Vice President Pence and House Speaker Paul D. Ryan aimed to project a united front on tax reform at a joint appearance Tuesday, and in a sense, they did.
“The Internal Revenue Code is twice as long as the Bible, with none of the good news,” Pence told a Washington conference of manufacturing magnates. An hour later, Ryan (R-Wis.) repeated the line nearly verbatim.
Indeed, the pair found plenty of common ground as they discussed GOP plans for changing the U.S. tax code -- a Republican priority for more than a decade and a top item on President Trump's agenda. But despite sharing broad principles and a punch line, the party leaders give little indication they'd resolved the internal Republican divisions that have plagued the reform effort from its inception.
Speaking first, Pence argued for the importance of tax reform for the economy, recapitulating the outline of Trump's priorities on the issue that the administration published in April. The White House's goals, Pence said, include bringing down income tax rates and getting rid of the estate tax, as well as eliminating deductions, credits, loopholes and other breaks that complicate filing taxes and reduce the amount of revenue the federal government collects.
Ryan called for many of the same changes, arguing the United States' corporate tax rate puts American companies at a disadvantage relative to their foreign rivals.
But the two men left important questions unanswered, including a fundamental question about what type of tax reform the party plans to pursue. Ryan has argued for a complete overhaul of the corporate tax system, one that would make basic and permanent changes to the way American businesses pay taxes. “If we're going to truly fix our tax code, then we've got to fix all of it,” Ryan said.
Trump's deputies, however, have indicated support for less ambitious, temporary relief to stimulate the economy. Pence did not further clarify the administration's position on the issue, instead reiterating points that other executive-branch officials have made before.
“We're going to pass the largest tax cut since the days of Ronald Reagan,” Pence said. “We will get tax cuts done, and we will get them done this year.”
Top White House officials are trying to accelerate the tax effort, which has been slowed by disagreements over details and a prolonged effort to repeal the Affordable Care Act.
Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn met Tuesday with technology industry officials and said they saw a narrowing window for when an overhaul of the tax code could occur this year.
At the meeting, Cohn said he wanted the tax bill to be on the floor of the House of Representatives in the “early, early fall,” but that all sticking points needed to be resolved before then.
“We don’t want to be negotiating the tax bill on the floor” of the House or Senate, Cohn said.
He added that President Trump is constantly peppering Mnuchin and himself for updates on how the effort is going.
“One of us gets a call every day, sometimes it’s both of us,” Cohn said.
One point of contention among Republicans has been an idea that Ryan has supported — a "border adjustment," which would, on paper, levy a new tax on imports and exempt American exporters from taxation.
Ryan and other advocates of a border adjustment argue that the proposal would encourage companies to locate manufacturing in the United States while simplifying how multinational firms are taxed. Yet because a border adjustment could make everyday products more expensive for consumers, many Republicans are skeptical of the idea.
Manufacturers — who export many of their products to customers overseas — have generally supported the idea. By contrast, retailers and other companies that rely on foreign imports have opposed the border adjustment.
Trump has so far declined to give the support of the White House to the proposal. “It's not really what I'm considering,” Trump told the Economist in an interview last month.
Speaking after Pence, Ryan took a more conciliatory stance on the border adjustment than he has in the past. He did not explicitly mention the idea in his speech, although he did seem to suggest that the border adjustment would be one method of achieving Republicans' broader goals.
A border adjustment is one way of implementing what exports on taxation refer to as a territorial system. In this kind of system, companies pay taxes only on their activities in the United States, such as imports and sales to U.S. customers. A territorial code would be fundamentally different from the current one, in which U.S. companies can be liable for taxes on revenue they earn anywhere in the world.
In an interview after the speech with CNBC, Ryan said that the border adjustment was "not dead," but that the proposal would have to be revised to be feasible.
The need for some kind of territorial system is one point of agreement widely shared among Republicans in Congress and the White House. A territorial system of some kind would satisfy many U.S. exporters, including some of the manufacturers gathered Tuesday to hear Ryan and Pence, by allowing them to sell products overseas without paying taxes.
Pence made that point in his speech as well, noting that if companies locate their headquarters in other countries with territorial systems, they would no longer be taxed on their activities around the globe. “Our outdated system of worldwide taxation penalizes companies for being headquartered here in the United States of America,” he said.
It is not clear, however, whether there is any consensus on the details.
“There are so many different ways of achieving this,” Ryan said, before apparently referring to the border adjustment. “We in the House have our own idea, and that is one of the ways we're discussing with the administration.”
Like a border adjustment, other kinds of territorial reform would also require a heavy lift from policymakers — both in terms of the complexity of creating a new system and in terms of political opposition from companies jockeying to ensure that the new system favors them.
“The idea may not be any more popular than border adjustment,” said Jason Furman, who chaired the Council of Economic Advisers under President Obama. “If it’s a genuine tax reform, it’s going to suffer from the same problems.”
Aside from taxes, there was more common ground. Both Pence and Ryan also reviewed Republicans' other economic initiatives, which include scrapping regulations and rebuilding the country's physical infrastructure.
Meanwhile, policymakers are turning their attention to other issues. In the Senate, the debate over undoing the Affordable Care Act, also known as Obamacare, continues slowly behind closed doors. Lawmakers will also have to increase the limit on how much the Treasury can borrow in the coming months, which could involve politically fraught negotiations. And a series of scandals in the White House related to connections between Trump's associates and Russian officials have kept Republicans busy.
With their televised speeches Tuesday, Pence and Ryan (R-Wis.) sought to put taxes — a major GOP priority for nearly four decades — back at the top of the Republican agenda. In essence, however, different groups of GOP policymakers are working on separate projects toward divergent aims.
A crucial question is whether policymakers would make a new, territorial system a permanent change. Because of the rules of the Senate, any permanent reform is unlikely to survive a Democratic filibuster if it would increase federal borrowing over the long term.
That fact makes a permanent reform more difficult. Republicans hoping to simplify taxes and reduce rates would have to find other sources of revenue to make up the difference, or propose reductions in federal spending that lawmakers would have to approve along with the tax legislation.
All the same, because it would be such a profound shift in how corporations are taxed, many advocates of territorial reform argue for making sure the new system lasts.
“These reforms, these tax cuts — they need to be permanent," Ryan said. "Temporary reforms will only have a negligible impact on wages and economic growth."
Proponents of permanent changes have long hoped to win the support of the White House, with the idea that Trump's personal influence and political capital could help overcome some of these challenges.
The administration, however, has only been ambivalent. Pence did not call for permanent reform in his speech Tuesday. Other administration officials have not committed to the idea.
“The goal is to make it permanent,” Mnuchin said in April. “If we have them for 10 years, that is better than nothing.”
Trump himself has talked about tax reform not in terms of lasting, structural changes to the system, but rather as a temporary stimulus to the economy.
“It's called priming the pump,” the president told the Economist, arguing for tax cuts even if they resulted in more federal borrowing. “What you have to do is put something in before you can get something out,” Trump said.
Damian Paletta contributed to this report.