Tax Reform Clues Lie in Politics of House Health Bill

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By Kaustuv Basu and Laura Davison

The momentum toward a tax reform bill this summer could hinge on how successfully House Speaker Paul D. Ryan (R-Wis.) is able to corral his caucus to support a health care bill.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) has repeatedly said that bills reforming the tax code and replacing the Affordable Care Act can move on parallel tracks. But the fight unfolding this week over the health care bill—despite its backing by President Donald Trump—could greatly influence how the tax reform blueprint shapes up in the weeks to come, current and former tax staffers said.

If the House passes the health care bill, “it will serve as a template for how you get big things done,” said Rohit Kumar, a former top tax aide for Senate Majority Leader Mitch McConnell (R-Ky.). “It will also show the presidential team and congressional leadership what they can achieve when they work together. If it fails, it is the opposite lesson.”

The health bill is a must-do item for Ryan if he wants to overhaul the tax code next year. Trump told House Republicans that if they don’t repeal and replace Obamacare, they won’t be able to pass significant tax legislation and will likely lose their majorities in both chambers of Congress, according to lawmakers who attended a closed-door meeting with him.

A failure on the health care front would increase pressure to succeed on tax reform—but also would make it more difficult, said Kumar, now with PricewaterhouseCoopers LLP.

Even if Republicans pass the American Health Care Act this week, the bill would lay bare the weakness and divisions within the Republican caucus, making it easier for those targeting the tax plan and border adjustability to find potential cracks. House Republicans will be unwilling to take difficult political vote after the other, especially if the Senate is unwilling to play ball on the measures.

A prominent Republican congressman, who spoke on the condition of anonymity to freely discuss the issue, said he was trying to read the tea leaves as Republicans eye a tax overhaul. “It’s always important if you have a two or three step agenda to get your first step done,” he said. “It is a definitely a test of the ability of the speaker to bring people together and get this thing passed.”

Eyes on Ryan

A Democratic aide in the House called the fight over the healthcare bill a dry run for tax reform, especially if Ryan is successful in getting the health care bill through the House and Senate.

Last June House Republicans released a tax overhaul blueprint that calls for a 20 percent corporate tax rate, a border adjustment tax provision that would tax imports but not exports, and a 33 percent top individual rate. The Senate, meanwhile, has not offered a public plan but Senate Republicans are currently searching for an alternative to the contentious import tax by reexamining previously proposed ideas that would enable a broadening of the tax base to lower rates.

“If this bill passes the Senate, it is in large part a House Republican product. A product beats no product,” the House Democratic aide said. “When it comes time for tax reform, the Senate doesn’t have a plan, the House does – it makes more likely they can bulldoze it through.”

House Republicans see a way to move the tax legislation forward with the border adjustability provisions, according to a senior GOP aide. This path would be palatable to some of the loudest critics, including retailers, the aide said without providing details about how to bring opponents on board.

Success with the health care bill would also soften the ground for tax reform. Repealing the taxes associated with the Affordable Care Act, such as the 3.8 percent tax on investment income, makes it easier to make the tax legislation revenue-neutral, one of Brady’s stated goals.

“So if you can repeal some of that stuff now. It is easier to go from 20 to 15 percent later,” the House Democratic aide said.

All eyes are on Ryan because he has never passed a substantial piece of legislation before, a tax lobbyist told Bloomberg BNA. With the health bill, he has shown a willingness to compromise after the plan was criticized and that could happen with a tax bill too.

Ryan has had to expend significant political capital to get the bill to repeal and replace the ACA to this point, Phil English, a former Ways and Means member now at Arent Fox, told Bloomberg BNA. “His priority has always been tax reform, but it will be another test for him to not only get his people around a common bill, but also face a great deal of opposition from some parts of the economy,” he said.

Ideology vs. Policy

Rep. Peter Roskam (R-Ill.), the chairman of the tax policy subcommittee in Ways and Means, told Bloomberg BNA that the “aspirational nature” of tax reform would be important to focus on when the plan starts moving forward.

Roskam said that although tax reform was difficult, it was fundamentally different from any debate over the health care bill.

“There is an aspirational nature to tax reform that is important to focus on and we’re ready to transition to that aspirational nature of the discussion because no one is defending the status quo,” Roskam said. “The ACA has defenders, the tax code doesn’t.”

William Hoagland, a senior vice president at the Bipartisan Policy Center, said there was no one who was claiming “paternity or maternity” of the tax code. “That allows for more flexibility,” he said. But the real test of Ryan on the health care measure might come in a conference committee after the Senate makes changes to the bill, Hoagland said.

House leadership has been trying to shore up support for the tax blueprint with mixed results. The Republican Study Committee and Rep. Steve Scalise (R-La.) have been holding briefings for “rank and file” members to address their concerns now.

Still, other items such as a looming deadline for a continuing resolution and raising the debt limit will take up time and political capital, Hoagland said. “I’m a pessimist on a tax reform bill passing this year,” he said.

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