Tax Reform Not Going Quite As Planned

The Republican effort in Congress to reshape the tax system has been moving much more slowly than many had hoped. Republicans started 2017 with high ambitions, seeing as they controlled both houses of Congress and the White House. Their stated aim was to quickly repeal the 2010 Affordable Care Act and reform the tax code. Instead, the GOP found themselves stymied on both fronts.

Republicans are searching for ways to offset the deep cuts they desire, but their proposals have all hit resistance within the party. One possibility is settling for a 25 percent corporate rate, higher than the 20 percent backed by House Republicans or the 15 percent proposed by Mr. Trump. Each percentage-point reduction in the 35 percent corporate tax rate cuts federal revenue by about $100 billion over a decade.

The border adjustment tax, or taxing imports and exempting exports, has met wide resistance. Big retailers say the border adjustment tax is an existential threat to their businesses and will result in price increases for consumers. Some Republicans now say they agree.

The interest deduction for businesses is also under consideration. Keeping the deduction would leave a $1 trillion hole over 10 years, but the concerns of firms that rely on debt financing may outweigh the administration’s desire to cut costs.

The president has already promised to protect the tax breaks for mortgage interest and charity and in the weeks since have taken more items off the table, including a carbon tax and a value-added tax. The only big revenue-raising provision that seems assured of passage is repealing the deduction for state and local taxes. However, even that idea faces objections from blue-state lawmakers in the party.

The top tax-writers in the House want to produce a permanent tax bill that’s revenue neutral. However, some senators and administration officials have even expressed openness to temporary tax changes that would expire to comply with rules preventing long-run deficits. Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Mick Mulvaney have also said they are willing to consider lengthening the budget window from the traditional 10 years to 20 or 30 years.

Party leaders still say they will finish a historic tax-code revision by year’s end. Republicans are currently working off the blueprint Rep. Kevin Brady (R., Texas), released in June 2016. Late Sunday, President Donald Trump tweeted that the process was ahead of schedule and moving along. However, the Trump administration has released only one page of goals and few solutions.