With control of Congress and the White House in hand, Republicans say they will embark next year on an ambitious effort to lower taxes for businesses and individuals through an overhaul of the tax code.
But signs are already emerging that it could be one of the first Republican policy fights during the Trump administration with Senate Republicans advocating a more methodical and bipartisan approach than their GOP colleagues in the House.
“I don’t think it can be done except in a bipartisan way,” Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) told reporters on Wednesday.
Senate Republicans this week said the party needs Democratic support to help move the legislation through the upper chamber and to then, more importantly, ensure it has a chance to be a long-lasting policy, arguing President Obama’s signature achievements, such as the Affordable Care Act, are now under threat of repeal because they passed without any GOP support.
“That’s one lesson of the Obama administration,” said Senate Majority Whip John Cornyn (R-Texas). “If you do things purely on the party line then its unsustainable.”
Speaker Paul D. Ryan (R-Wis.), Senate Majority Leader Mitch McConnell (R-Ky.) and President-elect Donald Trump all say they want to cut taxes for individuals and lower rates that businesses pay to make U.S. companies more competitive with international rivals.
“I am proposing an across the board income tax reduction, especially for middle income Americans,” Trump said in an Aug. 8 speech. “This will lead to millions of new and really good paying jobs. The rich will pay their fair share, but no one will pay so much that it destroys jobs or undermines our ability as a nation to compete.”
Trump and Ryan have released relatively similar tax proposals loaded with ideas backed by conservative Washington think tanks, but Senate Republicans have yet to be as specific about the policies they want to pursue.
House Republicans are eager to get started on the tax overhaul, with some pushing for it to be part of President Trump’s first 100 days agenda.
Ways and Means Chairman Kevin Brady (R-Texas), the top tax writer in the House, has been on a whirlwind tour of television interviews and appearances at Washington-area conferences in recent days promising that Congress will quickly dive into the work of overhauling the tax code.
“I’m here to tell you that tax reform will occur in 2017,” Brady said Tuesday at a conference sponsored by Bloomberg/BNA. “House Republicans are going to be ready for our built for growth tax reform forward to make sure we meet that timeline.”
Senate Republicans are not nearly so bullish on the timeline or the details of a tax plan. For one, they don’t agree on all of the elements of the House blueprint.
“It is going to take some time to work through the process,” Cornyn told reporters Tuesday.
What remains to be seen is what role the new Trump administration will play in the debate.
The Trump campaign embraced portions of the House plan this summer when GOP leaders released an update of their tax proposal. That has brought the two sides closely in line, but that is, at least in part, because Senate Republicans haven’t released a plan of their own.
“The House blueprint is the only thing that’s shovel ready,” said Ed Kelinbard, a tax expert at the Gould School of Law at the University of Southern California.
The tax discussions are still in the early stages and most lawmakers dismissed any potential conflicts as an expected part of any major legislation. Several top-ranking Senate tax writers said they are confident that the House and the Senate can work together.
“Our procedures are different and we might have some different ideas,” said Senate Conference Chairman John Thune (R-N.D.) “But I think we could figure out how to reconcile.”
Senate Republicans could also decide to ditch the idea of trying to garner some Democratic support for their proposals and use special budget rules, known as reconciliation, to more easily pass tax legislation by shielding it from the threat of a filibuster.
But that approach comes with drawbacks as well.
While it would allow Republicans to avoid a filibuster fight, it also requires that any long-term revenue changes not impact the deficit. Tax cuts would, by definition, reduce the amount of money flowing into the federal government and add to the deficit.
During the past year there was little coordination on tax reform between House and Senate Republicans and it’s not clear when those talks will begin in earnest.
Brady and his colleagues earlier this year drafted the proposal that will likely be the starting point for the legislation they want to move early in 2017 without any input from their counterparts in the Senate.
Hatch said he doesn’t know much about the House blueprint, leaving him without an opinion on the proposal.
“I can’t say because I don’t fully understand what they’re discussing.” he said.
One difference between the two chambers could be over how to address tax policy for multinational corporations.
In the past, Hatch has favored a more traditional form of international tax reform that would tax companies only on the profits they earn in the United States and does not tax profits earned abroad. That conflicts with Brady’s blueprint, which embraces new border adjustments for taxing multinational corporations that some experts say could violate World Trade Organization rules.
“Everybody has been talking about Brady and Ryan and Trump and how they’re all on the same page but nobody is talking about Orrin Hatch and the Finance committee,” said Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center. “Hatch has his own ideas for corporate reform, they’re very different from what Trump has been talking about.”
The House GOP blueprint outlines many long-held Republican principles, like cutting rates for businesses and individuals and ending many personal deductions, without filling in critical details about which programs would be eliminated to make up for the huge cost of cutting tax rates.
Analysts at the Tax Policy Center estimate that the House GOP plan would cost the federal government more than $3 trillion over 10 years. Republicans insist their plan will raise that much or more through increased economic activity. Most economists, however, have long dismissed the idea that the growth spurred by tax cuts will generate enough revenue to offset all of their impact on the deficit.
Any tax code overhaul will also be intensely lobbied by the different corporations and industries who see special benefits they now enjoy cast aside.
“True tax reform is hard,” Gleckman said. “There are winners but there will always be losers.”