By Richard Rubin
WASHINGTON -- Top congressional Republicans and the Trump
administration abandoned a controversial House GOP plan to tax
imports and exempt exports from taxes, as they announced tax policy
principles that resolved few other crucial issues.
Border adjustment, as the proposal was known, was a central part
of the strategy House Speaker Paul Ryan outlined last year. Its
goal was to generate $1 trillion in revenue over a decade to help
pay for corporate-tax cuts and to prevent companies from shifting
profits to low-tax foreign countries. The idea had been politically
imperiled for months amid objections from retailers and Republican
senators.
The final blow came Thursday, in a broad statement of principles
released by party leaders to build Republican unity on tax policy
and create momentum for advancing legislation this fall.
The statement emphasized a common goal of reducing individual
and corporate rates and individual tax rates "as much as possible."
It also called for faster writeoffs for capital expenses, an idea
meant to promote investment, though it stopped short of a House
Republican proposal for immediate writeoffs.
The shared principles in effect represent a starting point for
the approaching debate. Party leaders' willingness to release a
framework is also a sign of their confidence in getting a bill
written and passed.
Still, Thursday's statement left critical questions unanswered,
such as how much individual and corporate rates would be cut, and
avoided addressing many of the tough trade-offs Republicans would
need to make to achieve substantial reductions in tax rates, such
as what deductions to eliminate.
Taken together, it included less detail than President Donald
Trump's campaign plan, the House GOP's June 2016 blueprint or the
one-page White House offering in April.
"This was a clear gate that we just went through with the White
House and the senate," said Rep. Kevin Brady (R., Texas), chairman
of the House Ways and Means Committee, whose panel will write the
first version of the bill. "It just signals another big step we
have to take."
An additional unknown remains how much revenue Republicans
expect to generate with a new tax plan, making it unclear whether a
tax overhaul will add to the deficit or leave it unchanged. The
statement emphasizes permanent tax changes, which provide a fiscal
constraint because congressional rules they are using won't allow
bigger deficits after a decade.
"This tax reform has to move us toward a balanced budget, not
away from it," Mr. Brady said.
The document released Thursday stems from meetings held by the
so-called Big Six: Mr. Ryan, Mr. Brady, Senate Majority Leader
Mitch McConnell (R., Ky.), Senate Finance Chairman Orrin Hatch (R.,
Utah), Treasury Secretary Steven Mnuchin and White House
economic-policy chief Gary Cohn.
"We are confident that a shared vision for tax reform exists,
and are prepared for the two committees to take the lead and begin
producing legislation for the president to sign," the statement
said.
The statement says Mr. Trump "fully supports these principles
and is committed to this approach."
"Hey, every step forward is progress, right?" said Rep. Pat
Tiberi (R., Ohio), a senior Ways and Means member. "This is about
everybody trying to be closer to coming together."
As top negotiators sell the plan publicly, the pressure turns up
on members of the tax writing committees who will turn principles
into detailed legislation. They can draw from years of past studies
and the bill that former Ways and Means Chairman Dave Camp wrote in
2014.
"There's still much work to be done to actually having a real
statute that the Ways and Means committee can actually mark up,"
said GOP tax lobbyist Kenneth Kies. "It is a must-do piece of
legislation if they want to do well in the midterm elections. To
me, it's real simple. It's going to get done one way or the
other."
Border adjustment's end was months in the making and Messrs.
Ryan and Brady finally conceded Thursday, agreeing to language to
"set this policy aside" in the name of unity.
"I'm proud of that idea," Mr. Brady said. "Nonetheless, we had
as full a debate as you can have on a new tax idea and we simply
didn't make the case. I simply didn't make the case."
They pursued border adjustment for two reasons: One is that it
could have raised $1 trillion to pay for lower tax rates. The
second is that by taxing based on the location of consumption, it
could have prevented companies from shifting profits abroad. They
had been reluctant to back down without a Plan B. Thursday's
statement said, without offering detail, that there is a "viable
approach for ensuring a level playing field" without border
adjustment.
"This is a very public declaration that the key elements of the
[House] blueprint are dead," said Harold Hancock, a former GOP Ways
and Means tax aide now at McGuireWoods LLP. "This has become a
broaden-the-base, lower-the-rate exercise, and [will] not create a
whole new tax regime for the United States."
One idea in play builds off a proposal Mr. Hatch has been
working on for years, letting companies deduct all or part of their
dividends. Mr. Brady said a "broad range" of ideas was under
discussion.
Republicans face political and procedural constraints. They are
trying to pass the tax plan using the special fast-track rules
known as reconciliation, which is filled with trap doors and
special rules.
That means they must adopt a budget first. House Republicans are
divided over their budget and senators haven't released their
version yet.
Republicans will have narrow margins because Democrats are
extremely unlikely to provide any votes for a bill that sharply
lowers tax rates on high-income households and corporations.
"If Republicans continue this partisan process, they are doomed
to repeat the same mistakes they have made trying to upend our
health-care system," said Rep. Richard Neal (D., Mass.) the top
Democrat on the Ways and Means Committee.
In the House, Republicans from New York and New Jersey are
already balking at the GOP plan to repeal the deduction for state
and local taxes. And any three senators could band together to
force changes because Republicans have just a 52-48 majority.
"Big complicated tax bills do take a while," Mr. Kies said.
"We're at the top of the first inning."
Write to Richard Rubin at richard.rubin@wsj.com
(END) Dow Jones Newswires
July 27, 2017 20:12 ET (00:12 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.