WASHINGTON – The Republican effort to overhaul the tax code suffered a bruising setback over the weekend when a powerful corporate interest group came out against the proposal just days ahead of House leaders’ planned release of the legislation to the public.
President Donald Trump and GOP leaders are casting the measure as a once-in-a-generation rewrite of the federal tax code, one they say will stimulate the economy, create millions of jobs and give voters a reason to stick with their party in next year’s midterm elections. Rep. Kevin Brady, R-Texas, the chairman of the House Ways and Means Committee, is scheduled to reveal the House version of the bill on Wednesday.
A discouraging clue emerged for House Republicans on Saturday, when the National Association of Home Builders came out against the bill after Brady informed the group’s chief executive about key details.
“We will do everything we can to defeat this thing,” said Jerry Howard, chief executive officer of the National Association of Home Builders.
For Trump and House Speaker Paul D. Ryan, R-Wis., the stakes couldn’t be higher. With the approach of the end of their first year controlling the White House and Congress, and the failure of health-care legislation still fresh, Republicans are desperate to post a win before next year’s midterm election cycle begins in earnest. By many of their own accounts, failure to pass tax legislation could lead to an electoral bloodbath, and the end of Ryan’s political career, in 2018.
Much of the pressure, and spotlight, will fall on Brady. A bare-pated, unfailingly sunny former Chamber of Commerce executive who is largely unknown outside of Washington after 20 years on Capitol Hill, Brady’s challenge is to build consensus while fellow Republican lawmakers, corporate lobbyists and perhaps even Trump himself pick the bill apart.
Ryan and Brady had been hoping to stave off corporate defections as long as possible, arguing that the plan’s benefits to the economy would outweigh the loss of any industry-specific tax break. But a decision to roll back key itemized deductions has already alienated the home builders as well as the National Association of Realtors, both major lobbying forces on Capitol Hill.
Home builders are considered among the most politically influential groups, as they play a large role in the local economy for virtually every congressional district – and contribute millions to political campaigns. Lawmakers have frequently leaned in whatever direction the home builders have taken.
Howard and Brady’s aides spent weeks working together to add to the bill a “homeownership tax credit,” which essentially would have replaced the mortgage-interest and property-tax deductions, combining both benefits into a new tax credit.
Howard said home builders like other parts of the tax plan, such as tax cuts for businesses and lower rates for many families. But he feared that other changes could tip the housing industry into a recession. He was particularly concerned about ideas to eliminate the federal deduction for state and local taxes and doubling the standard deduction, which could remove incentives for all but the “very wealthy” to deduct their mortgage interest – and have a chilling effect on homeownership.
He said the White House was also open to the idea, and as of Wednesday night they were fairly certain the change would be in the GOP bill.
“Chairman Brady and his staff and (NAHB) worked hours and hours on it and we were very excited about that concept, and all of the sudden on Friday we were told that concept would no longer be considered,” Howard said.
After Brady communicated that the changes would not be made, top NAHB officials held an emergency conference call on Saturday and agreed unanimously to oppose the bill after months of reserving judgment, a spokesman for the organization said. Now, the group is preparing a public campaign against the bill, with plans to mobilize members in congressional districts across the country.
Brady, in a statement, said the homeownership tax credit could still be added, but the advocates will have to make the case directly to lawmakers.
Republicans also appear poised to limit what American workers will be allowed to contribute pretax to their retirement plans – a change that stands to generate strong opposition. House Majority Leader Kevin McCarthy, R-Calif., suggested Sunday in a television interview that the GOP is instead looking to increase the limit on post-tax contributions as a substitute.
Currently, Americans can contribute up to $18,000 a year in pretax income to a 401(k). Those contributions are later taxed when withdrawn in retirement. But the GOP plan appears poised to reduce the pretax contribution limit – and increase limits allowed to post-tax accounts. Withdrawals from those accounts are not taxed, meaning the federal government would gain revenue in the short term as a greater portion of initial savings is taxed – but lose revenue in the long term.
McCarthy suggested in an interview Sunday that the GOP plan would be a boon to middle-class savers. “We’ll expand the amount you can invest, but we’ll also give you an option to not be taxed later in life, not to have that tax burden hanging over you but actually have more income in the future,” he said on Fox News Channel’s “Sunday Morning Futures.”
Other setbacks could quickly follow. The commercial real estate industry is wary of a proposal to eliminate or scale back the deductibility of corporate interest payments.
Democrats, meanwhile, have not been closely consulted on the bill, and few, if any, are expected to support it.
