House Speaker Paul Ryan renewed his push Tuesday for comprehensive tax reform. His speech highlighted why overhauling the tax code is critical but lacked much in the way of details.
Ryan has been at the forefront of the tax reform debate over the past year. Republicans gained a rare opportunity to do something big since securing the presidency in the last election. But infighting over critical elements has left the party divided on what the final plan should look like.
Ryan gave his speech during an annual summit hosted by the National Association of Manufacturers (NAM). His speech may serve to restart the fight for tax reform, which appeared to have stalled after an earlier push this year.
“Once in a generation or so, there is an opportunity to do something transformational,” Ryan said during his speech. “Something that will have a truly lasting impact long after we are gone. That moment is here, and we are going to meet it. Ladies and gentlemen, we are going to fix this nation’s tax code once and for all.”
Republicans generally agree that the tax system needs to be overhauled. It hasn’t been changed in any significant way since 1986. The tax system, however, is incredibly difficult to reform because of how complex and politically divisive it is. Ryan used his speech to highlight why comprehensive reform is so important.
“I think it was a good and important speech to reset the debate, and let people know this is still an important policy priority for Congress, and certainly for the administration as well,” Carnegie Mellon University Prof. Jeff Kupfer told InsideSources. “It’s something that they are committed to getting done. That was important to get that out there.”
Republicans have highlighted several key goals that they generally agree on. They are hoping to reduce corporate and individual tax rates while simplifying the code. Ryan went into more detail about his goals in a policy blueprint he introduced last year alongside Rep. Kevin Brady. But his recent speech lacked much in the way of depth.
“The biggest thing I took away from it is how little new there was,” Howard Gleckman, a senior fellow at The Urban Institute, said. “It was actually quite surprising to me how they promoted the speech as aggressively as they did, and they said so little. Essentially, we know today what we knew two days ago.”
The Republican fight for tax reform looks to have a long road ahead. But the prospect of doing something major, and economically beneficial, is a very real possibility. Here is everything you need to know about the speech, and how it relates to the bigger tax reform debate.
1. Jump Starting the Tax Debate
Speaker Ryan’s speech served to bring the tax reform debate back to the forefront more than anything else. Republicans were unable to get tax reform done earlier this year with the party being split over some critical details. They are also dealing with other ambitious policy goals like reforming the healthcare system.
“I think it was the nudge people in Washington need because it’s so easy to say healthcare has been such a tremendously difficult process, tax reform could possibly be even more difficult,” Brandon Arnold, the executive vice president of the National Taxpayers Union, said. “I think this was more trying to give Congress and all stakeholders a shot in the arm.”
2. Tax Reform Has to Be Big and Comprehensive
Republicans are generally still in agreement over the bigger picture. They want their tax reform plan to be big and ambitious in a way that hasn’t been done since the last major reform in 1986. Leadership, especially, knows that making minor reforms would be a huge missed opportunity.
Kupfer, who also served as a tax policy expert for former President George W. Bush, says one takeaway is that Ryan and the GOP are looking for holistic reform. “This isn’t just about cutting a couple rates and claiming a victory. It’s about doing something that lasts long-term, he talked about permanence and changing behavior.”
3. The Speech Lacked Details
Speaker Ryan mostly spent his time highlighting the main goals, and why tax reform is so critical. But the speech itself lacked much in the way of specifics or anything new. Gleckman notes at this point they need to start figuring out the details in a way that gains party consensus.
“Ryan wants a big tax bill. He wants to cut rates, both for individuals and corporations, that we would make those tax cuts by making some changes to tax preferences,” Gleckman said. “Beyond that we don’t know much. We don’t know, for example, which tax preferences we eliminate, which ones we protect. He wasn’t specific about rates, he was not specific on how he’d handle cross border transactions by U.S. multinationals. So just, in general, he left unanswered an awful lot of questions that they’re going to have to answer before they can do a tax bill.”
Kupfer counters that the details are best left for the ongoing debate among policymakers. Ryan instead focused on the bigger picture, and why tax reform is so critical. He could have very well undermined that focus by reminding the right about what they disagree about.
“I don’t think that is the place to get into what it has to have, and what are the components, because that’s an ongoing discussion that’s going to get worked out among members,” Carnegie Mellon University Prof. Jeff Kupfer said. “They want to have something that everyone can agree with. In laying out a specific set of principals, and it has to follow this or that, I don’t think that is particularly necessary at this point.”
Kupfer adds that it’s no secret what Ryan ideally wants out of tax reform. His blueprint is very detailed, and he has previously discussed the matter publicly in more detail.
4. Don’t Lose Focus of the Main Goal
Speaker Ryan also stressed the need to not lose track of the bigger picture. Republicans risk upending their efforts to overhaul the tax code by focusing too much on the details. Comprehensive tax reform could potentially be a major victory for Republicans, even if no one gets exactly what they want.
“People need to take a step back and look at the ultimate prize here, which is tax reform,” Arnold said. “Nobody is going to get everything they want. But if they want tax reform, they are going to have to be willing to make some concessions and changes to their ideal plan.”
5. Party Unification Is Critical
Republican leadership is going to have to unite the party eventually if they hope to get tax reform done. Some Democrats might join in support, but it’s unlikely that enough of them will join in with how toxic things have become between the two parties.
“I think the recognition here was that there needs to be unification,” Arnold said. “There has been so much infighting among members, among conservative and libertarian groups.”
Arnold adds that even business associations have seen divisions among their members. The border adjustment tax, cost recovery provisions, and business expensing are just some of the issues that have caused fierce debate. Gleckman notes the lack of details in the speech may show just how deep-seated those disagreements are.
“I think it’s pretty clear that if they had the details worked out, they would have talked about them,” Urban Institute senior fellow Howard Gleckman said. “I think the problem here is there is no consensus, even among House Republicans about what to do with the border adjustment tax.”
