President Donald Trump’s administration promises tax reform before the end of Trump’s first year in the White House, but there are at least three factors that threaten to upend, or significantly push back, the timeline.
Treasury Secretary Steve Mnuchin said Sunday the administration has its eyes set on releasing a tax bill to the public in September, with the goal of passing a comprehensive tax reform package in 2017.
The secretary’s original timeline, as he laid out in late March, was a bit more optimistic. Mnuchin said he’d “like to think” tax reform would get done before Congress went home for the August recess, but that the timeline depended on Congress passing an Obamacare repeal bill. (RELATED: Mnuchin: We Won’t Raise Taxes On Wealthiest Americans)
Adding to the confusion, White House Legislative Affairs Director Marc Short said Monday the administration will hopefully have a bill completed before the August recess.
The administration faces at least three obstacles that are posed to derail its push for a 2017 tax overhaul package.
1) Repealing Obamacare Before Reforming The U.S. Tax Code
The president is adamant that tax and regulatory reform cannot come before Congress puts a bill on his desk to repeal and replace Obamacare–a point that both Mnuchin and Speaker of the House Paul Ryan have reiterated on a number of occasions.
Trump said in April that the administration was in “very good shape” on tax reform, but that it had to get health care “taken care of” before moving on to his other pro-growth agendas. Trump tweeted Monday morning that he could not imagine a scenario in which “Congress would dare to leave Washington without a beautiful new HealthCare bill fully approved and ready to go!” (RELATED: Trump Tells Congress To Repeal Obamacare Before Leaving Washington)
Senators returned to Washington Monday with the goal of coming to some sort of consensus on the best way to repeal Obamacare, but the July 4 recess left them without a clearer sense of how to move forward. Lawmakers find themselves dealing with at least one more Republican defection and a reignited, fierce debate between moderates and conservatives.
While negotiations between moderates and conservatives were supposed to bring more Republicans on board, they have effectively worked to isolate more senators and stymie what little progress was made in recent weeks.
Conservatives continue to push for steeper cuts to Medicaid in what they believe to be a key step in helping the nation’s health care system curb federal spending on health care. Twenty Republican Senators currently sit in states that chose to expand Medicaid under Obamacare, and they fear retribution from voters if they roll back or institute cuts to the program’s funding.
Senate Majority Leader Mitch McConnell delayed the vote on the Senate health care bill Tuesday, announcing he would push it back until after the July 4 recess.
“We will not be on the bill this week, but we’re still working toward getting at least 50 people in a comfortable place,” McConnell said.
Senate leadership now has the goal of pushing the bill to a vote before the August recess–the time that Mnuchin and Ryan have promised to focus on tax reform. If leadership fails to come to an agreement and has to delay the bill till after lawmakers head home in August, it could work to upend the reported progress made on tax reform thus far.
2) Potential Disagreements Between Republicans Over Lowering Taxes
Both Trump’s and House Republican leadership’s tax proposals call for steep cuts to the U.S. corporate, business and individual income tax rates. Essentially, Republican leadership is pushing a policy historically preferred by the Party–lower taxes, deregulation and less government intervention in the economy.
Yet, serious fiscal considerations, like an impending debt crisis and massive federal spending, could stop such large tax cuts from becoming a reality. Unless Trump and Republican leadership in Congress choose to gut government programs and lower the federal government’s liabilities, they will face the same prudential decisions that are already playing out at the state level in 2017.
A handful of conservatives in Kansas, Tennessee and South Carolina are pushing for higher taxes, in a move that could work to cause problems for an administration and Congress that wishes to greatly reduce the tax burdens on American corporations, businesses and consumers. (RELATED: Republicans On Board With Raising Taxes)
Lawmakers in Kansas, Tennessee and South Carolina are throwing their support behind raising taxes in order to increase revenue.
Republicans vetoed to overrule GOP South Carolina Gov. Henry McMaster’s veto to increase the state’s gas tax and blocked a filibuster. The same Republicans also blocked broad tax cuts, claiming that the cuts were too expensive in the face of the state’s other liabilities.
Republican Gov. Bill Haslam of Tennessee signed the state’s first gas tax into law, amid outcry from conservative groups that argued a state with over a $1 billion surplus should not increase taxes on its citizens.
Conservative lawmakers in Kansas overrode their governor’s push for steep cuts to personal and corporate tax income rates in June, and increased taxes by $1.2 billion.
The Illinois Democratic-controlled House, with the help of Republicans, levied giant, permanent personal and corporate income-tax rate increases Sunday. Passed with a 72-45 vote, the $5 billion tax bill raises the personal income tax rate from 3.75 to 4.95 percent and the corporate income tax rate from 5.25 to 7 percent. (RELATED: Illinois House Dems Increases Taxes By $5 Billion)
3) Raising The Debt Ceiling
Without passing a budget reconciliation package and dealing with the impending debt ceiling, Republican leadership in Congress and the Trump administration will be unable to move forward with tax reform.
Congress will have to pass a 2018 budget resolution in September, after a month-long recess in August, to keep the government funded.
A few weeks later, in mid October, lawmakers will face a decision on whether or not to raise the federal debt ceiling. The Congressional Budget Office reported June 29 that Congress will have no choice but to raise the debt ceiling, given that the U.S. Treasury is set to run out of liquidity by mid-October if no decision is reached.
Mnuchin has requested that Congress raise the debt ceiling before leaving for the August recess, or even sooner, to avoid shocking financial markets and imposing some potentially dire liquidity risks.
Some conservatives do not believe the Treasury’s assessment, throwing shade on the department’s claims that the government would default if nothing is done with the debt ceiling.
If Republicans are unable to come to an agreement, leadership will need to look across the aisle to raise the debt limit and keep the government solvent. Democrats remain in staunch opposition to the Trump administration’s policies thus far and there is little sign they would be willing to help during budget or debt ceiling debates. If Republicans balk on the debt limit, Democrats could score political points with their constituents, which is another reason a bipartisan effort is unlikely.
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