“This will be a roller coaster,” said Rohit Kumar, a former top domestic policy aide to Senate Majority Leader Mitch McConnell, R-Ky., who is now a tax lobbyist for PwC, the accounting and consulting firm. “Any major piece of legislation has its brush-with-death moment, and sometimes more than one. But the overriding imperative here is to get a tax bill to the president’s desk and to do so as quickly as possible.”
Negotiators released a broad framework in September, calling for lower individual and corporate rates, elimination of most itemized deductions and an increase in the standard deduction. But the legislation has been kept unusually close for months, and even members of the Ways and Means Committee said last week that they were unaware of how key provisions would work.
“We have no details,” said Rep. Chris Collins, R-N.Y. “All anyone wants to talk about, especially the business people and so forth, is the tax reform. And I can’t tell them anything, because I have no details … I’ve been very frustrated that all I can say is, ‘It’s going to be good for the economy.'”
The gravity of the task is not lost on Brady, 62, who has led the committee since Ryan left the post two years ago to become speaker. Central to the challenge has been making hard choices about which tax breaks to eliminate to make way for the rate cuts that the GOP has promised.
On Saturday, Brady gave ground on the planned elimination of the federal income tax deduction for state and local taxes – a provision that had put Republican House members from New York, New Jersey, California and other high-tax states on edge – agreeing to maintain a deduction for property taxes but not for income or sales taxes.
“You’re going to have to have give and take, and I think Kevin’s strength is that he understands that and is able to pivot and move forward and just keep pivoting and keep moving forward,” said former representative Dave Camp, a Michigan Republican who chaired the Ways and Means Committee from 2011 until 2015 and released his own blueprint for comprehensive tax reform shortly before his retirement. “He will have an incredible amount of say on many, many issues. But even if you’re chairman, you still only have one vote.”
Inside the committee, the drafting process has unfolded behind closed doors over the course of months. Recently, the pace has quickened, with panel members spending long hours inside a Longworth House Office Building conference room hashing out the plan.
Identifying Brady’s personal stamp on the tax bill could be difficult. He has been a relentless advocate for “pro-growth” measures – which largely refers to business provisions meant to goose investment.
But he has taken little personal ownership of any particular aspect.
Brady’s test, GOP observers say, is melding the various pieces into a cohesive whole and convincing fellow Republicans to back it.
“He has a lot more patience than most people,” said Rep. Devin Nunes, R-Calif. “This has gone on for years … but to get to this point where we’re actually putting pen to paper and then to get everyone on the same page? It’s been a tremendous effort.”
A Ways and Means member, Rep. David Schweikert, R-Ariz., recalled pitching an esoteric plan for business-tax deductions that he thought should be incorporated into the tax bill at one of the recent closed-door committee sessions.
The idea seemed “brilliant,” in Schweikert’s recollection. But then Brady started asking questions. And not long afterward, Schweikert withdrew his idea and the debate quickly moved along. Thanks to Brady’s soft touch, he said, he understood the decision.
“I don’t know of many members here who could handle the ideological or even the temperamental range that’s in the room,” Schweikert said. “Instead of saying, ‘That’s a dumb idea,’ or, ‘No, I’ve got to get you back over here,’ it’s, ‘Let’s walk through that. How would that work? How would you enforce that?'”
To the public at large, the push for the tax overhaul has largely been identified with Ryan, who has repeatedly said he was dragged kicking and screaming from his coveted Ways and Means post to the speaker’s office. And Ryan remains a consequential figure who has worked in tandem with Brady to sell the bill to the public.
While Brady has become a more familiar presence on cable news, he has yet to step into the public spotlight the way one of his predecessors did a generation ago, when then-Ways and Means Chairman Dan Rostenkowski went on national TV in 1985 asking Americans to “write Rosty” to demand tax reform – generating tens of thousands of replies that helped build momentum for bipartisan legislation that passed a year later.
The Senate is expected to start its own process of drafting a tax bill soon after the House text is released. The stakes will be high for Senate Republicans too – notably McConnell. Brady’s counterpart in the Senate, Finance Committee Chairman Orrin G. Hatch, R-Utah, has already cemented a reputation as a monumental figure over four decades of service. But for Brady, guiding a bill of this level of ambition through the House and into law could thrust him into the congressional annals.
“Hopefully, I contributed a serious, collaborative effort to get to this single, unified tax reform plan,” he said. “Having the architectural designs, the meetings, discussions, I think was helpful to everybody … I want people to know where we’re going, why, and to get their engagement when we’re doing it.”