GOP Lawmakers, White House Outline Tax Plan

By Richard Rubin Features Dow Jones Newswires

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.

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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.

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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)