

Freedom Caucus members were some of the loudest opponents to the health bill, saying it didn’t go far enough to lower insurance premiums. In the end, House leadership wasn’t able to sway many of the opponents.

“Either the tax reform will be a complete reprise of what happened, or this will empower the Freedom Caucus to actually deliver on something,” a tax lobbyist said.

The Freedom Caucus has yet to form a group-wide position on Ryan and Brady’s tax plan. A handful of members, including former economics professor Rep. Dave Brat (R-Va.), say they like the idea. But others are opposed.

“Any issue that’s a big issue to the Koch brothers is going to be a sticking point for them,” the lobbyist said. Billionaire brothers Charles and David Koch’s group Americans for Prosperity has criticized border adjustability.

The challenge for Brady and Ryan is to bring Freedom Caucus members into the fold earlier, though that could be difficult as tax-writers have to search for other still-to-be-determined ways to raise revenue to make up for not repealing the Obamacare taxes.

Terse negotiations in the run up to the health care bill has damaged some relationships, and those will have to heal. “There are going to be unfortunate repercussions from this,” Rep. Chris Collins (R-N.Y.) said. “There are some bad feelings now. Friends right now aren’t talking to each other. This is biting pretty deep.”

Rep. David Schweikert (R-Ariz.), who serves on Ways and Means and is a member of the Freedom Caucus, said the way to proceed on a tax bill is to start listening and reacting to feedback. “We sometimes have this habit of listening and then no action from it,” he told Bloomberg BNA.

3. The Trump Factor

In the aftermath of the health care bill's failure, questions are being raised on the leadership abilities of Trump and how his deal-making abilities could affect a major piece of legislation in Congress.

But as Rep. Peter Roskam (R-Ill.), who is the chairman of the Ways and Means Tax Policy Subcommittee, likes to point out—tax reform is aspirational and no one is defending the status quo.

So that might make Trump’s job slightly easier.

Tax reform will depend on how much of a leadership role Trump takes on, said Linda E. Carlisle, a member at Miller & Chevalier Chartered.

“With the health bill, he asked for lawmakers to bring him a plan. But it’s a lot easier for the tax legislation to take shape if he tells them the things he wants to see done upfront,” said Carlisle, who previously worked at the Treasury Department during the 1986 Tax Reform Act.

And there’s every sign out there that the White House will take more of a role in rewriting the tax code. Office of Management and Budget director Mick Mulvaney said on ABC March 24 that “when you see tax reform the first time it will be the president’s plan and we’ll drive the debate on that.”

Successful or not, the extent of Trump’s involvement in the health care bill in the past few weeks was eye-opening to some Ways and Means Republicans. Renacci said Trump had shown that he was very much willing to work with Congress to try to get things accomplished.

4. An Open Process

Looking at how the health care bill unraveled in the House, another tax lobbyist predicted that members won’t go along with a similar process when it comes to tax reform.

“Members are going to have little patience going forward for bills that are written in the dark and then jammed through the committees and onto the floor with the message that this is the best we can do,” the lobbyist said.

Schweikert suggested that meetings in smaller groups would be better. “We’ve got to work through technical issues and make sure that the small group has a variety of political interests in the room,” he said.

Rep. Patrick Meehan (R-Pa.) suggested that an “incremental approach” would be preferable for a big piece of legislation such as a tax overhaul bill.

How to approach the process is on Brady’s mind as well. “One lesson learned is to start early in explaining to all members the challenges and constraints of the Senate process,” he said. Republicans hope to pass a tax bill in the Senate using a fast-track budget process called reconciliation. But using that tool would put restrictions on what can be included in the bill.

To contact the reporters on this story: Laura Davison in Washington at ldavison@bna.com and Kaustuv Basu in Washington at kbasu@bna.com

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

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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