Senate Republicans’ struggle to pass a health care bill is jeopardizing another one of President Donald Trump’s top priorities: overhauling America’s tax system.
A day after Senate Majority Leader Mitch McConnell, R-Ky., delayed a vote on a bill to scrap much of Democrat Barack Obama’s health law, questions lingered about whether congressional Republicans could pass big, complicated pieces of legislation.
“The whole idea is to do health care first because you gain an advantage there to go on and do tax reform,” said Sen. Pat Roberts, R-Kan. “We’ve sort of bollixed that up, but I’m encouraged.”
Senators were still struggling Wednesday to reach an agreement on key parts of the health bill before they leave Washington for a week-long recess. Moderates complained that too many people would lose coverage while conservatives said the bill wouldn’t do enough to lower insurance premiums.
It is important for Congress to resolve the health bill before moving on to a tax overhaul.
Here’s why: The health bill provides nearly $1 trillion in tax cuts that won’t add to the nation’s mounting debt. Republicans are counting on those tax cuts to help them write a new tax code that raises less money.
Also, Republicans are using a complicated rule that enables the Senate to pass both a health bill and a tax package with a simple majority, preventing Senate Democrats from blocking the legislation. Under the rule, Congress has to resolve health care — by either passing a bill or killing it — before lawmakers can pass a tax package.
“They need to resolve health care one way or another before they do tax reform,” said Rohit Kumar, a former tax counsel for McConnell who is now with PwC.
Thirty-one years after the last tax overhaul, there is widespread agreement that the current system is too complicated and picks winners and losers. There is, however, widespread disagreement over how to fix it.
Republican leaders in Congress want to simplify the tax code and make it more efficient in a way that does not add to the federal government’s mounting debt. That means some would pay more and some would pay less, a heavy political lift among politicians who have deep political and practical disagreements.
“I think what it says is that it’s harder than it looks,” Kumar said, adding: “I think part of what you’re seeing here is the steep learning curve of what it takes to govern and the trade-offs that have to be made and the compromises that have to be made even with members of your own party,” Kumar added.
Some rank-and-file Republicans want to cut taxes even if it adds to the debt.
“The debate will be whether it’s a tax cut or a revenue-neutral tax-shifting bill,” said Sen. Rand Paul, R-Ky. “I’m sort of on the tax cut side of that.”
For individuals, Republicans leaders want to lower overall tax rates and make up the lost revenue by eliminating some popular tax breaks, including the federal deduction for state and local taxes, a proposal opposed by Democrats and some Republicans in states like New York, New Jersey and California.
For businesses, House Republicans want to lower the top corporate income tax rate from 35 percent to 20 percent. They would make up the lost revenue by increasing taxes on imports and eliminating the deduction for interest on debt, two proposals that face widespread opposition, even from other Republicans.
Trump wants to reduce the corporate tax rate to 15 percent but has been less specific on how it would be financed.
The Trump administration has said the president hopes to release a comprehensive plan in September. But Congress will be dealing with several other big issues, including funding for the government and extending the government’s ability to borrow.
“I was much more optimistic earlier in the year,” said Jon Traub, a former Republican staff director for the House Ways and Means Committee who is now with Deloitte Tax.
“I’ve become more pessimistic as the days have ticked by, closer and closer to the crunch time of when a bunch of big things have to be done with a limited number of days left on the calendar,” Traub said.
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