To understand the rest of the proposal, we have to look at another piece of the Republican plan — something called the border adjustment tax, which House leaders really want and are coming up with creative ways to push through.
The border adjustment tax is complicated, but the gist is this: Companies would not be taxed on goods they export out of the United States, but would be taxed on goods they import into the US. It would fundamentally change how American businesses are taxed, prioritizing domestic production. It's been a big sticking point in the early talks on tax reform, for reasons we won't get into.
The trouble is, other countries might object to the plan and appeal to the World Trade Organization, which oversees global trade policy. Republican leaders have argued their plan adheres to international rules, but that argument could be put to the test.
This new plan appears to be an attempt to solve that problem, several conservative wonks told me. It changes the border adjustment tax to bring it more in line with the WTO's rules — we're veering into extremely wonky territory here, but it would prevent companies from deducting their labor expenses from their taxable income.
That change would increase taxes, which would likely trickle down to workers one way or another. So the plan would simultaneously repeal the payroll taxes to avoid a big tax hike. Whether they would completely offset depends on the details, which we don't have yet, but that is the general idea.
As the AP report points out, supporters would also probably go a step further and try to sell this as a big middle-class tax cut. But experts agree the effect would actually be minimal.
"If you cut the employees' payroll tax, then you impose that tax on employers, and you do that in equal and opposite proportions, it has zero economic impact," Doug Holtz-Eakin, a prominent conservative wonk who leads the American Action Forum, told me. "It doesn't do anything."