Ryan Talks Up Likelihood of Tax Overhaul

By Richard Rubin Features Dow Jones Newswires

House Speaker Paul Ryan (R., Wis.) on Tuesday will express continued confidence that Republicans can deliver a groundbreaking set of tax-policy changes this year, despite a long list of hurdles in front of them.

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Mr. Ryan, in a speech to manufacturers in Washington, isn't expected to delve into the details that divide Republicans or the negotiations between the Trump administration and members of Congress.

"We need to get this done in 2017," he will say, according to excerpts distributed by his office. "Transformational tax reform can be done, and we are moving forward."

Mr. Ryan's speech to the National Association of Manufacturers, sandwiched between cable news appearances, is meant to build momentum and public support for the party's aims. Republicans face significant obstacles, but many 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.

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.

Among the current challenges facing Republicans:

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-- 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, 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.

"We are actually unique in the world in the way we discourage capital from coming back to America and how we incentivize offshoring jobs," Mr. Ryan will say Tuesday. "We must think differently, so that once again we make things here and export them around the world."

-- Republicans also have to decide whether they want a tax cut or a revamp of the system that would leave federal tax collections roughly unchanged. Conservatives and some parts of the Trump administration favor a tax cut. 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.

-- 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.

-- 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 00:15 ET (04:15 GMT)