The House’s passage of legislation to repeal and replace ObamaCare has thrown a new curve into Republicans’ efforts to overhaul the tax code.
The vote, which came just a week after the White House rolled out its tax reform plan, took much of official Washington by surprise. A previous attempt to muscle through the legislation had failed in March.
Experts are mixed on what the sudden progress on ObamaCare repeal means for tax reform. While some said that House Republicans’ ability to coalesce around a bill bodes well for passage of tax legislation, others warned the Senate could get bogged down on healthcare, stalling the agenda.
“This may be one step forward, one step back,” said Sage Eastman, a lobbyist at Mehlman Castagnetti and a former senior counselor on the House Ways and Means Committee.
Republicans plan to pass both healthcare and tax legislation through a process known as “budget reconciliation” so that the bills can advance without Democratic support.
They have already passed a fiscal 2017 budget that contains instructions for a healthcare bill under reconciliation, and want to finish ObamaCare repeal before moving to tax reform legislation.
How long that might take is anyone’s guess.
Senate GOP leaders haven’t set a timetable for passing a healthcare bill, signaling quick action is unlikely.
The Senate appears likely to make significant changes to the healthcare bill. Already, several GOP senators have raised concerns that it would hurt states that have participated in ObamaCare’s Medicaid expansion, while other senators fret that the House bill does not provide enough help for people ages 50 to 64.
Additionally, Senate rules require that every provision in a reconciliation bill has an effect on the budget, and it’s unclear if some parts of the House’s healthcare bill will meet that test.
Several analysts said they view the hurdles to passing a healthcare bill in the Senate as a setback for tax reform.
“I think in some ways it actually makes it harder,” Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, said of the House healthcare vote’s impact on tax reform.
“If health was dead, they could just move onto tax,” he added.
Goldman Sachs’s Alec Phillips wrote in a report Thursday that “the main effect of House passage [of the healthcare bill] is to delay the consideration of tax legislation, which looks even more likely than before to be delayed until 2018.”
He said that “it is far from clear at this point whether the Senate will be able to pass its own version of the [ObamaCare repeal bill] at all, and at a minimum it is likely to take months to do so. “
Lawmakers and the Trump administration are working on tax reform even as the healthcare effort is unfolding. Republicans all want to lower rates and make the U.S. tax system more competitive, but they still need to come to agreement on some key areas.
For example, leaders of the House tax-reform effort have said they want to produce legislation that doesn’t add to the deficit after accounting for the economic effects of the bill. But other Republican lawmakers, including members of the House Freedom Caucus and Senate Finance Committee Chairman Orrin Hatch (R-Utah), have indicated that they are not wedded to revenue neutrality.
The White House and congressional Republicans also had moved back their timeline for tax reform even before the healthcare bill passed the House.
At the beginning of the year, lawmakers and administration officials had said they were aiming to enact a tax bill by August. But in recent weeks, they’ve signaled that the August goal is unrealistic and are more focused on trying to pass a bill by the end of the year.
Cowen and Company’s Chris Krueger said that tax reform is much harder than healthcare.
“Health care is 17 percent of the economy … taxes is 100 percent,” he wrote in a commentary piece obtained by The Hill.
But despite the challenges ahead, many lobbyists and tax-reform advocates remain optimistic about the chances for legislation to be passed this year.
Former Senate staffers said that the House is now freed up to focus aggressively on tax reform, and tax staffers in the Senate and in the administration can continue their work as well.
“Congress and the White House are capable of walking and chewing gum at the same time,” said Dean Zerbe, National Managing Director of alliantgroup and former senior counsel to the Senate Finance Committee.
Tax-reform advocates see the passage of the healthcare bill as having a big upside. They note that the healthcare bill includes the repeal of many of ObamaCare’s taxes, which would lower the revenue baseline for tax reform and remove the healthcare taxes from the tax-reform discussions.
“There’s fewer items to negotiate, fewer items to fight over,” said Brandon Arnold, executive vice president of the National Taxpayers Union.
Additionally, many tax experts are excited that House Republicans showed with the healthcare vote that they can overcome their differences and advance a major piece of legislation.
“There’s a coming together,” said Larry Kudlow, a CNBC senior contributor who advised Trump’s campaign on economic issues.
Rohit Kumar, a former aide to Senate Majority Leader Mitch McConnell (R-Ky.) who now leads the tax-policy practice at Pricewaterhouse Coopers, said that the cooperation between moderates and conservatives in the House GOP caucus is “perhaps more important than any delaying effect” that the healthcare bill’s passage may have on tax reform.
House Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters Thursday that the passage of the healthcare bill “creates momentum heading into tax reform certainly among the House, and I think Senate Republicans as well.”