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Trump’s Republicans have a tough Hill to climb

Trump’s Republicans have a tough Hill to climb

March 18
02:38 2017

Jason Andringa started the year in bullish mood — and with good reason. The Vermeer Corporation chief executive, whose Iowa-based manufacturing company produces machines that dig trenches, pump mud and pulverise trees, says he has seen a 10-15 per cent rise in orders since the US election, a surge he attributes in part to customer hopes that the Republican-led Congress will radically slash tax and regulation and boost infrastructure.

Now he is not so sure. “There has been a lot of positive rhetoric, but I just fear they could spend too much time and energy and political capital on areas that to me shouldn’t be a priority,” says Mr Andringa, whose 70-year-old, family-owned company employs 2,400 workers in the US. “I fear that Congress could get bogged down spending a lot of time on repealing Obamacare [the Affordable Care Act].”

He is not alone. For seasoned observers of the gridlock-prone Congress, the first spell of Republican control of both houses and the executive branch since 2007 should herald a major advance for their agenda, with corporate tax reform this year at the top of the list.

Yet deep ideological divisions on Capitol Hill, coupled with the leadership of a president whose White House is prone to chaos and infighting, are set to make executing Republican reform plans a daunting task. A bitterly divisive healthcare overhaul is consuming much of Washington’s time and energies. As a result, experts have started to worry that other elements of the party’s legislative programme that are hugely prized by business and investors could be delayed or watered down.

Supporters of former president Barack Obama’s Affordable Care Act at a rally in Florida on March 2 © Getty

For Donald Trump, the legislative morass he is now encountering is his first taste of the rifts that have long hobbled Republicans, proof that the political insurgency he launched as a candidate did not eradicate inter-party divides. “We’re going to reduce your taxes big league,” Mr Trump told a rally in Tennessee on Wednesday night. “And I want to start that process so quickly.”

But for his partners in the legislature, clashing and ambiguous signals from the White House are making it harder to build momentum. A White House budget proposal released on Thursday said little about Mr Trump’s preferences on healthcare or tax reform.

“To get this [tax reform] done requires tremendous leadership and political capital,” says Doug Holtz-Eakin, president of the American Action Forum and a former economic adviser to John McCain’s 2008 presidential campaign. “Ronald Reagan won a second term losing only one state yet he still had trouble getting it done in 1986. They are not in such a strong position now. Unless the White House says in a clear, unequivocal voice that this is what I want and I accept nothing less, it will not happen.”

Under Mr Obama, Congress became a synonym for stasis, with obstreperous lawmakers pushing the US to a series of fiscal crises, including a 16-day government shutdown in 2013 triggered by a failed Republican attempt to defund Obamacare. Now the electoral successes of November have presented Republicans with a shining opportunity to advance a business-friendly agenda.

Business confidence has been buoyed by the prospect of legislative breakthroughs, with one index of the outlook for sales and investment rising the most since 2009, according to a report this week from the Business Roundtable lobby group. The Trump administration’s aggressive push for deregulation — epitomised by a gimmicky demand that two rules are repealed by departments for every new one imposed — has also got many executives fired up. The optimism has translated to a parade of record highs on US stock markets.

Trent Lott, former Republican Senate leader who is now at the law firm Squire Patton Boggs, has warned that a major shift in attitudes is needed among politicians. Yet he is optimistic about the current Congress, predicting that tax reform could be achieved by the autumn following the overhaul of healthcare.

“It has been 10 years since Congress could really produce results, so it is understandable that people would say, gosh, they may not be able to break the gridlock,” he says. “But I believe those people will be proved wrong this time.”

To optimists, there is a brutal electoral logic that makes progress on tax reform in particular seem a likelier outcome than failure.

On Capitol Hill lawmakers’ minds are already turning to midterm elections in 2018. There is a shared objective for Mr Trump, House Speaker Paul Ryan and Senate leader Mitch McConnell to have growth-boosting tax cuts underpinning the economy by then. Having no legislative achievements to present in their states and districts would not only be humiliating, but electorally poisonous.

The path to that outcome will be fraught. The Republican leadership’s agenda is not only ambitious but also contentious within the party.

Reform focus: the key policy makers in Congress

Influential quartet: Paul Ryan, Tom Price, Rand Paul and Susan Collins © FT montage / Bloomberg

Paul Ryan For the House speaker, the healthcare plan he helped devise is the latest chapter in his sometimes awkward relationship with Donald Trump. The president outsourced healthcare reform to Mr Ryan’s team but that has left the speaker to grapple with bitter party divisions, while trying to keep the unpredictable White House on side too.

Tom Price The soft-spoken orthopaedic surgeon spent years as a congressman from Georgia trying to repeal Obamacare. Now he is Mr Trump’s health secretary. This week he was sent out to discredit a forecast from the Congressional Budget Office that said 24m would lose insurance coverage under the planned Republican reforms. “The CBO report’s coverage numbers defy logic,” he said.

Rand Paul The Kentucky senator and one-time presidential hopeful has become the leading rightwing opponent of the healthcare plan he calls “Obamacare lite”. A trained ophthalmologist, Mr Paul told a crowd of conservative activists on Wednesday that the congressional leaders who devised it were “weak-kneed”.

Susan Collins The moderate senator has voiced the misgivings of Republicans who fear the humanitarian and political consequences of throwing millions of people off insurance cover. Representing the independent-minded northeastern state
of Maine, she said of the Republican plan this week: “I’m not crazy about it.”

