After a challenging struggle to take on health care reform, Congress refocuses its efforts on tax reform, an equally difficult problem.
After discovering in March how difficult it is to reshape the healthcare system, House Republicans have turned their attention to something equally challenging—overhauling the nation’s tax code.
The last significant rewrite of the tax code occurred in 1986. While there is broad agreement that the current tax system is broken, there are dramatic differences about what a simpler, fairer tax code should look like. If the plan is to lower marginal tax rates for individuals and corporations, those rate cuts could require significant revenues from somewhere else in the code to avoid increasing the deficit.
House Ways and Means Committee Chairman Kevin Brady (R-TX) thinks his committee can pass a comprehensive tax reform bill before Congress adjourns for its summer recess, but President Trump has shown little enthusiasm for a key funding provision in Brady’s tax blueprint, the border adjustment tax. This tax would levy fees on imports, which some lawmakers fear would harm retailers and drive up costs for everyday goods.
In late April, the administration released the outlines of a tax reform plan that includes steep rate cuts but abandons the border adjustment tax. White House officials have not said how the tax cuts in their plan would be paid for but have said they are open to raising new revenue through additional changes to the tax code.
House Republicans who have spent months promoting the border adjustment tax as a means of making tax reform revenue neutral said they want to work with the White House to reach an agreement.
Despite the more optimistic timeline in the House, Senate Majority Leader Mitch McConnell (R-KY) has expressed doubt about whether tax reform can pass before the August recess.
If border adjustability falls by the wayside, lawmakers could turn to other options to ensure the plan stays revenue neutral, including provisions to change the tax treatment of some association revenue-generating activities.