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Five Issues That Could Sink the Trump-GOP Tax Plan

Now comes the hard part in Republicans’ drive to overhaul the tax code as they're forced to confront some its thorniest issues.
Image: House Speaker Paul Ryan Holds Weekly Press Conference At U.S. Capitol
Speaker of the House Paul Ryan answers questions during his weekly news conference at the Capitol on Oct. 26.Chip Somodevilla / Getty Images

WASHINGTON — Now comes the hard part.

The details of the Republican tax plan will be unveiled on Wednesday — and GOP leaders acknowledge they have a tough slog ahead to win passage of one of President Donald Trump's key campaign promises and give the president his first major legislative accomplishment.

"We’ve been going through Class III rapids, which is a pleasant ride," Speaker Paul Ryan said at a Reuters event this week, using a white water rafting analogy. "But we’re about to go through Class V rapids, which is the biggest rapid you can go through."

"When the details come, that is when you’re going to see K Street coming to Congress," he added, referring to influential lobbyists. "And that's why this hasn't been done for 31 years."

Republicans cleared a major hurdle with the final passage of their budget, which unlocks the legislative rules that will be used to shield their tax plan from a Democratic filibuster.

But with little hope for bipartisan support and razor-thin margins on approval of the budget (four votes in the House and one in the Senate), Republicans have to focus on making "sure that everybody stays in the boat," as Ryan said, continuing his rafting metaphor.

Here are five issues that could lead some Republicans to jump overboard:

1. How to pay for it?

The biggest question with the tax plan is how it will be paid for. The budget allows Republicans to spend as much as $1.5 trillion, but experts like the Tax Policy Center estimate the proposed tax cuts would cost $2.4 trillion.

Tax writers will either have to downsize the cuts or raise more revenue by eliminating or reducing tax deductions — each of which have lawmakers on both sides of the aisle and interest groups committed to preserving them.

2. State and local taxes

Most of the 20 House Republicans who voted against their party's budget on Thursday are from high-tax states like New York and New Jersey. They strongly oppose the planned scrapping of the State and Local Tax (SALT) deduction, since it would hit their constituents especially hard.

But tax writers would have hard time replacing the $1.3 trillion they could free up by cutting it. Rep. Lee Zeldin, R-N.Y., who voted against the GOP budget, said he wants "major changes" on SALT.

3. 401 (k)

Trump tweeted there will be "NO change" to the tax preferences for 401(k) retirement programs, but some key Republicans have left the door open, setting up a potential White House-Capitol Hill clash.

House Ways and Means Chairman Kevin Brady, R-Texas, declined to rule out changes when asked at a Christian Science Monitor breakfast this week whether Trump's position had killed the idea.

Image: Chairman of the House Ways and Means Committee Kevin Brady (R-TX) sits during the markup of the American Health Care Act, the Republican replacement to Obamacare, on Capitol Hill in Washington, March 8, 2017.
Chairman of the House Ways and Means Committee Kevin Brady (R-TX) sits during the markup of the American Health Care Act, the Republican replacement to Obamacare, on Capitol Hill in Washington, March 8, 2017.Joshua Roberts / Reuters

"We think in tax reform we can create incentives for Americans to save more and save sooner, which can help," Brady said. "We are exploring a number of ideas in those areas."

Again, it would be a challenge to find the revenue needed to pay for the tax cuts without touching the popular retirement program.

4. The rich get richer

Trump and other Republicans have repeatedly emphasized that the primary goal of their tax reform effort is to help the middle-class.

But a number provisions, such as eliminating the estate tax, would disproportionately benefit the wealthy. While that may be fine with conservatives ideologically, it could be politically poisonous, especially for moderates.

"I am voting NO," Rep. Frank LoBiondo, R-N.J., said of the budget on Twitter, replying to a constituent who complained the tax plan favors the wealthy.

5. Money overseas

A core element of the tax plan is to cut corporate tax rates, with the aim of bringing down the top marginal rate from 39.6 percent to 20 percent.

Tax writers also want to a change that would encourage repatriation of corporate profits. But that could cost money, so lawmakers are exploring the idea of a foreign minimum tax, which would ensure the U.S. captures some revenue from American companies operating in low-tax countries.

Not surprisingly, the business community feels that undermines the whole point of corporate tax reform.

So far, Republicans have been able to largely avoid these thorny issues, none of which have simple solutions. But that's about to change.

"There’s only (been) discussion about cutting rates...that’s the sugar part of the bill," Sen. Bob Corker, R-Tenn., told reporters in the Capitol this week. "The spinach part is what's coming up next."