Obamacare was passed in 2010 after 14 months of effort and on the back of a larger majority in Congress. In the 1980s it took Reagan two years of toil and bipartisan co-operation to get through the 1986 tax reform package — which was the last major US overhaul.

“I worry people’s expectations are completely misaligned with the productivity function of Congress,” says one Republican senate staffer. “These things take a lot of time.”

Mr Ryan is seeking to pass major reforms in both areas by the end of the summer. His decision to make healthcare laws the first order of business for the new Congress provoked misgivings — even if it was a way of showing Republicans were serious about their election pledge to eradicate Mr Obama’s healthcare system.

The Ryan proposal, which has been adopted by the Trump administration, would end Obamacare’s “individual mandate” — the requirement that Americans buy coverage — by abolishing a tax penalty on people who do not buy health insurance. It would offer people refundable tax credits to buy insurance and restructure the government-run Medicaid programme.

Now that the healthcare bill has been unveiled, misgivings have given way to dismay, as the leadership faces incoming fire from the rightwing and moderate factions of the party, threatening its chances of passing in the House, let alone the more headstrong Senate.

Dozens of Republican lawmakers have spoken out against the healthcare legislation, with more conservative members saying the bill does not go far enough to repeal Obamacare, which allowed 20m previously uninsured people to obtain coverage.

Dave Brat, a Republican lawmaker from Virginia, says he and other conservative members of the House who comprise the so-called Freedom Caucus would continue to block Mr Ryan’s attempt to pass the plan despite repeated entreaties from the White House and the Republican leadership. “I don’t think they’re anywhere near getting the [necessary] votes. I think they’re way off,” he says.

On the other side of the party, more moderate members are clamouring for Republican leaders to adopt a less extreme plan, pointing to analysis this week from the non-partisan Congressional Budget Office showing that 24m more people would find themselves without health insurance if Mr Ryan’s plans go through.

“The CBO estimate that millions of Americans could lose their health insurance coverage if the House bill were to become law is cause for alarm,” Susan Collins, the Republican Senator for Maine, said on Monday. “This is an extremely important debate with significant implications for millions of Americans. We need to spend the time necessary to get this right.”

Acknowledging the criticism, Mr Ryan said on Wednesday that the proposal would need “improvements and refinements”.

The emphasis on healthcare reflected dire government forecasts in the final weeks of the presidential race that said premiums would keep soaring this year. Mr Trump said he needed to fix the teetering system before it collapsed. But reducing healthcare spending is also seen as vital because it would free up a pot of funds that Republicans need to pay for tax cuts.

Politically the choice to prioritise healthcare is looking less astute. The quagmire has revived memories of the political capital that both Mr Obama and Bill Clinton expended on healthcare in the first years of their presidencies, when some party members would have rather seen them focus elsewhere.

Building work on a light rail project in Detroit. Companies are keen to see the swift implementation of tax reforms including a cut to business tax © AFP

Jim Capretta, a healthcare expert at the conservative American Enterprise Institute, says that for many Trump voters healthcare was important but not a primary concern. “People say they voted for the current president because they wanted to improve their job prospects more than anything else,” he says. “And they think that if that is solved first they’ll end up with a better healthcare plan because they’ll have a better job.”

Nevertheless, Mr McConnell this month said the party needed to sort out its healthcare overhaul before turning to tax reform. He warned the timetable for the latter was likely to slip beyond the August deadline that the Trump administration has set for the overhaul to be completed.

Delay to tax reform by no means amounts to defeat, but some business leaders warn protracted uncertainty could drain confidence. More significantly, it is looking likely that the tax package from Congress will be a watered-down version of the one first proposed by Mr Ryan last summer.

Some lobbyists and congressional aides argue a key element of Mr Ryan’s corporate tax plan — a border adjustment that would exclude export revenues while effectively taxing imports — may prove too contentious to see the light of day. The measure has split the corporate world and raised the hackles of US partners that see it as a way of gaining an unfairadvantage in the arena of global trade.

President Donald Trump addresses the joint session of Congress on February 28 © Getty

If it is scrapped it would make it difficult to lower corporate tax rates drastically while claiming the reforms are revenue-neutral, given it would raise upwards of $1tn over 10 years. As a result, some lobbyists worry that reductions in the business tax rate could end up being shallower than was hoped. A further scenario is tax-cutting proposals that are not fully funded and lead to higher budget deficits — something that would incur renewed wrath from Republican conservatives.

Observers still expect some sort of tax-cutting package to emerge — even if it is a less revolutionary one than Mr Ryan desires. That is in part because they are optimistic about Mr Trump’s ability to shunt political principles aside and do a deal.

“What’s refreshing about Trump is that the lack of ideology helps him be a more clinical negotiator,” says a Republican aide on Capitol Hill. “Trump approaches it like, ‘I don’t care how you do it. I just want it fixed’.”

Marc Sumerlin, a former White House official under George W Bush and now managing partner at Evenflow Macro, said: “If anything, a failure on healthcare ups the political requirement of passing either tax reform or a significant tax cut. It is an absolute political imperative one way or another for the Republicans to get a tax bill signing this year.”

A failure to deliver significant tax reforms would not only deal a setback to chief executives and investors riding high on the promise of change, it would also be seen as a humiliation for a Republican party that has been handed a rare command of the levers of Washington power.

Read more:

FT View: Trump’s abortive attempt at US healthcare reform

Trump’s first budget cuts EPA and state department cash

Ed Luce: Trump’s healthcare bill falls into a death spiral

Trump voters fear pain in Republican healthcare plan

Trump-backed healthcare plan could leave 24m more uninsured

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