Congress last overhauled the tax system in 1986
It's still unclear how Congress intends to pay for any tax cuts
When lawmakers return this week from the August recess, they’ll face a bevy of must-do tasks, but chief among them is a long-held Republican agenda item: comprehensive tax reform.
Enthusiasm levels are high for the mountainous challenge, as tax reform is a widely popular idea, and Republicans are desperate for a major legislative accomplishment they can tout in next year’s midterm elections. And it would be major: The last time Congress successfully passed a comprehensive tax overhaul was in 1986.
While lawmakers in the tax-writing committees have been working on it for years, the current legislative effort is still in its infancy. Broad principles have been established, and President Donald Trump has begun to use his bully pulpit to make the case to the American people for the overhaul. But few details have been released to the public – in large part because they are still getting hammered out among Republicans.
Behind the scenes, staffers in the House Ways and Means Committee have been fleshing out the bullet points laid out by the White House in its call for a lower corporate tax rate, lower income tax rates and policies aimed at encouraging American businesses to bring overseas profits back home.
But it’s still unclear how Congress intends to pay for any tax cuts, or at least spare the deficit from taking a massive hit.
Treasury Secretary Steven Mnuchin told The Wall Street Journal Thursday that the Trump administration and congressional leaders plan to release a more detailed tax plan in the next few weeks.
In the meantime, the White House will continue its messaging campaign to ramp up public support for a tax reform push – something Trump wasn’t as active in doing during the failed attempt to repeal and replace President Barack Obama’s health care law. It’s one of the many lessons learned by both lawmakers and the administration.
They’re also painting a more united front than they had on Obamacare. Already, House and Senate leaders have formed a group called the “Big Six,” alongside Mnuchin and White House chief economic adviser Gary Cohn. The small group agreed to a set of shared goals ahead of the drafting process as part of a strategy to prevent the same kind of intra-party strife that helped take down the health care effort.
Trump, who’s scheduled to meet with all six leaders this week, said Wednesday in Missouri that he was “fully committed” to working with Congress on the issue, but still took the liberty to poke at lawmakers and throw more pressure their way.
“I don’t want to be disappointed by Congress,” he said in the tax reform speech. “Do you understand me?”
But already some of those same tensions between conservatives and moderates that dominated the health care debate are echoed in tax reform. Members of the conservative House Freedom Caucus remain committed to tax reform,but they want to see a plan laid out before they agree to the first step: a budget.
Congress plans to use a process known as reconciliation to overhaul the tax code, which allows the Senate to pass the tax bill with just a simple majority. But in order to do so, Congress has to first pass a budget with the instructions for tax reform. That is where conservatives’ demands are. They want to ensure they support the broad contours of tax reform before they agree to the simple majority voting threshold.
Those conservative members are also calling for steeper cuts to the corporate tax rate than some Senate Republicans. Members of the conservative House group want to see a corporate tax rate in the teens, while Senate Finance Chairman Orrin Hatch has warned that Republicans might have to settle for a more gradual drop from the current 35% to 25% rate.
Members of the House Freedom Caucus have also warned that Congress must act on tax reform before the Thanksgiving recess or risk having nothing to show to voters ahead of the 2018 midterm election. Given the long list of must-pass items that remain on the docket this fall, that could be a tall order.
But conservatives are not the only group that could make tax reform difficult.
Democrats have already laid down their marker on where they stand. In a letter signed by all but three Senate Democrats, members have been unequivocal that they will not agree to a tax reform package that cuts taxes for the top 1% of earners or drives up the deficit.
Democrats fear allowing GOP members to raise the deficit now with tax cuts will only result in Republicans eventually trying to roll back spending for mandatory spending programs like Medicare and Medicaid.
While Senate Majority Leader Mitch McConnell has said he would welcome Democratic help in passing tax reform, it is becoming increasingly clear that it could remain a partisan exercise. The challenge for Republican leaders is to be more effective at uniting the moderate and conservative wings of their party on tax reform than they were on health care.