Paul Ryan Talks Up Likelihood of Tax Overhaul -- 2nd Update

By Richard Rubin Features Dow Jones Newswires

House Speaker Paul Ryan (R., Wis.) expressed confidence Tuesday that Republicans can "fix this nation's tax code, once and for all" this year despite a long row of hurdles in front of them.

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Mr. Ryan, in a speech to manufacturers in Washington, reiterated the major themes of the plan he released last year and didn't delve into the details that divide Republicans or the negotiations between the Trump administration and members of Congress.

"The defenders of the status quo -- and there are many of them -- they're counting on us to lose our nerve, to fall back, or to put this off altogether," he said. "But we will not wait for a path free of obstacles. Guess what? It does not exist."

Mr. Ryan's speech to the National Association of Manufacturers, sandwiched between cable news appearances, was meant to build momentum and public support for the party's aims. Republicans see a tax overhaul as a political necessity that would deliver on one of their core campaign promises.

For now, taxes are secondary to health care and other policy issues. But the GOP is planning a busy fall and Mr. Ryan said he hoped the tax bill could be done before Thanksgiving so taxpayers have a clear sense of the new system going into 2018.

Tax policy would gain momentum if Republicans can pass a health law that repeals parts of former President Barack Obama's Affordable Care Act and cuts hundreds of billions of dollars in taxes that wouldn't have to be addressed as part of a tax plan. Failure on health care would create complications for a tax bill, but it might also create a new sense of urgency.

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Among the current challenges facing Republicans:

-- The biggest is internal opposition -- particularly in the Senate -- to Mr. Ryan's plan to add a border adjustment to the corporate tax, which would tax imports and exempt exports. Mr. Ryan has acknowledged the concerns and sidestepped that issue on Tuesday, but he is also forging ahead in the absence of an alternative.

The border adjustment, Mr. Ryan argues, wouldn't just provide an estimated $1 trillion over a decade to pay for lower tax rates. By basing taxes on sales instead of profits, it would also act as a backstop to prevent companies from shifting profits abroad in a system where the U.S. stops taxing companies' foreign income.

"The status quo encourages companies to move operations overseas, to make things abroad, and to then sell them back into the U.S.," he said. "This makes no sense, and it is actually costing us a lot of jobs."

-- Republicans also have to decide whether they want a tax cut or a revamp of the system that would lower rates for individuals and companies while leaving federal tax collections roughly unchanged. Conservatives and some parts of the Trump administration favor a tax cut.

"We will get tax cuts done and we will get them done this year," Vice President Mike Pence said in a speech immediately preceding Mr. Ryan's.

Mr. Ryan and Senate Majority Leader Mitch McConnell (R., Ky.) have said they favor a so-called revenue-neutral approach -- meaning that total taxes wouldn't change much while rates get lowered and some breaks vanish -- after counting revenue generated by the tax plan's economic effects.

Mr. Ryan said Tuesday that a permanent tax law is important, which means it will likely need to be constructed to avoid increasing budget deficits beyond a 10-year budget-scoring window.

"Every expert agrees that temporary reforms will only have a negligible impact on wages and economic growth," he said. "Businesses need to have confidence that we won't pull the rug out from under them."

-- Intra-Republican disputes threaten the GOP effort with every trade-off. Just this week, seven House Republicans from New York and New Jersey signed a letter asking the administration -- and by extension, the speaker -- to reconsider a plan to repeal the deduction for state and local taxes.

-- To even get to tax policy, Republicans will have to pass a budget that allows them to use reconciliation, the procedural tool that enables a simple majority vote in the Senate. That will require bridging gaps between Republicans who emphasize spending cuts and those who want to spend more on the military.

Few if any Democrats will join Mr. Ryan. They argue that the GOP offers certain rate cuts to corporations and high-income households with little clear benefit to the population at large.

"Paul Ryan is not serious about tax reform. He's serious about tax giveaways -- for millionaires, billionaires, and wealthy corporations," Frank Clemente, executive director of Americans for Tax Fairness, a liberal group, said in a statement. "Middle-class Americans will see their basic standards of living reduced by Ryan's plans, just so that the rich and huge corporations can get a giant tax cut."

-- Then there is a pile of narrower issues that will crop up as Republican members find their home-state and home-district industries objecting to pieces of the tax bill.

The result may not be the tax plan Mr. Ryan first laid out a year ago or a copy of the temporary tax cuts that President George W. Bush pushed through in 2001 and 2003. But Republicans say they are determined to do something ahead of next year's primaries and midterm elections.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

June 20, 2017 14:46 ET (18:46 GMT)