President Trump’s attempt at tax reform faces one of the same problems as his attempt at health care reform: a divide among Congressional Republicans.
According to The Washington Post, a group of presidential advisers and congressional leaders is developing a framework they intend to release next week.
However, the framework will not address the elephant in the room, which is how to pay for Trump’s proposed tax cuts.
There is general support for reducing both the corporate and individual income tax rates, but there is disagreement on what tax breaks should be eliminated to pay for the cuts.
The president’s advisers are willing to eliminate tax deductions for the interest businesses pay on debt. They also put the popular state/local tax deduction and mortgage interest deductions on the table.
Congressional leaders have balked at the idea of cutting the widely-used mortgage interest deduction.
If the two sides cannot find agreement, they will have to scale back the tax cuts.
Even if the mortgage interest deduction proves too popular to fail, the White House is hopeful that it can reduce the corporate income tax rate from 35 percent to 15 percent. Congressional leaders are skeptical about attaining that goal as well.
Speaker Paul Ryan (R-Wis.) expressed support last week for the mortgage interest deduction and individual deductions for health insurance premiums and charitable donations. “We see those more as broad-based, important things that should be encouraged,” he said.
However, Ryan’s position limits the options for paying for tax cuts.
Mark Mazur, a former analyst at the Internal Revenue Service, said, “Some things will have to get dialed back. They overpromised on a lot of things.”
President Trump talked up his tax cuts in recent appearances in Missouri and North Dakota.
Congressional Republicans are trying to achieve agreement upfront in order to avoid the embarrassments they suffered while trying to repeal the Affordable Care Act.
Negotiators will have to create a framework that will appeal to both hard-line fiscal conservatives and Republican moderates.
Democratic lawmakers have not had much say in the negotiations, although one source speculates that Trump might be willing to deal with them if the Republicans fail again.
Republicans will attempt to use reconciliation to pass tax legislation. However, this means the legislation cannot add to the deficit. Most experts agree any legislation that gives Trump his desired victory will significantly increase the deficit.