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Donlad Trump Pivots to Tax Reform After Obamacare Shipwreck

After a crushing defeat in the effort to repeal Obamacare, the Trump administration is hoping for smoother sailing on tax reform, expecting this will be less divisive among Republican party factions.


Updated:March 28, 2017, 8:35 AM IST
Donlad Trump Pivots to Tax Reform After Obamacare Shipwreck
File image of Donald Trump. (Image: Reuters)

Washington: After a crushing defeat in the effort to repeal Obamacare, the Trump administration is hoping for smoother sailing on tax reform, expecting this will be less divisive among Republican party factions.

"Health care is a very, very complicated issue. In a way (taxes are) a lot simpler," Treasury Secretary Steven Mnuchin said Friday.

And Vice President Mike Pence said Saturday that lawmakers should be shown details soon.

Several days before the collapse of Republican efforts to repeal and replace the Affordable Care Act, the Obama administration's signature health care law, President Donald Trump even promised to advance "the biggest tax cut since Ronald Reagan," saying it would be "fun."

But reshaping the entire tax code, something not done since 1986, is no mean feat. Several presidents, Republican and Democrat, have failed, foundering on procedural hurdles and the delicate compromises needed to succeed.

White House spokesman Sean Spicer said Monday the timing of changes will depend on reaching a grand bargain.

"I think part of this is going to be dependent on the degree to which we can come to consensus on a lot of big issues," he told reporters.

- 'Don't hold me to it' -

Major US stock markets have also been jittery since the Obamacare repeal started to head south, despite rallying to multiple records since Trump was elected.

"Failure to pass health care reform has markets questioning the viability of US President Trump's ambitious fiscal stimulus plans," wrote Christopher Vecchio, a currency strategist at foreign exchange trading site DailyFX.

Part of the problem is policymakers had expected revenue savings from the Obamacare repeal would partly offset planned tax cuts. Indeed, Republican leaders insist that fiscal reforms be "revenue neutral," that is, that they not expand the federal budget deficit.

Paul Ryan, the Republican speaker of the House of Representatives, conceded that the failure on health care "does make tax reform more difficult, but it does not make it impossible."

The Trump administration first expects to cut corporate taxes in order to boost economic activity and encourage multinational companies to return to the United States and stimulate hiring.

During his campaign, Trump had promised to slash the corporate tax rate from 35 percent to 15 percent, but Mnuchin did not specifically reaffirm that commitment on Friday, mentioning only a much lower corporate tax rate.

To make up for the revenue loss from a corporate tax cut, Ryan is supporting a border adjustment tax. Generating an estimated $1 trillion, the measure would impose a 20 percent tax on some imports while supposedly reducing the trade deficit and encouraging companies to produce goods in the United States.

But the proposal is hotly contested, in particular by major retailers and Republican lawmakers who fear consumers will be stuck with rising prices. The Republican party has also historically favored free trade.

As for income, the White House favors cutting middle class taxes and reducing the number of tax brackets from seven to three (10 percent, 20 percent and 25 percent).

The Treasury Secretary, who had so far promised that there would be no tax cuts for the wealthiest -- with any tax cut for the top earners offset by eliminating deductions -- seemed less certain during a live interview with the Axios news site.

"Don't hold me to it at the penny but that is the direction we are heading," Mnuchin said.

Senator Chuck Schumer, the leader of the Democrats in the Senate, said regressive tax cuts were a no-go.

If tax cuts favor "the middle class and the poor... we could work with them," Schumer said. "I don't think they are headed in that direction."

One of the ideas underpinning the Trump plan, known as "dynamic scoring," rests on the belief that tax cuts will pay for themselves by stimulating consumer spending and growth.

The Trump administration expects the economy to grow at three percent, if not 3.5 percent, next year instead of the softer two percent recorded since 2010.

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| Edited by: Ananya Chakraborty
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