Republicans regard a large tax cut package as a central plank of their economic agenda, one that could touch all Americans, and they want to notch a big victory before the end of President Trump’s first year in office.
“The stakes really have been doubled now for tax reform,” said Steve Moore, who was a top economic adviser to Trump during the campaign. “They absolutely can’t lose. They can’t accept failure on that, or it will be a completely wasted first year of the presidency.”
But they face many hurdles and have yet to gel behind a strategy. There hasn’t been a major overhaul of the tax code in 31 years, and that one was done with bipartisan support. So far, Republicans are negotiating solely among themselves, and they hope to pass the changes without needing Democrats.
Some Democrats say that would be a mistake.
“You can see that it is a very difficult road for them in terms of the health-care bill,” said Rep. Judy Chu (D-Calif.), adding, “I believe that we have a lot to contribute to forming and developing a tax reform bill on a bipartisan basis.”
Complicating the Republican effort further is the fact that no member of the White House’s senior economic team has been a part of a major tax overhaul bill, and the administration must rely on Congress to pass matching budget resolutions while also raising the debt ceiling, something that has proved more difficult than initially expected.
Despite GOP unity on the decision to proceed with the tax cut plan, many key details are unsettled. Lawmakers haven’t decided, for instance, how much to cut taxes, what tax breaks to jettison to offset rate cuts or whether to cut taxes so much that it adds to the national debt.
The White House’s framework for cutting taxes could widen the deficit at least $5 trillion over 10 years unless there are major changes, budget analysts have warned, a figure that would probably imperil the bill.
Several groups are pushing the White House to “pay for” the tax cuts by eliminating commensurate tax breaks, something the White House has yet to settle on as an approach.
“Real tax reform that is paid for is much harder than fiscally irresponsible tax cuts that aren’t,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, a group that advocates for deficit reduction. “I think there are numerous camps that represent those different viewpoints.”
Cutting taxes can be a popular idea on the campaign trail, but it’s very difficult to do politically.
Republicans and many Democrats think the corporate tax rate — 35 percent — is too high and should be lowered. But few companies pay that rate because there are so many tax breaks and deductions that allow them to reduce their total amount of taxable income. The White House has proposed dropping the tax rate to 15 percent, though it has signaled it might have to agree to something higher to get a consensus. House Republicans have said they want the tax rate brought down to 20 percent.
If the White House and Republicans try to lower the tax rate but also eliminate numerous deductions, they will run into opposition from companies that benefit from those breaks.
Cutting taxes could remove some of the incentive for companies to relocate overseas, and the White House and many Republicans say such a change could lure trillions of dollars in foreign earnings back into the United States for investment.
The White House and Republicans also want to cut taxes that individuals and families pay, saying the current process is too complicated. Trump has promised a huge — yet unspecified — reduction in taxes for the middle class, but the White House hasn’t defined who it considers to be part of the middle class or how much their taxes should be cut.
Trump has given conflicting signals, saying he would increase taxes on the wealthy in order to cut taxes for the middle class, but he has yet to propose any details.
The White House is counting on robust financial support from business groups to help pass the tax cuts, something it lacked when it worked to repeal the Affordable Care Act.
The Business Roundtable, a trade organization that includes the country’s largest companies, plans a multimillion-dollar advertising campaign beginning Aug. 4 that will include national cable television spots as well as radio ads in 250 stations nationwide, targeting key lawmakers. Other groups are preparing to also lend support.
Treasury Secretary Steven Mnuchin is scheduled to deliver a speech about the administration's tax plans Monday at an event hosted by Americans for Prosperity, a conservative group backed by the Koch family.
The White House and Republican leaders Thursday issued a broad statement that set out principles for the tax overhaul plan they hope to pull together. The statement, though, was largely thematic. It didn’t reveal whether there had been any agreement on specific tax rates, among other things.
Negotiators have made several key decisions, however.
House Republicans have agreed to abandon their goal of raising taxes on imports, a change that they hoped would encourage the creation of more U.S. jobs but that ultimately proved too politically divisive.
And they have also agreed to postpone efforts to repeal the roughly $1 trillion in taxes created by the Affordable Care Act, worried that cutting those would make it hard to reduce other taxes they hope to target.
The tax cut talks are likely to continue during the August recess, and House Ways and Means Committee Chairman Kevin Brady (R-Tex.), who is playing a major role in how the bill takes shape, is giving a speech about the effort Aug. 16 in California. When lawmakers return in September, they hope to aggressively push bills through the House first and then the Senate.
What those bills will look like, though, remains unclear.
White House Office of Management and Budget Director Mick Mulvaney told the cable business network CNBC on Friday that the goal was to cut taxes as much as politically possible.
“That’s the central debate,” Mulvaney said. “How big is tax reform going to be? How big are the tax reductions going to be?”
— Ana Swanson contributed to this report.