6. Room for Compromise
Speaker Ryan may also be hinting that there is room for compromise by not getting into the detail. The end goal is to overhaul the tax code in a very significant way. The contentious details are important policies to discuss, but compromise is likely necessary in order to actually get something that big done.
“I think the fact he stepped away from some of the policy specifics suggests he is willing to make the necessary deals in order to get something passed,” Brandon Arnold, the executive vice president of the National Taxpayers Union, said. “I think that is a very encouraging thing.”
Arnold adds that it’s important for lawmakers on the right to not lose track of the bigger picture. They can agree on rate reductions, simplification, and doing something comprehensive. Details outside of that, like the border adjustment tax, could potentially distract from that end goal.
“You’re not going to be able to get everything you want,” Arnold said. “You’re going to have to come to the negotiating table with all parties involved, and make some changes in order to get something, even if it’s less ideal.
7. But What About the Border Tax
Speaker Ryan didn’t get into much detail in regards to the border adjustment tax, and for good reason. It has become possibly the most contentious issue currently in the tax reform debate. It is a value added tax levied on imported goods. It is essentially applied when a product is produced in a foreign country, but sold domestically.
“At some point, he’s going to have to fish on border adjustment, he’s just not ready to cut bait yet,” Arnold said. “They are still trying to include that. They are trying every possibly way to include a border adjustment in the plan. Until they exhaust all options, and until it looks like there is absolutely no way it will be included, it’s still going to be part of their talking points.”
Supporters argue the border adjustment tax will help domestic businesses who are often undercut by foreign competition that have less labor and other operational costs. Those opposed, however, warn it could actually hurt domestic businesses and consumers by increasing the costs of goods coming across the border.
“He didn’t mention it by name, but people knew what he was talking about when he said we have our own ideas on the House side, and people know where he stands on it,” Kupfer said. “Border adjustability is something that is an important component of the House plan for a bunch of different reasons, but it’s not the only way comprehensive tax reform gets done.”
Arnold notes there might be compromises that ease concerns among critics. Kevin Brady recently proposed phasing in the border tax to give the economy time to adjust. Nevertheless, even that idea has raised concern among some like the National Retail Federation.
8. The End Goal Is a Permanent Plan
Speaker Ryan has a long checklist of what his ideal plan would look like. But more so than most other goals is the need to have a plan that is designed to last. The final plan could be close to perfect, but if it’s not designed around permanence, all its benefits could very well be short lived.
“I think from a policy front, one of the biggest takeaways was the the desire of the speaker to have a permanent tax plan,” Arnold said. “I think a lot of people have been interested in throwing that concept under the bus because it’s not an easy goal to attain.”
9. Corporate and Individual Tax Rates
Speaker Ryan also highlighted the need to tackle tax reform for both corporate and individual taxpayers. Businesses face many tax burdens that may be stifling economic growth. At the same time, individual taxpayers face many burdens as well between their own high rates and how difficult it is to navigate the tax code.
“There has been the concept floated by a lot of people, maybe we just do corporate, maybe we just nibble around the edges, we do something less ambitious and comprehensive,” Brandon Arnold, the executive vice president of the National Taxpayers Union, said. “I think this was a shot across the bow for that argument. The speaker is saying, let’s do individual, let’s do corporate. This is our chance to do the whole enchilada, we can’t let that go.”
Arnold adds that many taxpayers across the country are frustrated by the current system. Their support could prove critical in actually getting something passed. Kupfer notes that it’s also important to stress that it isn’t just some corporate giveaway either, as the rate reductions could increase job opportunities and help small businesses.
“He also made it clear that he is looking at both individual and business tax reform,” Carnegie Mellon University Prof. Jeff Kupfer said. “He left off talking about individuals and the frustration that people feel about filling out their taxes, and dealing with the code, and the current system, and how that will be better for everybody.”
10. Heated Debates Are Part of the Process
Republicans are in a fierce debate which may raise skepticism over whether they will actually be able to do something big and comprehensive. Kupfer counters that for issues as monolithic as overhauling tax reform, the process is naturally going to be heated and contentious.
“He tried to pull back from that and make the point that the process is moving ahead,” Kupfer said. “This is all necessary and typical of what happens in these sorts of situations, and I think the process is moving along in combination with public hearings and discussions about it.”
11. Tax Cuts and Government Revenue
The federal government requires tax revenue in order to serve its many functions. When government spending surpasses revenue it makes the deficit larger, which adds to the debt. It’s a major problem the country is already facing. A tax reform plan that doesn’t address inadequate revenue could make the problem much worse.
“Cutting tax rates is a perfectly good idea, but if you cut tax rates you have to pay for them somehow, and that’s always been the problem with every tax reform plan since 1986,” Gleckman said. “The one exception is Dave Camp who actually put out a plan that includes rate reductions and very specifics provisions to eliminate tax preferences, and the proposal went nowhere.”
Republicans hope that increased economic growth through tax reform could increase revenue. But whether it will, and whether it will be enough to bridge the deficit gap, is still up for debate. Gleckman notes that it’s simply not enough to just promise enormous economic growth to makeup the difference.
12. The Unanswered Questions
Gleckman notes that the speech did little to address the unanswered questions that have persisted throughout the debate. He points to whether the plan should be aimed at giving domestic companies an advantage, how to treat pass-through businesses, and what exactly the corporate rate structure will entail.
“They have to decide which approach they want to take,” Gleckman said. “Do they just want to do a big tax rate cut and forget about tax reform, they can go ahead and do that. Do they want to do reform instead? If they do reform they are going to have to recognize that there’s going to be winners and loses, and they’re going to have to take political heat for doing that.”