GOP Stumbles Through Tax Reform

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Robert Donachie Capitol Hill and Health Care Reporter
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Republicans are finding it increasingly difficult to push their overhaul of the U.S. tax code through Congress, met with opposition from Democrats, lobbying groups and the harsh reality of altering a complex system.

The Party finds itself in an empirically ideal spot to drive their legislative agenda. The GOP has a president in the White House and a majority in Congress — 238 out of 435 seats in the House and 52 out of 100 seats in the Senate. (RELATED: Divide Among GOP In Congress Isn’t Going Anywhere)

After months of sourcing through the tax code and three tax proposals from President Donald Trump, Republicans are still searching for a way to sell their tax agenda to the American people and Democrats in Congress.

GOP lawmakers are hitting snags within their own party in finding ways to fund the government while also instituting their proposed steep tax cuts. Thus far, their proposals include a heavily debated border adjustment tax (BAT), eliminating the business interest deduction and altering the amount of tax breaks individuals receive for health and retirement savings. Moderate Republicans in the House and Senate largely oppose these measures.

Arguably the most contentious Republican proposal is from Speaker of the House Paul Ryan, as he pushes for a BAT tax that would levy a 20 percent tax on imports. It would allow U.S. companies to deduct the cost of goods made in America, but not ones made in foreign countries. It would reportedly raise over $1 trillion in federal revenue over the next decade, a much needed sum to finance the government while simultaneously slashing business and corporate tax rates by 15 percent.

Even with its potential boon to federal revenue, Senate Republicans, moderates in the House and members of the Trump administration stand opposed to the BAT tax, claiming that it merely raises prices on consumers.

Conservative groups Freedom Partners and Americans for Prosperity are also against Ryan’s BAT tax, but largely support the Republican effort to reform the tax code. (RELATED: Koch Network Backs Comprehensive Tax Reform)

The other proposals, like eliminating the business interest deduction, are met with staunch opposition from corporations and their various lobbying organizations. Corporations argue that eliminating the deduction makes debt more expensive, which makes the consumer price more expensive. Treasury Secretary Steve Mnuchin is not a proponent of the business interest deduction, acknowledging that some firms rely on debt financing to stay in business.

As Republicans hammer out the details of how to raise funding for their tax cuts, the Party’s leaders are promising that tax reform will make its way through Congress in 2017, even in the face of an investigation into Russian ties with the Trump administration and the fallout regarding Trump’s termination of former FBI Director James Comey.

House Ways and Means Chairman Rep. Kevin Brady of Texas said Sunday that Republicans remain focused on “delivering tax reform.” The president echoed Brady’s statement Sunday evening, promising that the tax reform process is going along “very well,” and is actually “ahead of schedule.”

If Republican lawmakers are unable to find a viable solution, they will likely have to make some concessions to their demands for tax cuts. Mnuchin summarized these concessions in a House Ways and Means Committee hearing in mid-May, saying that “permanent” tax reform “is better than temporary,” but “temporary is better than nothing,” The Wall Street Journal reports.

Trump and Republican leadership propose two versions of corporate tax reform: cutting the corporate tax rate to either 15 percent or 20 percent. One path to passing their tax package would be to raise the tax cut to 25 percent, which still constitutes a 10 percent cut to the current corporate tax rate. Every percentage point cut to the U.S. corporate tax rate constitutes a $100 billion reduction to federal revenue over the 10-year horizon.

Cutting federal revenue puts government programs in jeopardy, which will immediately trigger backlash from Democrats in Congress.

The administration’s efforts to overhaul the tax code is hindered by their push to repeal and replace Obamacare, which Trump is adamant must come before comprehensive tax reform. The American Health Care Act, passed in the House in early-May, is currently in the Senate. (RELATED: Health Groups Double-Back On AHCA Support)

Even if the Senate is able to pass some version of health care reform that sits well with industry groups, the House and Senate must pass the same bill before it makes its way to President Donald Trump’s desk for approval. Facing unanimous opposition from Democrats and a divide among moderate and conservative Republicans, repealing and replacing Obamacare will continue to be a formidable challenge for lawmakers.

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