Why GOP Health Care Failure Jeopardizes Tax Reform

Tax reform will and should proceed, even though congressional Republicans have punted on saving more than $1 trillion by not repealing Obamacare.

So say some of the top Republican experts on tax reform, who are advising President Donald Trump.

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On Tuesday, the job of ambitious tax reform became harder when it appeared the Republican-led Senate would not repeal the Affordable Care Act, aka Obamacare. Locked inside a potential repeal bill was more than $1 trillion in budget cuts over 10 years.

While the White House brought 49 of the 52 Republican senators to the White House on Wednesday afternoon and talked up the possibility of a new repeal effort, tax reform hung in the balance — delayed, for now, by another round of Obamacare debate.

But the White House plans to pivot to tax reform if Obamacare repeal fails. The question is how much will it contribute to the deficit and the national debt. Right now, the annual budget deficit stands at about $600 billion, but it is expected to drop to $440 billion by 2022, according to White House projections.

On Wednesday afternoon, the Congressional Budget Office reported Obamacare repeal would decrease deficits by $473 billion through 2026.

Yet if Obamacare repeal doesn’t happen and tax rates are cut, the deficit could rise significantly.

That would increase the national debt, which right now stands near $20 trillion.

Yet some of Trump’s top unofficial economic advisers will urge the president not to tie the two issues together. Tax reform, they argue, is its own priority.

“I didn’t think it was a good idea to offset the tax cuts with health savings,” said Stephen Moore, a visiting fellow for the Project for Economic Growth at The Heritage Foundation, and a Trump adviser.

Moore said the White House has to make much of its tax reform as a tax cut, not just moving around tax rates to make the project “revenue neutral.”

Especially important to Trump and Gary Cohn, Trump’s director of the National Economic Council, is a cut in the U.S. corporate tax rate. The rate is the highest in the Organization for Economic Cooperation and Development, a group of 35 of the world’s most industrialized countries.

It stands at 39.1 percent, the highest in the OECD. The OECD average is 24.1 percent.

The rate is said to be hurting U.S. competitiveness. Trump would like to cut the rate to 15 percent.

Among other goals in Trump’s tax proposal is to reduce the number of brackets for individuals, to 10, 25 and 35 percent. Trump would also double the standard deduction for individuals.

Tax reform should stand on its own, and if people cannot count on Obamacare repeal and the relief it would provide, the tax effort needs to be even bigger, says Grover Norquist, the longtime tax-cut advocate and head of Americans for Tax Reform.

Norquist told LifeZette the “tent pole” needs to be doubled in size to stand up Trump’s agenda for his first year.

Moore said the lower rates would pay for themselves and not drive up the debt. He said if jobs and growth boom, and the United States maintains a 3 percent annual growth rate, it can count on at least $2 trillion in new government revenue.

Still, Trump and his advisers appear to be talking down plans of a radical cut in the corporate tax rate. Politico reported on Tuesday that Trump advisers expect a rate of between 20 and 25 percent to be proposed in Congress.

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That would put the U.S. corporate rate closer to the OECD average, which is far from the “Go big or go home” philosophy that Cohn and Treasury Secretary Steven Mnuchin reportedly follow with regard to tax reform.

Asked by LifeZette at Wednesday’s press briefing about concerns that the tax reform, without the repeal savings, would balloon the debt, White House spokesman Sarah Huckabee Sanders said the tax plan is continuing to advance, with the White House holding firm that Obamacare repeal will also happen.

Trump had lunch with 49 Republican senators on Wednesday, including Senate Majority Leader Mitch McConnell (R-Ky.), urging them to pass Obamacare repeal. For now, tax reform is waiting behind the curtain again, unsure whether it will be Trump’s 2017 co-star — or Trump’s only star.