Trump’s Pivot To Taxes Is Fraught With ‘Pitfalls Everywhere’

President Donald Trump is planning to kick off one of the most important sales pitches of his presidency this week — getting Americans fired up about rewriting the U.S. tax code.

But there’s no plan to sell.

Basic questions remain unanswered. Will the changes be permanent or temporary? How will individual tax brackets be set? What rate will corporations and small businesses pay?

Instead of providing details that could help build support for a bill, the president will largely rely on the same talking points he and his advisers have highlighted since January: The middle class deserves a tax cut and businesses need changes to help them compete with global rivals.

Treasury Secretary Steven Mnuchin — who earlier predicted having a tax bill done by August — revealed the enormity of the task ahead on Friday: He didn’t commit to completing it by year’s end.

“They’re nowhere. They’re just nowhere,” said Henrietta Treyz, a tax analyst with Veda Partners and former Senate tax staffer. “I see them putting these ideas out as though they’re making progress, but they are the same regurgitated ideas we’ve been talking about for 20 years that have never gotten past the white-paper stage.”

Treyz said congressional tax staffers she’s spoken with are despondent over what they call an unexpectedly grim situation. There’s “animosity” between Republican leaders and their members, and between House and Senate Republicans, she said. Mistrust between congressional Republicans and Trump has been exacerbated by his recent attacks on key GOP senators.

Health-Care Lesson

“Our team has been working with the White House and the Senate to ensure we are all moving in one direction to reach this important goal,” said Emily Schillinger, a spokeswoman for House Ways and Means Chairman Kevin Brady.

Administration officials and congressional leaders met periodically this summer to negotiate a tax framework — an attempt to avoid repeating the failed attempt to repeal the 2010 Affordable Care Act.

Trump and Mnuchin

Photographer: Zach Gibson/Bloomberg

The result was a two-page “statement of principles,” released in July. It contained one big decision — ruling out a controversial border-adjusted tax that House Speaker Paul Ryan had championed — but left other crucial questions unanswered.

Trump administration officials had promised a unified tax plan by early September — catching GOP congressional leaders by surprise, and leaving members confused and irritated, said three people familiar with the situation. The White House has since abandoned that promise; it said last week that details will be up to the tax-writing committees in the House and Senate.

Those panels must decide how to raise trillions in revenue to pay for the massive tax cuts the White House has promised, and which deductions and loopholes to eliminate. It’s possible that two different plans could result, with neither gaining the White House’s full support.

“There’s no indication that either the White House or congressional leaders learned anything from their repeal and replace debacle,” said Stan Collender, a former budget aide for congressional Democrats.

‘Internal Debate’

Even the time frame for drafting a bill isn’t clear. National Economic Council Director Gary Cohn told the Financial Times in an interview published Friday that the Ways and Means Committee would write the tax legislation “in the next three or four weeks.” Schillinger declined to confirm that, saying only that the panel is working toward achieving a tax overhaul in 2017.

After lawmakers return from a recess next week, they must focus first on must-pass bills to keep the federal government open and avert a default on U.S. debt — most likely pushing serious consideration of tax legislation to October. Republicans remain divided on the parameters of a budget measure that’s necessary to kick off tax legislation.

Meanwhile, Trump will spend the next several weeks campaigning for tax legislation, the White House said. His first stop is Springfield, Missouri, on Wednesday, said an official who asked not to be identified because the details were still under review. Trump posted a message on Twitter Sunday saying he was heading to Missouri and that Senator Claire McCaskill, a Democrat, is “opposed to big tax cuts.”

Republicans had hoped to fill the month of August with similar messaging, but Trump’s comments about white supremacist violence in Charlottesville, Virginia, and pointed attacks on Senate Majority Leader Mitch McConnell and others overshadowed that plan.

There’s still no indication that the most essential question for a tax bill — whether its changes would be temporary or permanent — has been settled. “There’s some internal debate about that that we’ll have to sort out among ourselves,” McConnell said Aug. 21.

Republicans, who control only 52 seats in the Senate, plan to use congressional budget rules that allow for approving a tax bill with a simple majority. But those rules also require that tax cuts would have to be offset so they don’t add to the long-term budget deficit. Changes that did increase the deficit would have to expire over time.

Washington Lobbyists

Beyond vague references to eliminating special breaks, the only one that’s been targeted publicly is the state and local tax deduction for individuals. Officials have said they’d preserve deductions for mortgage interest, charitable giving and retirement savings.

“What we’re proposing on the individual side is get rid of the loopholes, get rid of the carve-outs,” Ryan said last week during a CNN town hall. “Just lower people’s tax rates. Let you keep more of your own money.” He offered no additional details during the hour-long event.

The lack of specifics has kept Washington lobbyists on the sidelines — but that could change as soon as tax writers target any treasured loopholes.

For example, the influential National Association of Realtors wants to retain the state and local tax deduction. Yet the group hasn’t formalized a budget for that fight or other tax-related efforts, said a person familiar with its strategy. The vague plans and difficult legislative calendar present such large impediments to tax legislation that any tactics beyond the usual meetings with lawmakers haven’t been necessary, the person said.

‘Potholes and Sinkholes’

Similarly, there’s been no announcement of a specific tax rate that would be applied to more than $2.6 trillion in profit that U.S. companies have stockpiled overseas. Cohn said in the FT interview that a specific “repatriation” rate on those offshore earnings hadn’t been discussed. (He and Mnuchin said they would be discussing a rate with the House and Senate four months ago when unveiling the White House’s one-page tax plan.)

Details or no details, Cohn hasn’t swayed from saying he’s committed to a full overhaul, listing it as his first, second and third priorities during a Bloomberg TV interview this month.

That level of determination among key players means a tax bill is still possible, said Kevin Madden, a Republican communications strategist who worked for former House Speaker John Boehner. “There’s a reason Kevin Brady and Paul Ryan are criss-crossing the country, talking to workers, talking to businesses both big and small that are major employers.”

Brady and Ryan met this month with employees at companies including Intel Corp., Boeing Co. and AT&T Inc. They rehashed lines they’ve used since January: They want to simplify the code so Americans can file returns on postcards. Tax overhauls are rare and difficult; the last one happened in 1986 when Ryan got his driver’s license.

Treyz said the best-case scenario is that Republicans will pass legislation in late 2017 that expands existing tax perks, like the earned income tax credit and the child tax credit. Proposals to slash rates will run into budgetary problems, and efforts to end deductions will draw a lobbying blitz, making them too painful for many Republicans to support.

“I just see pitfalls everywhere,” she said. “Potholes and sinkholes.”

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