Trump is better prepared to push big tax reform, but the calendar is against him

Key Points
  • Treasury Secretary Steven Mnuchin on Tuesday reiterated his confidence about getting a tax reform bill through in 2017.
  • Mnuchin and White House economic advisor Gary Cohn are meeting with members of the Senate Budget Committee on Tuesday to push the process forward.
  • But the problem rests with the calendar.
Donald Trump
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There are two things that are simultaneously true about the Trump administration's push for a big tax reform bill. They are handling the process in a vastly superior way to the debacle we saw on health care. And it's still going to be incredibly hard to get it done by the end of the year.

Treasury Secretary Steven Mnuchin on Tuesday at CNBC's "Delivering Alpha" event reiterated his confidence about getting a bill to the president's desk in 2017. "We're going to get this done by the end of the year," he said, adding the White House is "super focused" on the issue.

There's no denying the second part. Unlike health care, President Donald Trump has been traveling the country and making the broad argument for overhauling the corporate tax code and providing some relief to middle-income earners.

Behind the scenes, Mnuchin and National Economic Council Director Gary Cohn are sweating out the details with congressional leaders and trying to bring some moderate Democrats on board.

They are meeting with members of the Senate Budget Committee on Tuesday to push the process forward of setting up rules that would allow passage of a tax bill with 51 votes in the Senate.

On Tuesday night, Trump is hosting moderate Democrats and Republicans for dinner to make the case for tax reform. This is how a capable White House drives a critical legislative agenda item. The contrast to the haphazard approach on Obamacare repeal could not be starker. Part of the reason is Trump understands this issue in a way he never did with health care. And part of it is that if this White House fails on tax reform it will be zero for two on its top agenda items heading into the midterms. Failure would be catastrophic.

But the problem rests with the calendar.

Republicans have to get a budget resolution through to create reconciliation rules for tax reform paving the way for a simple majority vote in the Senate. They were able to do this for health care in part because rank-and-file members basically ignored the actual substance of the budget bill.

That may not be true this time. Conservatives angered by Trump's deal on the debt limit want a rigorous budget they can campaign on in 2018. And that means political fights could slow things down.

And once that's done, the House and Senate actually have to agree on the details of tax reform in October and November. That means figuring out exactly what deductions to curtail to get the corporate rate between 20 percent and 25 percent. Everything on the table, from state and local tax deduction to corporate interest, has a powerful lobbying constituency that will resist any changes.

Most Democrats will rail against the GOP plan as a tax cut for the rich, especially if a similar rate is applied to pass-through income as is applied to the corporate rate. Mnuchin and others say they will have a mechanism to insure that pass-through income isn't abused by doctors and lawyers and other wealthy people. They want to make sure it is only available to manufacturers and other businesses that actually create jobs.

That sounds good but translating it into enforceable legislative language will be very difficult. The hundreds of billions of dollars required for hurricane assistance will also make next year's budget deficit worse and increase pressure on Republicans to reduce the impact of tax cuts. Plus reconciliation requires any tax bill not add to the deficit outside a 10-year horizon, raising the possibility that at least some of the proposed changes will have to be temporary.

Business groups hate the idea of temporary corporate tax code changes. They make it impossible for long-term plans because you don't know if a future Congress and White House will extend any tax breaks passed this year.

What if, for instance, an anti-Trump wave elevates populist Democrats in 2018 and 2020 who want higher taxes on the rich and corporations to fund Medicare for all?

Polling consistently shows that Americans believe corporations and the rich pay too little in tax and are very open to the idea of higher rates for the well-to-do. If the politics of the tax bill start to go wrong for Republicans, some could find an easy off-ramp to say they would support real fundamental reform but not a bunch of unfunded, temporary tax cuts.

Theoretically tax reform could just slip to early 2018. But conventional wisdom holds it will be tougher to do in a midterm election year. And Trump desperately wants a big win in his first year.

The bottom line is that the Trump White House appears to be trying to do tax reform the right way. They may just run out of time to do it.

— Ben White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.