By Naomi Jagoda
With the deadline for tax reform slipping, some prominent conservatives are pressing President Trump and congressional Republicans to change course.
Trump and the GOP have been pushing forward with efforts to make tax changes to both the individual and corporate tax systems in a single bill, with a goal of enacting them by August.
But the late summer target looks increasingly unlikely, with Treasury Secretary Steven Mnuchin admitting this week that the timeline has become “highly aggressive to not realistic.”
With Republicans are desperate to notch a big legislative win under Trump, several voices in the conservative world are pushing for a new approach.
In a New York Times op-ed on Wednesday, Steve Forbes, Larry Kudlow, Arthur Laffer and Stephen Moore — cofounders of the Committee to Unleash Prosperity and advisers to Trump’s campaign — argued that a business-only tax cut bill would be the easiest way for Trump to score a legislative achievement early in his presidency.
They said that Trump shouldn’t tackle comprehensive tax reform in one pass. Instead, Republicans should first work on a bill that makes tax changes for businesses and includes infrastructure funding to make it attractive to Democrats. They then could tackle individual income tax reform in 2018.
“Republicans need to act with some degree of urgency. The financial markets and American businesses are starting to get jittery over the prospect that a tax cut won’t get done this year,” the campaign advisers wrote. “A failure here would be negative for the economy and the stock market and could stall out the ‘Trump bounce’ we have seen since the president’s election.”
The influential conservatives have been making the case for Trump to start with business tax cuts for a while. But their op-ed in the Times is their most high-profile effort to date and could catch Trump’s attention as he seeks to get his agenda back on track after the failure of healthcare legislation last month.
In an interview with The Hill, Moore said that one purpose of the op-ed was to “focus the White House on what we can get done.”
Moore said that Democrats don’t have much interest in signing onto a comprehensive tax-reform bill, and “it’s almost impossible to do broad-based tax reform with just one party signing on to it,” since there will be pushback from interest groups.
Laffer told The Hill that cutting the corporate tax rate “would stimulate the economy enormously.” While tax changes for individuals will take a while to negotiate, “this corporate thing can be done in minutes,” he said.
Moore said that he’s discussed his ideas with the White House and lawmakers and received mixed feedback. The White House isn’t on board yet, but some lawmakers think that perhaps “the narrow focus gets you the most votes,” he said.
Trump and leading congressional Republicans have sought to pass a comprehensive tax bill. House Republicans are working on a comprehensive tax-reform bill based off a plan they released in June, and the White House is planning to release its own tax reform plan to benefit both businesses and the middle class.
House Ways and Means Committee Chairman Kevin Brady (R-Texas), the point man for tax legislation in the House, this week said he hopes Congress doesn’t begin by only cutting taxes for businesses.
“There’s growth on the family and individual side as well,” he said on Fox News Tuesday.
Brady added that the American public has a great interest in a simpler, fairer tax code and that tax changes for individuals “can help us move the tax cuts and reforms forward on the business side.”
But the House GOP plan faces significant hurdles, since one of its central elements — a border-adjustment proposal to tax imports and exempt exports — has encountered opposition from retailers and many senators.
Forbes, Kudlow, Laffer and Moore said House Republicans need to abandon border adjustability because it’s too controversial.
“It divides the very business groups that the party needs to rally behind tax reform,” they wrote in the Times.
They also argued, in contrast to congressional GOP leaders, that tax changes don’t need to be revenue-neutral. But there are procedural challenges to passing tax cuts that increase the deficit.
Congressional Republicans have expressed interest in passing tax-reform legislation through budget reconciliation, which would allow the bill to pass the Senate with only Republican votes. However, bills passed through reconciliation cannot increase the deficit outside of the 10-year budget window.
A bill that did not offset the cost of the tax cuts would have to expire after 10 years, unless Republicans could win the support of at least eight Senate Democrats — a difficult task that could prove impossible.
Moore said that including infrastructure funding in a corporate tax bill would be a way to get Democrats on board, though he’s not sure the bill could get support from eight Democratic senators. That would depend on whether Democrats simply want to reject anything that Trump wants to do, he said.
Moore also said that he would prefer permanent tax cuts to cuts that expire, but “a 10-year tax cut would stimulate the economy a lot” and it would be “very unlikely” that Congress would let the current 35 percent corporate tax rate return after 10 years.
Leaders of the House Republicans’ tax-reform effort have argued that tax changes should be permanent. Speaker Paul Ryan (R-Wis.) said in a February interview with “PBS NewsHour” that a temporary business tax cut “produces a lot of uncertainty for businesses.”
Alan Cole, an economist at the Tax Foundation, said that a temporary cut to the corporate tax rate would do little to encourage businesses to make long-term investments in the U.S.
“If the higher rate is still there in the future, you don’t have that incentive to embark in a long-term project,” he said.
Cole also said that it would be tricky to cut taxes for “pass through” businesses whose income is taxed through the individual tax code without making other changes to the individual code.
“It’s really awkward to separate pass-through businesses from the rest of the individual income tax,” he said.