When President Trump issued a one-page blueprint for overhauling the tax code last month, top administration officials promised it would be the start of a simpler tax system, one with lower rates for everyone but also with far fewer of the deductions, loopholes and carve-outs that make the current code so complicated.
What he has gotten so far, however, is a lobbying dogpile, with industry groups rushing to Congress in search of help defending the tax breaks their member companies have profited from for decades.
This week, both the push to simplify the code — and the lobbying blitz to keep certain provisions off the chopping block — hit a higher level of intensity. The House committee that deals with taxes is holding a hearing that will officially kick off the GOP attempt to turn Trump's one-page blueprint into actual legislation.
But as Congress considers its options, it'll be getting getting an earful from a parade of lobbying groups. The National Association of Realtors started the charge Monday, with 8,000 members descending on Washington this week, many of whom plan to storm Capitol Hill. This will be followed by another barnstorming next month, as 1,000 home builders plan to come to Washington.
The housing industry worries that Trump’s proposal to end the deduction for state and local taxes will effectively result in homeowners paying more in local property taxes, bringing down demand for housing. Realtors and home builders will also raise concerns about Trump’s proposal to double the standard deduction, which would make the mortgage-interest deduction — a crown jewel for their industry, as it amounts to a federal subsidy for buying a home — less attractive by comparison.
Other industries are also sounding alarms. Advertising agencies are worried that under the new plan, businesses would no longer be able to take tax deductions for the money they spend on advertisements. And they've whipped up enough frenzy over the issue to get 124 House lawmakers — including some of Congress’s most liberal and conservative members — to sign a letter demanding that the deduction be preserved.
The agriculture lobby is preparing a blitz of its own. Shortly after the White House’s proposal was made public, a loose-knit group of the industry's tax experts — they call themselves the “Tax Aggies” — met to discuss how they should respond. But as the group met to discuss strategy, they found enough internal division within the industry that no single letter could adequately sum up their concerns.
Now they're working on five letters — maybe six — and leaving their members to choose which ones they want to be a part of, said Patricia Wolff, senior director of congressional relations at the American Farm Bureau Federation.
The brawl underscores the difficulty in simplifying the tax code, which is riddled with deductions, exemptions and other provisions that save their industries billions of dollars. While many business groups say they want to eliminate “unnecessary” tax breaks, they typically mean eliminating other people’s tax breaks.
And the latest round of tax lobbying has taken on a heightened anxiety thanks to Trump's style of governing. The president's tax plan was sparse on details, especially in the area of which tax deductions he wanted Congress to scrap, leaving industries wondering whether their preferred perks were on the chopping block.
To make the tax plan work, however, the administration does need to find loopholes to close. While the plan to cut rates is broadly popular, the cuts have to be offset by eliminating deductions elsewhere, lest the plan increase the federal deficit. The Senate's rules make a plan that increases federal borrowing in the long term impossible to pass without support from Democrats — a long shot at best for the embattled president.
But if the push to find tax breaks to eliminate is a headache for companies, it's a bonanza for their lobbyists.
“This is where the lobbyists make all their money, on the special-interest tax deductions,” said Stephen Moore, a top economic adviser to Trump during the campaign. Moore said he recently told House Ways and Means Committee Chairman Kevin Brady (R-Tex.) to brace himself for the lobbying onslaught. The panel holds its tax hearing Thursday morning.
Trump and his top officials, however, continue to add to the maelstrom with mixed signals about what they want to see in a final bill.
Trump has said, for example, that he might pursue a tax against foreign imports, but he has also suggested he might not. He wants to lower the corporate tax rate from 35 percent to 15 percent, and his advisers have said this will come in exchange for eradicating almost all tax breaks. But now his advisers are saying that some deductions — such as the ability of corporations to deduct interest payments — could be protected.
Brady had hoped to pass a tax overhaul bill through his committee by next month, and the White House had hoped the entire process would be completed by August. But now, Brady and the White House are working on a slower timetable, spending more time refining their different proposals to win broader support. This approach gives them more time to cut a deal but also gives the many critics of their plans time to mobilize in defense of their tax breaks.
White House spokeswoman Natalie Strom said the Trump administration has been holding listening sessions to try to deliver “the biggest relief to the American worker and the American economy.”
“One of the key ways we will do that is through simplification, and that’s why we’re taking a hard look at every single tax break, deduction, and exemption — while protecting home ownership, charitable giving and retirement savings — and talking to stakeholders and members to determine whether or not they’re really worth that extra line on your tax form,” she said.
Americans and American businesses are expected to pay $3.6 trillion in taxes next year, but there are numerous tax breaks that reduce their obligations. For example, deducting state and local taxes from federal taxes will save taxpayers an estimated $69 billion this year, according to the nonpartisan Joint Committee on Taxation. There are almost 200 other tax breaks, including things as obscure as the exclusion of railroad retirement benefits and a credit for disabled access expenditures.
Some of these deductions stimulate the broader economy, helping Americans beyond those taxpayers who use them to bring down their bills. But economists generally say that many breaks reduce the amount of money the federal government collects with few demonstrable benefits for the rest of the country.
“You’re going to have a lot more people that are unhappy than happy,” said Dean Zerbe, national managing director at tax services provider Alliantgroup. “I don’t think they want to crack a lot of eggs.”
Zerbe said that even the possibility of tax restructuring was causing “real angst,” along with optimism, among businesses. “When Washington sneezes on tax policy, a lot of businesses catch cold,” he said. “They get very nervous about, ‘What does this mean for us? How does this affect our bottom line?’”
Even nonprofits are jumping in, worried about how the tax changes will impact them.
Republicans lawmakers and Trump’s advisers have said that the deduction for charitable donations will be preserved, but the not-for-profit sector is still nervous. A more generous standard deduction and reduced overall rates would also reduce the value of deductions for charity. “We’re very concerned,” said David Thompson, a vice president at the National Council of Nonprofits. “Take away the positive tax consequences, and giving is likely to go down.”
White House officials are showing signs of bending to some of the lobbying, but it will come with costs. When they proposed lowering the corporate tax rate to 15 percent last month, top administration officials said they would get rid of almost all corporate tax breaks in the process. But in an interview with the Economist, Trump and Treasury Secretary Steven Mnuchin said they preferred keeping a provision that allows companies to deduct interest payments.
This is a popular tax break that many businesses are fighting to protect. In particular, real estate and financial firms stand to benefit the most from the deduction because they these sectors rely extensively on debt to finance their investments. But retaining it would cost the government around $1.2 trillion over 10 years, according to the right-leaning Tax Foundation. The proposal from House Republicans, though, would eliminate this tax break.
The White House and congressional Republicans, so far, are threatening to try to muscle the tax overhaul through Congress with a party-line vote, doing it through a Senate process that allows them to bypass Democrats. But the White House has said it could try to lure Democrats to negotiate on the package.
In just another example of the mixed signals the White House is sending, Trump has said several times that he could try to package the tax changes with new infrastructure spending to coax Democrats, though Mnuchin has virtually ruled this out. This is adding more confusion and opportunity to the lobbying groups, who are scrambling to bend the changes in their direction.
“Lawmakers face trade-offs, and these people don’t want to be the people who are traded off,” said Alan Cole, an economist at the Tax Foundation.