What the House Freedom Caucus Wants From Tax Reform

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By Laura Davison

The House Freedom Caucus, one of the most conservative and vocal groups in Congress that successfully ousted former Speaker John Boehner, is preparing to push for steep tax cuts for corporations and individuals.

It’s unclear if the group will succeed in getting those cuts as the prospects for large-scale tax reform have dwindled and the days have ticked by with few agreements about how to approach a bill. But Freedom Caucus Chairman Mark Meadows (R-N.C.) remains confident: “We certainly can deliver on tax reform,” he said before leaving for the August recess.

The congressional calendar has moved slowly this year, with health care legislation requiring more negotiating than initially planned. Republicans are banking on a win with tax reform in the final four months of the year, but for the lobbyists on K Street and the bankers on Wall Street the hope for a big deal this year is diminishing.

Republicans all agree about the need to do something with taxes. But discussions about how steep the tax rate cuts should be and how they should be paid for are exposing fissures between the Freedom Caucus and the tax-writing House Ways and Means Committee.

Meadows said earlier this summer that he prefers a corporate tax rate of 16 percent and that it would be difficult for him to support a rate beyond 19 percent or 20 percent. Ways and Means Committee Chairman Kevin Brady (R-Texas) released a plan last year with a 20 percent rate, but House Republican aides say discussions of taxing corporate income are in the 25 percent to 28 percent range.

Bad Blood

Tension between the Freedom Caucus, which takes a hard-right ideological approach to small government, spending cuts, and lower taxes, and House leadership has been brewing for months. The Freedom Caucus formed in 2015 and has quickly become one of the most prominent gatekeepers to what the GOP can pass in the House.

The group has nearly enough members to supersede the 46-seat Republican majority. If members dislike a bill backed by leadership, they can vote it down with the help of a few more conservative lawmakers, assuming it doesn’t garner much Democratic support. The Freedom Caucus doesn’t publish a list of members, but is estimated to have about three dozen representatives in its ranks.

Freedom Caucus members opposed several versions of the health bill in Congress. House Speaker Paul D. Ryan (R-Wis.), in a surprising move, canceled a vote on a bill in March—largely because of opposition from Freedom Caucus members. The House later passed a version of the bill in May. There is fear that the Freedom Caucus could derail tax reform, too.

A common frustration in House offices is that the group is inconsistent with its policy requests and is continuously moving the goal posts, said a tax lobbyist, who requested anonymity because of client sensitivities.

Brady and Ryan had hoped to bring Freedom Caucus members on board by abandoning the border adjustment tax. Since it didn’t, they’re reluctant to give in to other policy demands, the lobbyist said. A spokesperson for the House Freedom Caucus didn’t respond to a request to comment.

Up First: Budget

Meadows says Congress must take up a bill that sharply reduces taxes for businesses and families. But group members, including Meadows and Reps. Dave Brat (R-Va.) and Jim Jordan (R-Ohio), want to see the details before they sign on to a budget resolution that includes the instructions to fast-track the bill through the Senate.

“I don’t know what I go home with and campaign on for tax reform,” Meadows said in late July. Members have suggested withholding support for the budget resolution until more details are hashed out.

Congressional leaders, along with White House and Treasury Department officials, are working on a tax plan, but few details, other than that it will lower taxes and grow the economy, have been released. The White House could release a three- to five-page outline in the coming weeks.

The budget resolution calls for more than $200 billion in spending cuts, a provision that was included in part to woo the more libertarian wing of the Republican Party. Moderates oppose the cuts, making it difficult for Republicans to garner enough support to pass this budget. Without the budget, there isn’t tax reform, Brady said.

Ideological Divide

The group is at odds with the people who want comprehensive tax reform, such as Ryan and Brady, and those who also want a quick political win before primary season in 2018, said Alexander L. Reid, partner at Morgan Lewis and Bockius LLP.

So far, the caucus as a whole hasn’t released any official positions—which would require the backing of 80 percent of its members—on tax reform. Several members were vocally opposed to the controversial border adjustment tax, which the tax-writing committees agreed to remove from consideration earlier this summer.

With the border adjustment option gone, there is flexibility among members of the Freedom Caucus about the specifics in a tax bill, said Jason Pye, vice president of legislative affairs for FreedomWorks. A high priority is a tax cut for individuals, he said.

Meadows has expressed doubt about full expensing, a provision in the Ways and Means tax plan that would let businesses immediately write off investments. However, Meadows, a realtor, supports maintaining the mortgage interest deduction.

Meadows suggested earlier in August that the tax bill should be retroactive to the beginning of the year, a position many economists disagree with because businesses and individuals can’t travel back in time to adjust their economic behavior to account for lower taxes, Scott Greenberg, a senior analyst at the Tax Foundation, said.

It’s telling that the caucus hasn’t been able to gather enough support to come out in favor of—or in opposition to—any particular provision, a GOP aide said.

And the general discontent within the GOP also extends to an occasional lack of harmony within the caucus. Members are sometimes frustrated that Meadows makes public statements without consulting others in the group, the aide said.

But, there’s one thing every Republican agrees on: the need for a full-bore effort to push legislation in the fall. Brady, Meadows and many others in the Republican conference are still publicly bullish that a bill can get to President Donald Trump by the end of the year.

“So far, the process is better than with health care, though that doesn’t take a whole lot to improve upon,” Pye said. “The sooner the better, for tax reform. We can’t stall this.”

To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com

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

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