Republicans Discuss Revenue Issues in Tax Plan at Retreat

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By Laura Davison and Aaron E. Lorenzo

A major tax overhaul shouldn’t increase the federal debt, a top House lawmaker said as congressional Republicans kicked off three days of meetings in Philadelphia that will include a visit from President Donald Trump.

House GOP leaders have been pushing a tax plan they say would ultimately prove revenue neutral when accounting for economic growth that they say would flow from their proposed tax cuts, a position they have long maintained.

As far as Rep. Cathy McMorris Rodgers (R-Wash.) knows, all talk on the matter relates to revenue neutrality, she said at a Jan. 25 news conference as the retreat began.

“A big part of this retreat, there’s going to be significant time set aside to have those conversations between the House and the Senate and the administration,” said McMorris Rodgers, chair of the House Republican Conference. “But so far, our goal has been to be a revenue-neutral approach to tax reform.”

Some in the Trump administration may be thinking otherwise, though, according to a story published Jan. 25 by Politico.

But House Ways and Means Committee Chairman Kevin Brady (R-Texas) has always insisted that tax overhaul legislation would remain revenue neutral through dynamic scoring, which would factor in economic changes from the bill.

Revisiting Revenue

Skeptics have questioned the potential cost of the House GOP tax plan—a dynamic estimate from the Urban-Brookings Tax Policy Center indicated it would result in a $3 trillion revenue loss for the federal government over a decade.

In contrast, the conservative-leaning Tax Foundation has estimated that the U.S. economy would grow 9 percent under the plan and it would result in a much lower loss of revenue—about $200 billion over 10 years.

The Tax Policy Center uses a model closer to the congressional Joint Committee on Taxation, which would ultimately produce the official economic estimate.

Republicans in Philadelphia are discussing the overall revenue impact of their plan after some in the administration were said to have questioned whether the still-developing tax bill would need offsets with revenue raisers.

Trump is scheduled to join the GOP retreat on Jan. 26, along with Vice President Mike Pence. The gathering, scheduled for Jan. 25-27, is meant to get congressional Republicans under one roof to plan strategies for the coming year, with overhauling the tax code among issues at the top of their list.

Border Wars

One of the House Republican plan’s key revenue provisions has been contentious heading into the retreat—the border adjustability provisions, which tax imports and exempt exports.

Skepticism over whether the plan would comply with World Trade Organization rules has lingered, but Brady said Jan. 25 that the U.S. would win if the tax system were challenged. Trump has said he prefers a less-complicated plan, such as a tariff on products from companies that move operations offshore.

Brady’s plan moves away from a corporate income tax system and toward a consumption tax regime, but isn’t a pure value-added tax, he told reporters at a Jan. 25 Financial Services Roundtable event in Washington before heading north. The hybrid nature of the proposal has raised questions about whether the WTO would consider the plan to be an “indirect tax,” Brady said.

The system would need to be considered an indirect tax in order to have the border adjustability provision that taxes imports and exempts exports.

The border provision is one of the primary ways to pay for the Republican plan’s lower tax rates, estimated to raise more than $1 trillion in revenue by the Tax Policy Center, and is designed to reduce motivations for U.S. businesses to move overseas.

Here to Stay

Brady has said that border adjustments are staying in the plan, despite opposition from importers in various industries—including retail—calling them “economically equivalent” to a VAT.

“For the WTO to be sustainable, they need to recognize tax and trade equivalent approaches, and ours is,” Brady said.

He has said that congressional Republicans wouldn’t make final decisions on the plan at the retreat, noting that the event would instead offer an opportunity for continued education for non-Ways and Means members.

One of them, Rep. Charlie Dent (Pa.), said the myriad items on the GOP to-do list this year means tax reform won’t come together right away. Repealing and figuring out how to replace the Affordable Care Act is queued up ahead of taxes.

In addition, the reality of different Senate rules must also be kept in mind when putting together tax change legislation, Dent told reporters, citing “a soft deadline before August” to get a tax bill to the House floor. House Speaker Paul D. Ryan (R-Wis.) wants to get tax legislation on Trump’s desk by the August recess, Rep. Chris Collins (R-N.Y.) told reporters.

Ryan said in a MSNBC interview that he wanted to complete tax reform by the end of summer.

To contact the reporters on this story: Laura Davison in Washington at lDavison@bna.com and Aaron E. Lorenzo in Philadelphia at aaron@bna.com

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

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