President Donald Trump’s top aides and congressional leaders have made significant strides in shaping a tax overhaul, moving far beyond the six-paragraph framework pushed out in July that stoked fears about their ability to deliver on one of the GOP’s top priorities.

There is broad consensus, according to five sources familiar with the behind-the-scenes talks, on some of the best ways to pay for cutting both the individual and corporate tax rates.


The options include capping the mortgage interest deduction for homeowners; scrapping people's ability to deduct state and local taxes; and eliminating businesses' ability to deduct interest, while also phasing in so-called full expensing for small businesses that allows them to immediately deduct investments like new equipment or facilities.

Whether this early level of agreement can translate into an actual tax plan that can pass both the House and Senate remains an open question, especially as the administration finds itself distracted by the fall-out from Charlottesville; personnel shake-ups in the West Wing; and the ongoing investigations into Russian interference in the 2016 presidential campaign.

The White House, Treasury Department and congressional leaders also have yet to resolve major philosophical questions, like whether a tax bill should add to the deficit and whether any tax cuts should be permanent, among other questions.

Some stakeholders say the signs of progress are a relief, even if a deal is far from done.

“If they’re not further along than that July nothing-burger document, then you might as well hang it up,” said one Republican lobbyist.

After the failure to repeal Obamacare, Republicans feel pressure to make serious moves on taxes. It’s a policy area that animates the president, business community and establishment Republicans far more than the nuts and bolts of health care ever did.

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On Aug. 15, National Economic Council Director Gary Cohn hinted at progress during a news conference at Trump Tower, saying, "We've got a great, I would say, ‘skeleton’ for tax reform.”

"We need the Ways and Means Committee to put some muscle and skin on the skeleton and drive tax reform forward, and it's our objective to do that between now and the end of the year,” he added.

And Treasury Secretary Steven Mnuchin, appearing alongside Senate Majority Leader Mitch McConnell at a Louisville chamber of commerce event on Tuesday, said tax legislation is "the president’s highest focus."

So far, the tax reform process has been led by Cohn, Mnuchin, McConnell, House Speaker Paul Ryan, Senate Finance Chair Orrin Hatch, and Ways & Means Committee Chair Kevin Brady — a group that has nicknamed itself the “Big 6” and is eager to project a united front on policy and political questions.

Republicans want the fall to be all about taxes, if they can help it. It seems like their best and perhaps only route toward a major legislative victory before the fever of the 2018 midterm elections takes hold.

“People are feeling optimistic because they do not see failure as an option. They’ve put all of their eggs in one basket now, and that basket is tax reform,” said one source familiar with the administration’s tax talks. “The fear of failure on this will cause people to agree with things they may not normally agree to.”

The White House is even creating a mini-war room inside its existing communications shop to pay special attention to taxes, led by newly installed communications director Hope Hicks, according to a White House official. She will be joined by Tony Sayegh, assistant secretary for public affairs at Treasury, who will be temporarily detailed to the White House to help Hicks and others build public support for the tax overhaul. Another White House official said that the president will make a major tax announcement imminently.

Among the decisions that the White House, Treasury and congressional leaders have settled on is that any tax proposal will require U.S. companies to bring back earnings from overseas at a one-time low tax rate, a favorite proposal of the business community known as repatriation.

The corporate rate will likely fall to somewhere between 22 percent and 25 percent, depending on which deductions or breaks lawmakers are willing to scale back or eliminate — an exercise that usually brings out the special interest groups in full force and has always made any tax tweaks hard. No one familiar with the process said the corporate rate can realistically dip below 20 percent, without some new tax in place. The president has said that he prefers a rate of 15 percent.

In addition to the revenue raisers such as eliminating the deduction for state and local taxes — a benefit that disproportionately hits taxpayers in high-cost states like California, New York, New Jersey and Massachusetts — the tax negotiators are scouring former Republican Rep. Dave Camp’s 2014 tax plan for other ideas.

One idea quietly being discussed would be taxing the money that workers place into their 401(k) savings plans up front: an idea that would raise billions of dollars in the short-term and is pulled from the Camp plan. This policy idea is widely disliked by budget hawks, who consider it a gimmick; the financial services industry that handles retirement savings; and nonprofits that try to encourage Americans to save.

Decisions still being hammered out are whether a hypothetical tax bill adds to the deficit over a 10-year period — a key factor in passing legislation through the budget process known as reconciliation, which requires fewer party-line votes than normal legislation.

Top White House officials are less concerned about adding to the deficit because many believe that the economic growth stemming from lower tax rates will make up any budget shortfalls.

Members of Congress, particularly in the House, may be less sanguine about that prospect after years of pushing for fiscal constraints, stricter spending caps, and greater emphasis on the deficit.

“Yes, we will be open to losing tax revenues in these early years," Kevin Brady, chairman of the Way and Means Committee, said at a tax event at Ronald Reagan's California ranch.

Another outstanding major question is whether all of the tax cuts suggested are permanent, or if the package becomes a mixed one of permanent and temporary tax cuts, some of which would sunset after 10 years. The tax cuts that President George W. Bush signed into law in 2001 and 2003 were temporary, but the majority of them ended up becoming permanent under President Barack Obama in 2012 as part of a year-end tax and budget deal.

A mix of permanent and temporary cuts could, on paper, look to the budget scorers like something that would not add to the deficit over the typical 10-year window and would allow politicians more cover to pass such a package.

Even with some early policy agreements, the politics of tax reform can become quite hard, because tax questions never neatly break along partisan lines and instead can highlight the divisions among the business community, demographics and geography in this country.

“We’re now heading into the second phase of a tax reform effort of potentially taking away people’s things,” said Mark Mazur, director of the nonpartisan Urban-Brookings Tax Policy Center and a former assistant secretary for tax policy at Treasury. “The tricky part will be turning that progress into serious legislative momentum.”

The Trump administration has been marching toward tax reform for months, holding listening sessions with CEOs and conservative groups and doing much more outreach than it did leading up to the effort to repeal Obamacare.

White House officials, for example, have been holding weekly calls with outside conservative groups to keep them informed of the progress of tax reform. Lately, the White House has been urging conservatives to stress in high-level talking points that any tax plan would help the middle class and average families and help to keep jobs in the U.S., according to a conservative activist familiar with the calls. There is no mention in the draft talking points of a potential corporate tax cut.

The calls have focused much more on the messaging of tax reform than any actual policy details, which have been left, so far, to members of the Big 6 and their staff. This fall, the Big 6 is expected to hand off a proposal to the congressional tax-writing committees to flesh out the policy details and develop robust legislation.

Both the campaign and administration have cycled through three different iterations of their tax plan, none of them detailed.

The campaign promoted its own plan; the Trump transition team developed a separate 14-page proposal between Election Day and inauguration; and then, in March, Cohn and Mnuchin unveiled a one-page tax proposal that called for a 15 percent corporate tax rate and, on the individual side, doubling the standard deduction and collapsing the number of tax brackets to three, with the highest rate being 35 percent.

Now, the pressure is on for the White House to deliver a legislative win, with taxes as its most hopeful target. The tax overhaul effort will be a major test for Cohn and Mnuchin to prove themselves, since neither has a background in tax policy or strong ties to conservatives on the Hill.

“The question now is whether this is becoming more of a policy pursuit or a political success,” said one Republican close to the administration. “Now, it looks like the latter. The president campaigned on signing the biggest tax cut in history, and he’s on track to do that for the middle class even if he has a compressed time frame to get it done.”

