Republicans struggling to pass a major tax overhaul that doesn’t add to the federal deficit are discussing a kind of compromise: mixing permanent revisions with temporary rate cuts for individuals and businesses.
Officials on the House and Senate tax committees are talking with the White House about a hybrid approach that would combine lasting tax code changes to deter offshore profit shifting by corporations with lower rates for a number of years, according to three people familiar with the discussions.
Mixing and matching proposals -- making some permanent and others temporary --- could be a potential workaround for GOP leaders who want to use a budgetary process known as reconciliation to prevent Senate Democrats from blocking tax legislation. That course limits the scope of the overall bill because it requires that any tax changes that add to the nation’s long-term deficit would have to expire.
The combined approach has emerged as administration and congressional staff evaluate the effects of various proposals, said the people, who described it on the condition of anonymity.
“It’s the best of both worlds,” said Daniel Clifton, a former tax lobbyist who was involved in the tax-cut negotiations under former President George W. Bush in 2001. “But if you’re a purist for tax cuts or a purist for tax reform, it’s going to be neither.”
Critics caution that temporary changes won’t spur the level of economic growth that President Donald Trump and congressional leaders have targeted.
BAT Elimination
A hybrid plan isn’t a new idea, but it may be gaining traction now that the controversial border-adjusted tax on imports has been eliminated from tax negotiations. The BAT was estimated to generate more than $1 trillion in revenue over a decade. Without it, tax writers are forced to find other revenue raisers to offset rate cuts -- if they want permanent changes.
White House advisers, along with top congressional leaders, said last month their plan “places a priority on permanence,” but some have individually signaled some openness to shorter-term changes. Treasury Secretary Steven Mnuchin summed it up at a hearing in May: “Permanent is better than temporary, and temporary is better than nothing.”
House Speaker Paul Ryan has been more resistant, pushing especially for the corporate rate cut to be permanent, according to one of the people familiar with the negotiations.