Why House Conservatives Are Anxious for Tax Reform Details

President Donald Trump and House Speaker Paul Ryan both see tax reform as an accomplishable, signature feat before the 2018 midterm elections, but the conservative House Freedom Caucus wants to see the plan. Soon.

Why? One major concern of conservatives is whether Trump and Ryan will give tax cuts to big corporations, leaving unincorporated small businesses on Main Street forgotten or paid less attention.

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It would be a very “swampy” thing to happen to Trump’s tax agenda, and it would also be ironic: Big corporations tend to be liberal, and were anti-Trump, while unincorporated small businesses run by “Mom and Pop” in places like Florida, Ohio and Wisconsin helped elect Trump.

The uncertainty has conservatives in the House wanting details.

Two sources — one a Hill staffer and one a top ally of the caucus — told LifeZette on Wednesday that the Freedom Caucus, a group of about 40 House members, wants to see the tax reform plan before it goes to the Senate.

The Freedom Caucus is also working on a “statement of principles” to give to Ryan before the House Republican leadership releases its plan, according to these same sources. The conservative Freedom Caucus is concerned Ryan will try to reshape the tax reform legislation after it becomes part of “budget reconciliation.” Such reshaping is typical after bills leave the House, but Freedom Caucus members are worried important reforms will be lost in the Senate and then in negotiations.

Ryan and Senate Republicans could also alter the bill in “budget reconciliation.” Reconciliation with the budget simply means the Republican-led Senate can pass tax reform with but 51 votes, as long as it is germane to the budget.

The Republicans have 52 senators. If tax reform is done outside of reconciliation, it needs 60 votes to move forward to a final vote. That’s at least eight Democratic senators, and that is unlikely.

“No budget, no tax reform,” said Rep. Kevin Brady (R-Texas), chairman of the House Ways and Means Committee, speaking to the GOP conference on Wednesday, according to CNN.

After the conference, Rep. Mark Meadows (R-N.C.) told LifeZette that the Freedom Caucus is not and will not stand in the way of tax reform. Meadows said the caucus is not making demands.

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But behind the scenes, the caucus and GOP leadership are clashing. On Tuesday, Rep. Diane Black (R-Tenn.) told Politico that she wants to bring the budget to the House floor this month, forcing the Freedom Caucus to choose between voting aye or nay. Killing the budget could kill tax reform.

On Wednesday, Brady appeared to agree to laying out details soon, saying he will release a “consensus document” during the week of September 25.

But the battle has many reform advocates questioning how far they should go.

“From a practical standpoint, I don’t know how [tax reform] gets done,” said Alfredo Ortiz, president of the Job Creators Network. “Let’s do the doable.”

To Ortiz, the “doable” is tax cuts for businesses and individuals. Large-scale tax reform could take longer, he said, and is usually a gigantic task. In the 1980s, former President Ronald Reagan passed tax cuts in 1981, but couldn’t tackle large tax reform until 1986. That was the last time a large rewrite of the tax code was done, Ryan has noted.

Ortiz believes tax cuts alone can be done before Thanksgiving Day.

Another concern is cost. Some House Republicans are worried that cutting business taxes is too expensive. They want to cut the high corporate tax rate of about 39 percent to 20 percent or 15 percent. But they want to avoid large cuts to unincorporated small businesses, which use the top tax rate for individuals. Such business are called “pass-throughs” by officials, because the income is not taxed at the corporate level, but at the owners’ individual tax rates.

“We think they are headed in the wrong direction if they don’t include all of the pass-throughs in the budget,” said David McIntosh, the president of Club for Growth and a former Republican congressman.

McIntosh said small companies, nimble startups, and tiny florist shops do not want to incorporate. Instead they form limited liability companies or so-called “S” corporations.

Those small businesses tend to be run by Republicans and conservatives, one lobbyist told LifeZette, whereas the big corporations have tended to be liberal and Democratic, giving richly to Hillary Clinton and bashing Trump for his policies. Such formal corporations are also wealthy, meaning they can lower their effective tax rate with lawyers and accountants.

The corporate rate could be cut to 23 percent while small businesses could see 28 percent, the Washington Post reported on Tuesday. The rate cut for small businesses and other pass-throughs would be $1.9 trillion over 10 years.

Ryan’s office did not return a request for comment from LifeZette.

But Natalie Strom, a deputy press secretary for the White House, told LifeZette that small businesses and pass-throughs are a major focus of Treasury Secretary Steven Mnuchin and the president in negotiating tax reform with Congress.