Hours before President Trump and House Speaker Paul Ryan were forced to throw in the towel and withdraw their plan to repeal and replace the Affordable Care Act, Treasury Secretary Steven Mnuchin was telling a Washington audience that overhauling the federal tax code will be a lot easier than trying to rewrite federal health care law.
“Health care and tax reforms are two very different things,” Mnuchin told a breakfast gathering sponsored by Axios. “Health care is a very, very complicated issue. In a way [changes in the tax code are] a lot simpler.”
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Trump and his advisers sought to gloss over the significance of the president’s historic setback, largely at the hands of an unintended coalition arch-conservative and unyielding House Freedom Caucus members who thought the bill didn’t go far enough in dismantling the ACA and more moderate Republicans concerned the bill was going too far.
Striking a philosophical pose, Trump blamed the Democrats for his failure and declared it was time to put health care reform behind him and move on to challenges more to his liking, such as overhauling the tax system and trade policy. “It’s enough already,” Trump said.
Outside observers were less charitable.
“It’s a debacle,” said Larry Sabato, a University of Virginia political scientist. “For a president whose party controls both houses of Congress to lose on the first big bill of his term is staggering.”
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The administration may well be misreading the political landscape again if Trump and Pence think they can shrug off this defeat and move ahead with the rest of their ambitious political agenda.
John Zogby, a veteran pollster and political analyst, described the defeat of the Republican health plan as “a breathtaking and multiple-level loss” with serious implications for the administration’s ability to advance other legislative priorities.
And the problem isn’t just between the White House and Capitol Hill. Some political analysts say that the collapse of the Republicans’ American Health Care Act was emblematic of a glaring ideological cleavage within the House Republican caucus and between House and Senate Republicans more generally that will make future deal-making equally challenging.
In fact, the failure of the GOP health care plan could signal trouble ahead on a whole range of fiscal issues, from Trump’s and Ryan’s effort to rewrite the tax code for the first time since 1986 to passing new spending plans for this year and next and raising the debt ceiling by early fall to avert a first-ever default on U.S. debt.
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Here are just four of Trump’s biggest fiscal challenges:
Tax Reform. Mnuchin’s optimism aside, there is literally nothing easy about rewriting the tax code. It hasn’t been done since 1986, and that’s because once a serious effort to do so begins, the army of special interest groups and lobbyists that will assemble to protect cherished tax breaks and angle for other special treatment will make the battle to repeal the ACA look like a minor skirmish.
Trump has done himself no favors here, with his repeated promise to impose tariffs on goods imported from countries whose trade policies he doesn’t like. Nor has Ryan, by floating the idea of a Border Adjustable tax that would effectively favor some U.S. businesses over others, depending on whether they import things like raw materials or inventory. Both proposals have preemptively agitated constituencies who they will need to partner with on any tax reform effort.
There’s also the problem of basic math. Trump and Ryan are very interested in cutting taxes, but are far less clear about how -- and from whom -- the lost revenue would be made up.
The last president who managed to shepherd tax reform through Congress was Ronald Reagan, and he began the effort fresh off a landslide reelection victory and after four years of building relationships with Congressional leader. Trump is a few months off an election in which he lost the popular vote. And despite his habit of touting his shrewd negotiating skills, Trump appeared at times inept and clueless in dealing with just his own party as he attempted to broker a deal on health care reform.
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Spending Controversies. Trump is pushing for a $54 billion increase in defense spending next year, much of it coming at the expense of scores of government agencies and programs. He’s also promising to find a way to create a $1 trillion infrastructure program fueled by tax breaks. And he wants to do all this while passing tax cuts.
Trump may have got his first lesson in Congressional assertiveness in the defeat of his health care bill, but when he submits a detailed new budget, fleshing out the “skinny” budget released last week, he’s likely to get another.
Senior members of Congress -- including Senate Majority Leader Mitch McConnell -- already are bridling at his initial budget proposal calling for steep cuts in many departments and agencies, including EPA, State Department/USAID and NIH.
As those cuts start to look more real, and translate into the expectation of the loss of solid government jobs in Congressional districts across the country as well as cuts in federal services, the Trump administration will have another very difficult sales job on its hands.
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The Border Wall. Even more than his vow to repeal Obamacare, Trump campaigned on the promise to erect a wall between the U.S. and Mexico to keep out undocumented immigrants. Now, with that project facing a sticker price that could top $25 billion, Trump is going to have to find a way to shoehorn that appropriation into Congressional spending bills as well.
And while the wall plays very well in some places far from the actual border, it is surprisingly unpopular among many people who actually live near where the proposed barrier would be installed. That price tag is going to look a lot more forbidding when people point out that it could fund other things -- like the Corporation for Public Broadcasting or the State Department’s public diplomacy efforts -- for decades.
The Debt Ceiling. This is the big one. The clock is already ticking on the next legislative push to increase the Treasury’s borrowing limit, ensuring the country does not go into default. The agency is actually up against it already, but its well-worn arsenal of “extraordinary” measures will give Congress until the fall to act.
The reason this is a particularly dicey situation for Trump is that his main adversaries within the Republican conference are going to be the same people emboldened by their ability to derail his health care bill: the House Freedom Caucus and their allies in the Senate.
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The debt ceiling is a bête noire of the most conservative members of Congress, many of whom expressed a willingness to let the country default rather than increase the level of the Treasury’s debt. Now secure in the knowledge that they were able to face down Trump on the issue of health care, they may well be emboldened to buck the president and Congressional leadership even more aggressively.
Ryan recently raised the possibility that the tax-cut package would also be used as the vehicle for raising the debt ceiling to avoid a first-ever default on the U.S. debt this fall. Tying two such fraught pieces of legislation together would likely exponentially increase the leverage of the Freedom Caucus to demand changes to their liking.
All this adds up to a very difficult road forward for Trump and Ryan, particularly when it comes to legislation vital to the country’s fiscal health. They had been counting on momentum from a successful repeal of Obamacare to drive their agenda forward, but now that the GOP health care bill has gone down to defeat -- despite Republican majorities in the House and Senate and a Republican president -- their ability to find their way is in question.
And Trump himself, with his ever-changing explanations of what’s happening, isn’t inspiring confidence.
“Just in the last 24 hours he has said that tax cuts and reform will be near impossible without repeal of Obamacare and now he is saying he should have begun with taxes,” Zogby said in an email on Friday. “At some point he is going to have to win something. His very angry base may feel good that he is breaking the rules and talking trash against opponents and the media – but he is going to have to put points on the board at some point.”