With President Donald Trump’s effort to undo Obamacare derailed by opposition from Republican senators, the White House has turned its attention to its next big shot at a big win: tax reform.
The long-held GOP goal of re-engineering the U.S. tax system has now become a political imperative for the Trump administration, which has yet to deliver any major legislative victories despite Republican control of the White House and both houses of Congress.
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“They know they could really use a win,” said Larry Kudlow, an informal economic adviser to the Trump campaign, who met with Trump last week. “The president, from the get-go, has been much more comfortable with tax cuts than health care.”
Donors and influential Republicans are particularly eager to see tax reform completed before the 2018 midterms — both for their own bottom lines and because it will be harder for Republicans to hold on to Congress without policy accomplishments, White House advisers and outside supporters fear.
“If Republicans fail to repeal or at least substantially roll back Obamacare, it raises the stakes dramatically to pass into law a big, bold tax-reform plan,” said Tim Phillips, who leads Americans for Prosperity, the political group backed by the Koch brothers.
“On the political side, the biggest problem that Republicans could face in 2018 is not a partisan battle. It’s a sense of incompetence and inability to govern that will be most painful,” said Josh Holmes, a longtime McConnell adviser and former chief of staff.
“Unless they can figure out how to reverse this quickly, you can see where this cascades into more issues past health care,” Holmes added.
But consensus on the political value of achieving tax reform ahead of the 2018 midterm elections does not equal agreement on the policy details — and that could bedevil Trump’s next big policy push, just as the health care effort was undermined by insurmountable differences between moderates and conservatives in the Republican Caucus.
At issue still is how low Trump can cut tax rates as well the best way to pay for those cuts, according to interviews with 10 people including senior administration officials, Republican congressional aides, lobbyists and close advisers to the president.
“They might be coalescing around something, but when you have not decided how to pay for the tax cuts, you are still a long way from a plan,” said one Republican lobbyist.
In the past few days inside the White House, there has been an eager pivot toward pursuing tax reform, according to two White House officials — especially since the businessman-turned-president feels more conversant in tax do’s-and-don’ts than in the weeds of health care.
Press secretary Sean Spicer said on Monday that the White House has held hundreds of tax reform “listening sessions” in anticipation of doing tax reform. The White House is also hopeful that a good tax package would give officials something to talk about other than the various Russia investigations, said one adviser close to the White House.
Administration officials have been working toward a proposal for months, with Treasury Secretary Steven Mnuchin and Director of the National Economic Council Gary Cohn, neither of whom has deep expertise on tax policy, meeting behind closed doors with CEOs, businesses and tax experts.
“We are trying to actually be organized here. There are lots of internal strategy meetings on communications and policy,” said one senior White House official. “The administration has been working with outside groups, CEOs and businesses and has met frequently with conservative activists, who too could kill a plan.”
“We know this is even more important now, and the president is engaged on it,” the White House aide added.
In the absence of a confirmed assistant secretary for tax policy at Treasury, the NEC’s Shahira Knight has been acting as the face of the administration’s tax push. Recently, she spoke to groups such as the Tax Council, National Association of Manufacturers, and the U.S. Chamber of Commerce’s tax committee on the administration’s path forward on tax reform, according to lobbyists present at those sessions.
Although Knight did not offer a specific time frame for when the administration would release its tax blueprint, she told attendees at the recent Tax Council session that the White House wanted Congress to use its template for a tax bill.
The senior administration official said the White House hopes to start rolling out a tax blueprint in August and then “build on it.”
Meanwhile, GOP tax principals, known as the Big Six — Cohn, Mnuchin, Senate Majority Leader Mitch McConnell, Speaker of the House Paul Ryan, Senate Finance Committee Chair Orrin Hatch, and House Ways and Means Chairman Kevin Brady — have been meeting since the springtime once a week for roughly one hour to work out their own differences on taxes.
Their meetings are, in part, an effort to show more coordination between the White House and the Hill on taxes — even if, for now, the sessions are symbolic photo-ops.
“We’d like to do the process differently than health care and have it as more of a joint effort,” said one House leadership aide. “With health care, there was so much criticism and not a lot of support.”
Key policy differences still dominate the various discussions. One major open question is how much Republicans can cut tax rates on both the individual and corporate side of the tax code. The president has publicly indicated that he wants to get the corporate rate as low as 15 percent — a feat that tax wonks, including those in the administration, believe is far-fetched.
“The president set out the 15 percent as an ambitious goal post,” said another senior administration official, acknowledging that the final number could wind up significantly higher. The intent was to start negotiations from a very low rate and hope to wind up somewhere close to 20 percent.
Too high a tax rate, such as 25 percent, would be seen as a loss for the business community, said one Republican lobbyist.
The adviser close to the White House said that “frankly, it’s too early to even be talking about the rates.” He added that Republicans first have to create a legislative process that members and outside groups buy in to and that can create enough momentum to get a tax package done.
Another major issue is the best way to pay for tax cuts, since the White House is not keen on Ryan’s and Brady’s idea of a border adjustment tax. They could cut the interest deductibility for businesses, or disallow taxpayers from deducting state and local taxes — just a few of the ideas floated in the past several months with no resolution.
Other major unresolved questions include the best rates on the individual side of the tax code and the way a Trump plan would tax small businesses that currently file under the individual side of the code.
Outside economic advisers, such as Steve Forbes, are pushing the president to pursue a package of simply cutting Americans’ and businesses’ tax rates without overhauling the tax code itself.
That idea, however, will not fly with the Republican policymakers on the Hill who want to avoid adding to the deficit, said one Republican congressional aide — as well as pursue a once-in-a-generation chance to clean up the federal tax code.
“The heck with the Congressional Budget Office, we’ve got to get something done,” Forbes told POLITICO. “Then, we could leave the heavy lifting for another day.”
Ben White contributed to this report.