WASHINGTON — President Donald Trump’s promise for “historic” reform of the U.S. tax code could be scaled back to something less ambitious, such as just focusing on tax cuts, in the wake of his failure to repeal Obamacare, experts and legislators said.
The collapse of an effort by Trump and House Speaker Paul Ryan (R-Wis.) to pass a health care overhaul exposed deep rifts in the Republican majority in Congress, and also eliminated a chance to reduce federal spending. The health care spending cuts were supposed to offset proposed massive tax cuts. Now, the tax effort might be more complicated: Trump might have to scale down his tax plans or find other offsets. That too might prove challenging because the president already has promised to spend more on defense and infrastructure.
Wide-ranging tax reform hasn’t been done in three decades. Additionally, after the bitter health care fight, the fledgling administration might be looking for a quick victory, experts say.
“The Republicans have got to get a win. It may be small. It may not be the one they want. But they have got to show they can govern,” said Michael Dawidziak, a Suffolk County-based political consultant who most often works with the GOP. “Pulling the vote on health care shows Americans they can’t govern” — a perception he said they need to change.
Ryan and Trump withdrew the GOP-driven American Health Care Act on March 24 after it became clear they didn’t have majority support in the Republican-controlled House. It was a major setback for both men.
Trump blamed conservative Republicans — especially members of the “Freedom Caucus.” He suggested he might work with moderate Democrats on tax cuts — which is his next agenda item.
Ryan, too, admitted the health care failure “does make tax reform more difficult.” He also vowed: “But it does not make it impossible. We are going to proceed with tax reform.”
Trump made bold promises about tax reform during his campaign last year: Reduce the current seven income tax brackets to three, simplify the tax form, slash the corporate tax rate from 35 percent to 15 percent, enact some sort of charge on imports and do it all within his first 100 days.
The president himself already lowered expectations on the timetable, saying he’d like to get a tax plan enacted by the end of the year. Steven Mnuchin, his commerce secretary, said they were hoping for legislation by August.
Reince Priebus, Trump’s chief of staff, appearing on “Fox News Sunday,” said the package would include a middle-class tax cut that might persuade support from moderate Democrats.
Senate Minority Leader Chuck Schumer (D-N.Y.) warned that the administration would be making a mistake to exclude Democrats, as it did on health care.
“They’re going to repeat the same mistake they made on Trumpcare with tax reform,” Schumer told ABC’s “This Week.”
A House Republican plan backed by Ryan shares some goals with Trump, including reducing tax brackets and tax rates. It also has included a “border adjustment tax” — a tax on imports, touted as a way to protect American companies — that would seem to match Trump’s idea. But the president reportedly has cooled to the idea in the wake of possible opposition from American retailers and others.
Meanwhile, Rep. Mark Meadows (R-Texas), head of the Freedom Caucus, said conservatives would still play a major role in the tax debate. Yet he also told ABC News’ “This Week” it would be flexible about whether tax cuts would have to be “totally” offset by spending cuts, opening some negotiating room.
“As we look to tax reform, the big debate will be over that border adjustment tax,” Meadows said. “But we’re in the information-gathering mode right now.”
Some Republicans acknowledged they need to rebound from the political hit for the health care bill’s failure.
“It’s a momentum issue,” Rep. Mike Coffman (R-Colo.) told The Washington Post. “The fact is that, you know, you came out of the gate stumbling.”
Republican strategist Susan Del Percio said Trump’s best play for Democratic support might be to tie the tax package to infrastructure spending, which the opposition party is likely to support. Del Percio also said the administration needs to make clear it will benefit the middle class — something it failed to do with its health care bill.
Ryan and House Republicans have been championing a plan they say will simplify the tax code so that “you could easily file your taxes on a postcard.” They said also it would close numerous tax loopholes. But Ryan’s proposals have been criticized as benefiting the wealthy — something Trump might want to avoid.
It’s unclear if Trump will align with their plan, but one thing that is certain is that Trump’s campaign promise to “drain the swamp” — that is, clean out and fix the federal government — will be tested in the tax debate.
“Every industry lobbyist is going to be all over this,” Del Percio said. “This is where ‘drain the swamp’ comes into play. . . . If you really want to do some reform, you have to take out every special interest.”