Ryan Gives Tax-Overhaul Pep Talk Amid Growing Doubts in GOP

(Bloomberg) -- Four days before the one-year anniversary of the release of his tax blueprint, House Speaker Paul Ryan delivered a pep talk seeking to assuage growing doubts about the prospects for a major tax overhaul.

“We’re going to stick the landing because we know we’ve got to,” Ryan said in a CNBC interview after an address to manufacturers billed as his first major speech on taxes. “I’m really confident at the end of the day we’re going to agree on how to do this.”

In his speech Tuesday, Ryan steered clear of the controversial border-adjusted tax concept in his tax plan, which he has said would help pay for the steep rate cuts all Republicans want. In his television interview just minutes later, he said the BAT isn’t dead -- but congressional tax writers are working on alternative proposals to come up with “the best one we can pass.”

Ryan’s speech urged Republicans not to squander an opportunity to “do something transformational” for the economy and overhaul the tax code permanently. “We need to get this done in 2017,” he said in Washington during an event at the National Association of Manufacturers. “We cannot let this once-in-a-generation moment slip by.”

“Our capacity to come together and to always move forward toward a better, stronger nation is being tested,” he said. “We are going to cut taxes. But if we are going to truly fix our tax code, we have to fix all of it -- both for individuals and businesses.”

Ryan didn’t reveal new policy details or a shift in his thinking, which prompted a sharp retort from his Democratic counterpart. “I applaud @SpeakerRyan on his ability to give so many speeches on tax reform without ever sharing details of an actual plan,” House Minority Leader Nancy Pelosi said on Twitter.

Prospects for a tax overhaul have “dimmed a lot” in recent months, said Jonathan Traub, a tax specialist with Deloitte Tax LLP and former staff director for Ways and Means Committee Republicans.

Spending Targets

Reforming the tax code has taken a back seat to repealing the Affordable Care Act, which Senate Republicans are currently focused on. The GOP also has to resolve disputes and settle on revenue and spending targets in a fiscal 2018 budget resolution before lawmakers can act on taxes. Congress has 22 working days before the five-week August recess, and by this fall it will have to avert a government shutdown, renew expiring programs like the Children’s Health Care Program and raise the debt limit.

Ryan said if Congress can’t pull off health-care legislation, then the taxes imposed by the 2010 ACA -- including an 3.8 percent investment-income tax on the highest earners -- would stay in place and not be incorporated into a tax bill.

“They really are pretty obnoxious taxes -- we’ll have to put those off to the side and they’ll have to be gotten to when we get to health care reform and we’ll reform the rest of the tax code,” he said on CNBC.

September Goal

A White House spokeswoman said President Donald Trump’s administration plans to introduce a unified tax plan -- agreed on by the president and Republicans in the House and Senate -- within the first two weeks of September.

But the biggest hurdle to a tax cut for Republicans is reaching a consensus on whether a bill should be revenue-neutral and, if so, how it should raise revenue to pay for tax-rate cuts.

The lack of agreement on how to pay for steep individual and corporate tax-rate cuts has prompted key GOP lawmakers to cast doubt on the need for legislation that balances the cuts with other provisions that raise revenue. Representative Jim Jordan has proposed some $400 billion in welfare spending cuts to help pay for tax cuts. Other Republicans, including Senate Finance Chairman Orrin Hatch and Senator Pat Toomey, have called for changing the rules to make way for a 20 or 30-year temporary tax cut rather than the existing 10-year limit.

“Here we are a year later, and Congress has made little progress toward cutting taxes --even though voters overwhelmingly sent Republicans to Washington with a clear mandate to reduce taxes,” said David McIntosh, the president of the conservative advocacy group Club For Growth.

Economist Stephen Moore of the conservative Heritage Foundation said there’s a sense now that “there’s less than a 50-50 chance” of passing a tax-code rewrite this year. “Everyone is asking, why is this taking so long?” he said in an interview.

“There hasn’t been a sense of urgency on either side of Pennsylvania Avenue,” said Moore, who advised Trump’s campaign on tax matters. “Wall Street and investors are in a holding pattern.”

Border Tax

Ryan didn’t back off the 20 percent border-adjusted tax on companies’ imports and domestic sales to replace the existing corporate tax rate -- a provision in his blueprint that has drawn opposition from Senate Republicans and the White House. But he indicated openness to finding other ways to achieve the goal of promoting American manufacturing and keeping companies in the U.S.

“There are a number of ways to achieve this,” he said. “We in the House have our own idea, and that is one of the things that we are discussing with the administration. But the bottom line here is this: We cannot accept a system that perpetuates the drain of American businesses overseas.”

The border-adjusted tax is estimated to raise about $1 trillion in revenue over a decade, which Ryan has described as essential to paying for tax cuts. Ryan’s ally, House Ways and Means Chairman Kevin Brady, last week proposed to phase it in over five years, but that failed to placate its opponents on the right. Club For Growth labeled it a “political loser” and “a ball and chain that is dragging down real, pro-growth tax reform.” Representative Mark Meadows, the chairman of the conservative House Freedom Caucus, said it’s “DOA” whether it takes effect “today, tomorrow or in five years.”

Some House Republicans have grown frustrated by what they see as criticism from their Senate GOP colleagues -- without offering alternative revenue raisers. Some have also griped about the lack of clarity from the White House regarding details of a tax plan. Republican tax-writers in the House and Senate are also hobbled by doubts about which of Trump’s officials he’s listening to on tax policy.

Ryan acknowledged the obstacles ahead, but remained optimistic.

“I know that the cynics and naysayers are out in full force. You will hear that tax reform is coming along. You will hear that it is dead. Then you will hear it is back on track. Then you will hear it is on life support,” he said. “But I am here to tell you: We are going to get this done in 2017.”

--With assistance from Lynnley Browning

To contact the reporters on this story: Sahil Kapur in Washington at skapur39@bloomberg.net, Anna Edgerton in Washington at aedgerton@bloomberg.net.

To contact the editors responsible for this story: Alexis Leondis at aleondis@bloomberg.net, John Voskuhl