Can Republicans cut it on tax reform battle?

WASHINGTON • Reeling from the collapse of their plan to repeal the Affordable Care Act, Republican lawmakers are now moving on quickly to the next big thing: tax legislation.

On Tuesday, they came up with a budget proposal to reduce tax rates for businesses and individuals.

But the healthcare plan failure complicates their efforts to overhaul the tax code. It also adds to the urgency Republicans face to secure a signature achievement in President Donald Trump's first year in office.

For months, Republican leaders in Congress have said it was crucial to cut the taxes imposed by Mr Barack Obama's healthcare law so that they could introduce even deeper income tax cuts later on.

Now those Affordable Care Act taxes will remain, and the ability of the party to coalesce around ambitious tax legislation is in doubt.

The big question is whether rewriting the tax code, which has not been done since 1986, will be easier than undoing the Affordable Care Act.

Republicans are hopeful because they view cutting taxes as central to the party's identity. Yet the requirement that they not add to the deficit, outlined in the House Budget, means they are likely to face more broad and well-financed resistance.

The plan released on Tuesday as part of the House Budget Committee's 2018 Budget resolution blueprint calls for consolidating tax brackets and cutting rates, repealing the alternative minimum tax and switching the US from a worldwide tax system to a territorial tax system, which would tax only the domestic income of corporations.

It also calls for a US$621.5 billion (S$850 billion) national defence budget for next year and US$511 billion for non-defence spending. The most contentious part is at least US$203 billion in cuts over a decade in "mandatory" spending on programmes such as Medicare and Social Security. And it recommends repealing parts of the 2010 Dodd-Frank Act that ushered in financial regulations after the last recession. If enacted, it would result in a US$6.5 trillion reduction in the federal deficit over a decade.

The resolution is of particular importance this year because Republicans must pass it to unlock a procedural tool that would allow them to overhaul the tax code without the support of any Democrats. But it will not be easy to pass.

The fact that the budget blueprint dictates that the rewrite of the tax code cannot add to the deficit could set up a clash between Republicans in Congress and the White House, which has been more open to temporary tax cuts that add to the deficit. Mr Trump has promised the biggest tax cut in history.

"That's a long way from talk about a large deficit-increasing tax cut," said Mr Ed Lorenzen of the Committee for a Responsible Federal Budget, a non-partisan group committed to educating the public on fiscal issues. "I'm very curious to see how the White House and conservatives who have been advocating for a tax cut react to this." The cuts to entitlement programmes in the proposal also represented a direct rebuke of Mr Trump, who had promised not to touch those plans.


A version of this article appeared in the print edition of The Straits Times on July 20, 2017, with the headline 'Can Republicans cut it on tax reform battle?'. Print Edition | Subscribe