House Republican leaders are battling the Trump administration as well as many of their own colleagues in Congress — including the Freedom Caucus — over one of the most basic questions surrounding their tax plans this year: Should they go for a once-in-a-generation overhaul of the code or settle for an old-fashioned tax cut?

With Republicans in complete control of the government, Speaker Paul Ryan and his chamber’s tax writers see a rare opportunity for a sweeping makeover, something lawmakers have long promised but haven’t done since the Reagan administration.


The other side wants to focus on cutting taxes. That would not only be a much easier lift but, with all the uncertainty over Republicans’ Obamacare replacement plans, would also help ensure they go into next year’s midterm elections with a major legislative accomplishment.

The tax reformers' cause took a pair of hits last week when Freedom Caucus Chairman Mark Meadows said his group would come up with its own tax plan — even though Ryan's "Better Way" proposal is supposed to be the official House line on taxes — while the Senate's top tax writer, Orrin Hatch (R-Utah), said he prefers taking the tax-cut route.

It’s an awkward fight for both sides because few Republicans want to be seen as opposing either tax cuts or tax reform.

House Republican tax writers are trying to undercut the case for George W. Bush-style tax cuts, albeit delicately, arguing that that would not do much for the economy, at least not compared to a wholesale rewrite. They’re also pointing to the government’s $14 trillion debt while warning that budget rules guarantee that any tax cuts that are not offset will have to be temporary, risking a replay of the years-long battle over the future of the Bush tax cuts.

The tax-cut-only contingent is emphasizing its desire to help struggling Americans.

“It’s obviously developed into a new fault line,” said Rep. Peter Roskam (R-Ill.), chairman of the Ways and Means tax policy subcommittee.

He and other tax writers in the House want to cut rates as well, but they want to do it as part of a broader shakeup of the code in which they would also eliminate a slew of narrowly drawn breaks.

They want to push the country closer to a consumption tax that focuses on taxing the money people spend, rather than what they earn, which many economists believe would be better for long-term growth. They also want to do it without adding to the deficit.

The Trump administration says it wants to reform the code too, but the revised tax plan it released last week would amount to a $5.5 trillion tax cut, according to the Committee for a Responsible Federal Budget, and aides have said they don’t think it needs to be paid for.

The dispute, which underscores how far Republicans are from agreeing on what they’ve long called a top priority, is being exacerbated by the rules surrounding a legislative maneuver they want to use to jam legislation through the Senate, over Democrats’ objections. Those “reconciliation” measures can’t be filibustered, but they also can’t add to the deficit over the long term, so Republicans have to choose.

They can go for the much more difficult deficit-neutral tax reform that would satisfy those rules. Or they can go for huge tax cuts that would clearly flunk the requirements and, under the Senate rules, eventually have to expire, most likely after 10 years. Lawmakers will turn to the issue when the House returns from a weeklong recess.

Though the Freedom Caucus has not rolled out its tax plan, it’s certain to emphasize cutting taxes.

“Revenue neutrality is a fancy way of saying the tax burden stays the same, but you shift around who pays what,” said Rep. Jim Jordan (R-Ohio), an influential member of the group. “Typically in that scenario, the connected class gets a good deal and the middle class gets a bad deal, so I’m not wedded to this revenue-neutral thing at all.”

Hatch told Bloomberg Television he's "more concerned about how we can get the economy to move forward and grow than whether or not we meet the formal test of budget neutrality." He added he doesn’t believe that one of the major ways House Republicans would pay for their tax overhaul — junking a long-standing deduction for corporate interest costs — is politically viable.

“It’s going to be pretty tough to do away with interest deductibility — people are so used to it,” he said.

Hatch and company are being cheered on by some outside Congress, with several prominent conservatives, including tax-cut guru Art Laffer, penning a recent New York Times op-ed urging President Donald Trump to focus on cutting taxes.

House Republican tax writers are pushing back — and all tax legislation is supposed to begin with them.

But they have the difficult task of arguing against what’s become their party’s go-to move. What’s more, many of them backed Bush’s tax cuts, which Republicans once portrayed as a cure-all for the economy.

Ways and Means Chairman Kevin Brady (R-Texas) says it’s been so long since lawmakers cleaned up the code that the economic benefits would surely outstrip those of simply cutting taxes.

“Cutting rates will help, no doubt,” he said. But “rates are like putting supercharged fuel in an old beater of a tax code — it will go faster, but it can’t keep up with our competitors.”

“We have to fundamentally redesign the tax code,” he said.

Brady and his allies are also emphasizing the uncertainty that would come with temporary tax cuts, pointing to the years-long battle over the fate of the Bush tax cuts, most of which lawmakers eventually made permanent as part of the 2012 fiscal-cliff showdown.

Morning Tax Sign up for our tax policy newsletter and stay informed — weekday mornings, in your inbox. Email Sign Up By signing up you agree to receive email newsletters or alerts from POLITICO. You can unsubscribe at any time. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

“We don’t want to go through that again,” said Rep. Kenny Marchant (R-Texas), another tax writer.

The uncertainty, said Roskam, would undercut lawmakers’ efforts to stop companies from moving abroad.

“If we’re trying to communicate to companies that we want you to bring your manufacturing back, and your research and development, and your call centers and all of those things, that’s not likely to happen with a tax code that expires in 10 years,” he said.

They’re even pointing to government red ink, which Marchant acknowledges is a change for many Republicans when it comes to cutting taxes.

“There is a greater sensitivity to the national debt,” he said.

Like those focused only on tax cuts, the reform advocates have their own outside advocates, including Tax Foundation President Scott Hodge.

He’s trashing the case for just cutting taxes, calling it “the tax version of Obama’s stimulus package.”

“It’s naive to think that, ‘Oh we can just pass tax cuts and that’s going to jump-start the economy,” said Hodge, whose conservative-leaning group produces widely noted economic analyses of tax legislation. “It needs sustained and long-term tax reform.

“It would be terribly disappointing to see Republicans basically throw in the towel and say, ‘This is just too hard for us right now, and we’re going to take the easy way out,’” he said.

Aaron Lorenzo contributed to this report.

