What Failure On Obamacare Repeal Means For Tax Reform

Mar 25, 2017
Originally published on March 27, 2017 4:29 pm

Even as they lick their wounds from a failed Affordable Care Act repeal effort, Republican leaders in Washington are looking ahead to the next battle — over taxes.

"I would say that we will probably start going very, very strongly for the big tax cuts and tax reform," President Trump told reporters Friday. "That will be next."

Republican House Speaker Paul Ryan agreed, though he conceded that the defeat on health care was a setback.

"This does make tax reform more difficult," Ryan said. "But it does not in any way make it impossible."

The challenges are both political and procedural.

Republicans had hoped success in their long-held goal of repealing the Affordable Care Act, also known as Obamacare, would generate momentum and team spirit that would carry over into other fights. Instead, they're saddled with an embarrassing failure — and squabbling factions that torpedoed the Obamacare repeal and aren't likely to settle down anytime soon.

"If Trump can't line up support for health care, it's going to be hard to see how he will be able to lead on tax reform," said William Gale, senior fellow at the Brookings Institution and co-director of the Tax Policy Center.

Tax policy is arguably as hard or harder than health care, in terms of juggling all the interest groups, Gale says.

"You need a president to be able to take the argument to the people and basically provide cover for individual legislators who are going to be besieged by constituents and lobbyists who are losing benefits," he says.

The Obamacare repeal bill faltered among some moderate Republicans after forecasters from the nonpartisan Congressional Budget Office predicted it would leave 24 million more Americans uninsured after a decade and raise insurance costs for people in their 50s and 60s. More conservative legislators, including members of the Freedom Caucus, were frustrated the bill didn't fully roll back the Affordable Care Act before building something new.

The measure also would have given a sizeable tax break to people making more than $200,000 a year.

White House aides insist the health care debacle won't spread to other parts of the president's agenda.

"I don't think you can tie any of these together," White House spokesman Sean Spicer told reporters Friday. "Whether it's immigration or tax reform, there's still a huge appetite out there."

Trump and Ryan agreed during the transition process to tackle health care first, partly for procedural reasons: With both health care and tax reform, Republicans planned to use a legislative tactic known as "budget reconciliation" that prevents Senate Democrats from blocking measures with a filibuster.

The budget resolution for the current fiscal year dictates that any reconciliation measure must reduce the deficit, which the GOP's Obamacare repeal was designed to do. Republicans then could draft a new budget resolution for the upcoming fiscal year with easier deficit targets, allowing for more aggressive tax cuts.

Technically, tax reform passed through reconciliation still can't add to the deficit. But there are ways for lawmakers to sidestep that rule, for instance by adopting alternative baselines.

The tax plan Trump proposed during the presidential campaign would balloon the deficit by trillions of dollars, according to forecasters at both the centrist Tax Policy Center and the conservative Tax Foundation. Both groups found that the biggest savings under that plan would go to the wealthiest taxpayers, with the top one percent of earners seeing a 10 to 20 percent boost in their income, while middle-income families would see more modest gains of 1 to 10 percent.

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As we said, House Speaker Ryan and President Trump are ready to change the subject from health care to tax reform, but overhauling the tax code will not be easy. Experts say they'll have to clear some of the same hurdles that stopped them from repealing Obamacare. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: President Trump has always been more passionate about cutting taxes than he is about wrestling with health insurance. During the campaign, he actually produced a plan for tax cuts. But passion alone will not be enough, says Bill Hoagland. He was a staffer for the Senate Budget Committee during the last big tax overhaul more than thirty years ago.

BILL HOAGLAND: Nothing's easy in this town anymore, including health care reform, and I think tax reform can be just as difficult.

HORSLEY: Like the health care fight, the push for tax reform is likely to expose fault lines within the Republican Party. Bill Gale of the Tax Policy Center says some who want to focus on corporate tax rates, others on the individual income tax. And some will be most concerned with how businesses are taxed internationally.

BILL GALE: It's certainly not a slam dunk that they will get tax reform through. On the other hand, if ever there was something that Republicans agree on, it's the desire to cut taxes.

HORSLEY: Gale says that agreement is the easy part, akin to Republicans' shared desire to repeal Obamacare. But just as lawmakers struggle to find a replacement for the Affordable Care Act, they may have trouble finding consensus on how to replace the tax revenue lost to lower rates. A preliminary House plan calls for making up some of that revenue by doing away with most itemized deductions, except for mortgage interest and gifts to charity. But Hoagland says people won't give up those tax breaks without a fight.

HOAGLAND: We've created so many tax credits, loopholes, exclusions, deductions. It is nigh near impossible not to have some winners and some losers in any kind of major tax reform.

HORSLEY: The House plan also includes a so-called border adjustment tax that would raise a lot of revenue while subsidizing exports and penalizes imports. Hoagland, who's now the Bipartisan Policy Center, says attitudes towards that tax are deeply divided within the business community. Companies that sell a lot of goods overseas support the idea. Those that buy a lot from foreign countries don't.

HOAGLAND: I think that that particular proposal is not likely to make it through the sausage mills up there, particularly in the Senate. I think they're going to have to look for something other than that border adjustment tax.

HORSLEY: Gale notes one of the biggest evangelists for the border adjustment tax has been House Speaker Ryan, but after last week, he may not be the most effective salesman.

GALE: To the extent that his personal stock has taken a hit on the health care debacle - that is going to make the border adjustment tax harder to get enacted.

HORSLEY: When Republicans couldn't agree on a replacement for Obamacare, their repeal effort died, but with tax policy, there's another option. If they can't agree on a major tax overhaul, Republican lawmakers could simply cut tax rates and call it a day. Congressman Mark Meadows of the House Freedom Caucus argued on ABC's "This Week" lawmakers shouldn't have to balance tax cuts with alternative revenues or spending cuts.

(SOUNDBITE OF TV SHOW, "THIS WEEK")

MARK MEADOWS: Tax reform and lowering taxes will create and generate more income. And so we're looking at those - where the fine balance is. But does it have to be fully offset? My personal response is no.

HORSLEY: That would no doubt add to the federal deficit, but the future generations who'd end up paying for the tax cut won't be at the bargaining table to negotiate. Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.