Tax Reform Still Possible After Republicans Pull Health Bill

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Colleen Murphy, Laura Davison and Kaustuv Basu

Republican lawmakers are confident their dream of tax reform can still come true, even after the GOP health bill was pulled moments before a scheduled vote in a crushing blow to President Donald Trump’s agenda.

“We’re going full steam ahead on tax reform. We will analyze the impact of this action,” House Ways and Means Committee Chairman Kevin Brady (R-Texas) told Bloomberg BNA following the announcement. “The president is moving on, and so are we.”

Trump had pressured the conference to vote on the health bill March 24, telling them if it failed they would leave the Affordable Care Act in place and move on to other priorities. House Speaker Paul D. Ryan (R-Wis.), who announced the decision to yank the bill, reaffirmed that message in a subsequent press conference.

Revamping the tax code will be more difficult, but not impossible, though “Obamacare taxes will stay with Obamacare,” Ryan said.

House Republicans had hoped to repeal the health law taxes, which amount to about $1 trillion, prior to focusing on tax legislation. Keeping the taxes means Republicans no longer have the savings and will have less flexibility to overhaul the tax code without adding to the deficit. Revenue neutrality has long been a goal in tax reform, but leaving the taxes intact means Republicans will have to settle for shallower rate cuts or a plan that could grow the deficit.

Still, the decision to pull the bill off the floor—after delaying the vote a day—is a major setback for Ryan and Trump, who spoke with members individually and in groups at the White House to drum up support.

Republicans sparred over tax provisions in the bill in the weeks since its March 6 introduction, and last-minute compromises to woo hard-right members of the House Freedom Caucus and moderates didn’t seem to make much of a difference. Those changes included keeping the 0.9 percent Medicare surtax on high-income earners until 2022, a move that helps combat the narrative that the bill is a tax cut for the rich and a premium hike for the poor.

“It’s the process, it’s not supposed to be all clean and happy. Sometimes you’re going to have tussles. You get up, brush the dirt off your knees, if it’s bad enough you clean off the wound and you move on,” Rep. Morgan Griffith (R-Va.) said following the conference meeting.

Tax Reform Looms

Brady told reporters he is confident a tax code overhaul can still happen, and lawmakers can now put all their energy there. Lawmakers are still working with the import industry on a border adjustment provision that would tax imports and exempt exports, which he said will be in the final bill “with modifications.”

Republicans had hoped to pass the health-care changes using the filibuster-proof reconciliation process, which would have shielded them in the Senate but limited them to only including provisions that reduce the deficit. Lawmakers plan to handle tax reform the same way.

“One lesson is that we have a lot of new members who are still learning about the constraints of reconciliation,” Brady said. “And these odd Senate rules that can put guardrails around what the House wants to do. Those same guardrails, just applied differently, will be present in tax reform.”

The plan is still to make tax reform revenue neutral, said Rep. Kenny Marchant (R-Texas), a member of Ways and Means, the panel that will lead tax overhaul efforts based of, on a blueprint the GOP released last summer.

Marchant said he hasn’t yet seen legislative text, only concepts, and said it will still be weeks before text of a tax bill is released. Members will need to take a second look at their plans, he said.

“Deadlines are not helpful, you know. So we need to be able to do it not in a heavy deadline environment,” Marchant told reporters.

House Republicans called for a 20 percent corporate tax rate as part of their tax reform blueprint. That rate may have to be about 10 percentage points higher than what Republicans have proposed, Rep. John Shimkus (R-Ill.) said.

There is still a “greater than 50 percent chance” that tax overhaul legislation will pass this year, Linda Carlisle, a member at Miller & Chevalier Chartered, said.

“This shows that the Senate does not want to get their hands dirty,” said Carlisle, who worked on the 1986 Tax Reform Act while at the Treasury Department. “They are truly sitting back and watching. They’ll probably take the same posture for tax reform.”

Health Reform Not Forgotten

“We’re going to be living with Obamacare for the foreseeable future. I don’t know how long it’s going to take us to replace this law,” Ryan said in the press conference. He added that Health and Human Services Secretary Tom Price can still make regulatory changes—something leadership had seen as step two after dismantling of the law.

Trump said in a March 24 press conference that lawmakers may return to health care changes in the future when the ACA fails—an opinion some Republicans said they share.

“This is not dead for all time. That’s easy to say in the heat of the moment, but it’s just not,” said Rep. Bradley Byrne (R-Ala.). But perhaps lawmakers will turn first to a different issue, like passing a budget and addressing immigration issues.

“We’ve got some other things that we need to turn to, that’s not a bad thing. Sometimes the passage of time, people get away from an issue that’s so intense like this, people start thinking through things, people change around and you get where you need to be.”

Rep. Charlie Dent (R-Penn.), a member of the moderate Tuesday Group who opposed the bill, said changes to the health system are still possible—though decisions haven’t yet been made about how to do so.

“There are parts that need to be repealed, parts that need to be replaced. This needs to be reformed, repaired and overhauled, and some parts will be retained—we all know that,” he said.

To contact the reporters on this story: Colleen Murphy at cmurphy@bna.com, Laura Davison at lDavison@bna.comand Kaustuv Basu at kbasu@bna.com, in Washington

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.

Request Daily Tax Report