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Trump to begin work on tax overhaul, reversing Obama climate plan

Steam billowed from the coal-fired Merrimack Station in Bow, N.H. President Trump is ready to dismantle an order by his predecessor that discourages coal-driven power plants.Jim Cole/Associated Press/File 2015

WASHINGTON — Picking themselves up after the bruising collapse of their health care plan, President Trump and Republicans in Congress will start this week on a legislative obstacle course that will be even more arduous: the first overhaul of the tax code in three decades.

Trump’s inability to make good on his promise to repeal the Affordable Care Act has made the daunting challenge of tax reform even more difficult. Not only has Trump’s aura of political invincibility been shattered, but without killing the Affordable Care Act, Republicans will be unable to rewrite the tax code in the sweeping fashion that the president has sought.

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The grand plans of lower rates, fewer loopholes, and a tax on imports may have to be scaled back to a big corporate tax cut and possibly an individual tax cut.

A lot of people think Trump might go for this to get an easy win.

“They have to have a victory here,” said Stephen Moore, a Heritage Foundation economist who advised Trump during the presidential campaign. “But it is going to have to be a bit less ambitious rather than going for the big bang.”

Administration aides signaled Sunday that the president will now seek to build support among moderate Democrats to help push his legislative proposals through Congress, including taxes.

‘‘I think more so now than ever, it’s time for both parties to come together and get to real reforms in this country, whether it be taxes, whether it be health care, whether it be immigration, whether it be infrastructure,’’ White House chief of staff Reince Priebus said on “Fox News Sunday.’’ “This president is ready to lead.’’

Also this week, the administration will issue an executive order that will begin to dismantle a rule issued by former president Obama that sought to slash carbon dioxide emissions and discouraged coal-fired power plants, said Scott Pruitt, head of the Environmental Protection Agency.

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“The executive order is going to address the past administration’s effort to kill jobs across this country through the Clean Power Plan,” Pruitt said Sunday on ABC’s “This Week.” He said the president is expected to sign the order Tuesday.

For any tax overhaul proposal, Republicans may have little choice but to scale back the scope because of the arcane rules of lawmaking in Congress. If Republicans intend to act again without the help of Democrats, they will need to use a procedure called budget reconciliation to have the Senate pass tax legislation with a simple majority. To make their changes to the tax code permanent, their plans cannot add to deficits over a period of 10 years.

Eliminating the $1 trillion of Affordable Care Act taxes and the federal spending associated with that law would have made this easier. Because they failed, Republicans will struggle to reach their goal of cutting corporate tax rates without piling on debt. Speaker Paul Ryan acknowledged Friday, “This does make tax reform more difficult.”

Under pressure to get something done, some Republican deficit hawks appear ready to abandon the fiscal rectitude that they embraced during the Obama administration to help salvage Trump’s agenda.

In a rare shift, Representative Mark Meadows of North Carolina, whose House Freedom Caucus effectively torpedoed the health legislation, said Sunday on ABC’s “This Week” that he would not protest if tax cuts were not offset by new spending cuts or new streams of revenue, such as an import tax.

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“Does it have to be fully offset? My personal response is no,” he said.

The health care failure also makes the tax overhaul more politically complex as the fissures within the Republican Party have been laid bare. Trump followed Ryan’s lead and lost, making it more likely that the White House will try to steer the direction of tax legislation.

“I would be surprised given the health law debacle if the Trump administration sits back and lets Congress fashion the legislation without weighing in on the substance,” said Michael J. Graetz, a tax law professor at Columbia University.

It remains unclear whether Trump and Ryan are in agreement on taxes. Since last summer, Ryan and Representative Kevin Brady of Texas, chairman of the Ways and Means Committee, have been aggressively pitching a reform blueprint that includes a “border adjustment tax.” It would be a 20 percent tax on imports that, by making imports more expensive, would spur domestic production, they say. They think the plan would raise $1 trillion to compensate for the lower revenue that reduced tax rates would probably bring in.

Ryan and Brady are unlikely to simply hand over tax policy to the White House. Brady said Sunday that getting rid of the contentious border tax provision would have “severe consequences” and that he hoped to produce a bill based on the House plan this spring that would be passed later this year.

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Brady’s committee is expected to convene a meeting on an overhaul on Tuesday.

Changing the tax code affects every person and industry. Lobbyists are hoping to shape legislation. As plans become concrete, business groups will be ready to pick them apart.

Trump has at times expressed admiration for some form of border tax as a way to give an advantage to US producers. However, facing a backlash from retailers and energy companies that warn prices will soar under the House Republican plan, Trump and Treasury Secretary Steven Mnuchin have sounded cool to the idea.

Many Senate Republicans are also skeptical, raising the prospect that Ryan’s tax vision could suffer the same fate as his health plan, toppling under the weight of divisions within his party.

If Trump does try to go his own way, he could propose a tax cut plan that disregards deficits and assumes that robust economic growth will make up for lost revenue. Another idea would be reforming taxes in pieces, with a focus on reducing business tax rates first and then addressing tax rates for individuals later. Or, as Moore advises, he could try to make a grand bargain with Democrats that combines a tax overhaul with more infrastructure spending.

Trump is under added pressure not to again fail supporters who he promised would “get sick of all the winning.”

“They need to cut taxes, cut spending, and build the wall,” said Judson Phillips, founder of the conservative group Tea Party Nation. “If they will do that, the base will be forever in love with them.”

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Material from Bloomberg News was included in this report.