Why the Trump Administration prioritized Healthcare over Tax Reform

Many are questioning whether it would have been better strategy to begin with tax reform rather than repealing and replacing Obamacare. They do not understand that tax reform, as envisioned by the House and Senate Leadership, depended on first repealing the $1 trillion in taxes included in Obamacare.  As written, the spending cuts in the House Leadership plan more than offset the cost of repealing the taxes. That was vital to the tax reform bill to be taken up later this Spring because the repeal of those taxes would not have to be taken into account in the bill to maintain its revenue neutral balance in reaching a top corporate tax rate of 20 percent. Now, with the failure of the repeal and replace effort, either the House Leadership will have to leave the Obamacare taxes in place or come up with another $1 trillion in revenue offsets to maintain the revenue neutral balance. Speaker Ryan has indicated that the Republicans will probably leave the Obamacare taxes in place. If so, the tax bill to be taken up now can hardly be called tax reform. The tax code will continue to tax investment income at exceedingly high rates, and tax reform will not be able to turbocharge the economy. That is why, in the end game, the Congressional Republicans and President Trump will likely opt for a tax bill that cuts tax rates, reduces capital gains, allows for the repatriation of foreign earnings at less than half the top corporate rate and, importantly, jettisons the goal of budget neutrality. The tax cuts will last 10 years.

James Miller
Partner
Total Spectrum/Steve Gordon & Associates
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