President Donald Trump wants to sign a tax reform bill in the fall, but lobbyists who were around the last time Congress overhauled the tax code — in 1986 — say plans to pass permanent, wide-reaching legislation with only Republican votes seem all but impossible.
So tax lobbyists are trying to predict what Congress will pass instead.
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Some are pushing for Republicans to embrace a long-shot strategy to tie tax reform to an infrastructure spending package to bring Democrats on board.
Others have given up hope that Congress will be able to pass anything more than a temporary tax cut for individuals — maybe the only measure that can attract 50 Republican votes in the Senate.
“We’ll end up with some lower rates and some business tax changes and probably some tax cuts that are probably temporary because they’re doing it all with Republican votes,” said Randy Hardock, a partner at Davis & Harman who worked for Sen. Lloyd Bentsen (D-Texas) in 1986.
The landmark tax legislation signed by President Ronald Reagan in 1986 is the standard by which all other tax reform efforts are judged. While Senate Majority Leader Mitch McConnell has acknowledged the current bill will be less ambitious, Hardock and half a dozen other present-day lobbyists who were involved in the 1986 effort say it underscores just how difficult it will be to pass a true tax reform package.
Republicans don't seem to have made enough progress to get a bill to the president's desk by the end of the year, those lobbyists say. And passing a tax reform bill with only Republican votes will be even more difficult than the battle to pass a bipartisan bill three decades ago.
"The health care debacle we've witnessed in the Senate shows that the margin of error for passing it is two votes," said Ken Kies, a top tax lobbyist who worked as tax counsel to the House Ways and Means Committee during the 1986 effort.
The mere possibility of tax reform has been tantalizing enough to drive a boom in tax lobbying. Lobbying firms have signed 355 contracts to lobby on taxes so far this year, according to a POLITICO analysis of disclosure filings. That’s more than double the 152 contracts signed in the same period last year.
But the road to passing even a scaled-back tax bill is fraught with obstacles.
Congress likely won’t even start on tax reform until after draining clashes over raising the debt ceiling and preventing a government shutdown. Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn have been huddling with top Republicans in Congress, but Treasury is still in the early stages of hammering out the details of a plan.
That's a stark difference from the 1980s, when Reagan’s Treasury Department spent 10 months hashing out the plan that kick-started reform. It took nearly two more years of wrangling before the final bill landed on Reagan’s desk.
And while Reagan relied on approval ratings north of 60 percent to jam tax reform through Congress, Trump’s approval rating was just 36 percent in the most recent Gallup poll.
The biggest contrast with the 1986 effort, though, may be McConnell’s insistence that Republicans will pass tax reform on a party-line vote. Most Democrats and Republicans in the House and the Senate wound up supporting Reagan’s tax bill.
“Now there’s only a small minority of people who are talking about even the possibility of having Republicans and Democrats support the bill,” said Jeffrey Birnbaum, a former Wall Street Journal reporter who co-wrote “Showdown at Gucci Gulch,” a book about the 1986 effort that’s become a bible for tax lobbyists. (Birnbaum is now the president of the BGR Group’s public relations arm.)
McConnell has said Republicans will pass tax reform through reconciliation, the Senate procedure that allows the party to pass budget bills with only 50 votes instead of the 60 required to overcome a Democratic filibuster. That means they can only lose two Republican votes in the Senate — a high hurdle that they already failed to meet when trying to repeal Obamacare.
“I don’t know if Republicans can pass a bill in the House and in the Senate with Republican votes alone,” said Bob Packwood, the former Senate Finance Committee chairman who shepherded tax reform through the Senate in 1986 and later started his own lobbying firm, Sunrise Research Corporation. “Every member of the Senate may have some particular interest in his state that hates whatever some provision is. That’s the problem.”
There are hints that Republicans may be trying to move quickly. Tax staffers who work for members of the Finance Committee have been told to be ready to start marking up a tax bill by the last two weeks of September, according to two lobbyists with knowledge of the situation, though it’s unclear what legislation they’d consider.
But lobbyists who were involved in crafting the 1986 legislation are deeply skeptical Republicans can deliver a bill by the end of the year.
"There is not a realistic chance that any of this gets finished this year, because of the delays posed by the budget process and the sheer complexity of the tax drafting process — among other things," Jim Gould, who served as tax counsel to Bentsen in 1986 and now runs his own lobbying firm, wrote in an email.
If Republicans want to pass tax reform through the Senate with just 50 votes, the bill can’t raise the deficit beyond a 10-year window. They’ll need to find tax breaks to eliminate if they want to permanently cut the corporate rate — but that risks losing votes from members of Congress trying to protect tax provisions that benefit their home-state industries.
Special interests have already torpedoed one potential revenue-raiser, House Speaker Paul Ryan's controversial proposal to tax imports. And almost every other tax break has lobbyists lined up to defend it.
“You very quickly start peeling people off if their issues are getting negatively impacted,” said John Raffaelli, a veteran tax lobbyist who had just landed on K Street in 1986 and now runs Capitol Counsel, one of Washington’s top lobbying firms.
Despite McConnell’s plans, some lobbyists think Republicans should avoid the pitfalls of reconciliation entirely by striking a deal with Democrats to pass a bill that ropes tax reform to an infrastructure package.
“That’s what I’m telling my clients I think is going to happen,” said one GOP lobbyist working on tax reform who wasn't around in 1986, who spoke on condition of anonymity.
Others say a deal is out of reach after Republicans failed to attract a single Democratic vote on the health care bill.
“I’m a little skeptical as to whether that’s even in the realm of the possible right now,” said another tax lobbyist who wasn't involved in the 1986 effort.
The lobbyist predicted Congress would follow President George W. Bush’s lead with a temporary tax cut for individuals that would end after 10 years, leaving comprehensive reform for another day.
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