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Trump Debt Limit Deal Undermines Trust Among GOP on Tax Overhaul

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The White House said President Donald Trump cut a short-term debt ceiling and government spending deal with Democrats to clear the deck for a major tax bill. But the agreement could be complicating tax efforts by eroding trust within his own party.

Not only has the deal sowed doubt among the GOP about its unpredictable president, but it’s also driving a wedge between Republicans and their leaders in Congress, just as the party is desperate to deliver on one of its top priorities.

And the calendar is unforgiving. Congress needs to reauthorize funds for the children’s health insurance program and federal aviation programs before Sept. 30 and lawmakers are still trying to address the Affordable Care Act. In addition, they may need to provide additional hurricane relief funds after the devastation in Florida following Hurricane Irma prompted the state’s Sen. Bill Nelson to push for Congress to approve another emergency aid package by mid-October.

(Related: Freedom Caucus Members Frustrated With GOP Leaders on Agenda)   

Republicans also have to agree on a 2018 budget resolution — a necessary step to unlock the procedural maneuver they intend to use to pass the tax plan with 50 votes in the Senate. The lack of details of a tax plan is frustrating members of the House Freedom Caucus, who are making clear they’re ready to effectively hold the budget resolution hostage until they get some specifics from their leaders.

“It’s very hard to hard to vote on a budget resolution, which has as its sole objective to move tax reform, when you don’t know what tax reform looks like,” said Rep. Dave Brat, a House Freedom Caucus member from Virginia. “That’s our objection. There’s problems across the whole conference, from moderates to fiscal conservatives.”

‘Enemy is Time’

The Freedom Caucus’s chairman, Mark Meadows of North Carolina, said last week “the enemy is time” and called for passage of a bill by Thanksgiving.

Even if Republicans are able to work through their differences and cobble together a plan, it’s likely the final pieces would be put in place just as negotiations heat up again over the next debt ceiling-government spending battle, with funding set to run out Dec. 8.

“Tax reform may be more difficult after this deal as it was before,” said Stan Collender, a former budget aide for congressional Democrats. “Getting a budget resolution through the House with a frustrated and angry Freedom Caucus and emboldened Democrats will be a real problem, and without a budget resolution there will be no tax reform.”

Completing a tax bill before the end of the year is an ambitious timetable. The last comprehensive U.S. tax rewrite, which was in 1986, was a bipartisan effort and took more than two years of debate and negotiation to complete.

No Timetable

A White House official said the six key tax negotiators in the administration and Congress had an extremely positive meeting last week. Despite that statement, there’s been no evidence of what the so-called Big Six agree on exactly since the July release of a two-page press release outlining broad tax principles. There’s also confusion about whether the tax details are still being decided on by the Big Six, or are in the hands of the tax-writing committees, and if that group will release more specifics by the end of the month.

Rep. Kevin Brady, the chief House tax writer and a member of the Big Six, wouldn’t confirm whether any specific decisions have been made and declined to offer a timetable for releasing details or marking up legislation during a recent press conference.

White House (Photo: Diego M. Radzinschi/ALM)

(Photo: Diego M. Radzinschi/ALM)

The central question that remains is whether tax cuts will be offset so the changes are permanent. Other contentious issues include where to set rates for individuals, corporations and pass-throughs, whether to allow expanded business expensing and restrict net interest deductibility, how to shift to a territorial system and deter offshore profit shifting, and which carve outs to eliminate.

Trump’s debt ceiling deal effectively gave Republicans just a few extra legislative calendar days to focus on taxes — since the GOP was going to have to resolve the issues of the government at risk of breaching the debt limit and funding set to expire by the end of September.

Budget Resolution

Still, the president isn’t losing his focus on taxes. “We’ll be discussing our plan for dramatic tax cuts and tax reform,” Trump said Saturday before a cabinet meeting at Camp David. “Now with what’s happened with the hurricane I’m going to ask for a speed-up. I wanted a speed-up anyway, but now we need it even more.”

But the budget resolution for fiscal 2018 still remains a sticking point. House Budget Chairwoman Diane Black told reporters Sept. 8 that the budget resolution containing the instructions for tax reform wouldn’t get a floor vote this week.

GOP leaders must try to appease House conservatives, who have been griping that they need details of a tax plan before they can approve a budget. Meadows said his group has had many discussions about tax legislation and is convinced Trump is all-in on it. But, some of the measures the House Freedom Caucus is backing — such a 16% corporate rate and cuts that add to the deficit — aren’t in line with what House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell have proposed.

Treasury Secretary Steven Mnuchin, who’s helping Trump shepherd a tax deal, didn’t help the effort on Friday when his pitch to House Republicans to support the president’s fiscal deal was met with hisses and groans. Some conservatives said they were infuriated by Mnuchin’s sales pitch, including to “vote for the debt ceiling for me.”

White House spokeswoman Sarah Huckabee Sanders didn’t commit Friday to completing a tax overhaul by the end of the year — she just said the president wants to deliver tax relief “as quickly as we can,” but recognizes it will be a process.

Economist Poll

Some Republicans have said privately that they doubt a 2017 deadline is realistic. Given the internal debate about where to set rates, and the lack of a bill at this point in time, it’s unlikely that a tax bill can be signed this year, according to a former Trump White House aide who was involved in the tax overhaul effort. The lack of trust between Trump and Republican congressional leaders also hurts tax prospects, said the aide, who asked not to be named because the discussions were private.

The majority of economists in the latest Bloomberg monthly poll are also skeptical. Of 41 respondents surveyed from Sept. 1 to Sept. 7, 23 said they don’t expect Congress to pass tax-cut legislation before the end of the year.

The determination among Republican leaders, however, remains strong, particularly after their failure to block the Affordable Care Act and the prospect of a border wall in limbo. Meadows said he’s “extremely optimistic” about reaching consensus on a tax plan after meeting Thursday with top White House officials working on the issue.

“I do think it is full speed ahead on tax reform,” said Rohit Kumar, a former deputy chief of staff to McConnell who currently oversees tax policy for PricewaterhouseCoopers. “My key takeaway is that a good deal of progress has to be made on tax over the next two months for there to be a credible argument that tax reform is on track for enactment before the 2018 mid-term elections.”

—With assistance from Billy House, Catarina Saraiva and Laura Litvan. 

— Read House, Senate Republican Leaders Near ACA Spending Fight on ThinkAdvisor.

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