In a speech on Tuesday, the speaker delivered a warning to conservatives—including those in the White House—who would sacrifice a lasting overhaul of the tax code for the fleeting economic jolt, and the easier legislative victory, that a quick fix might bring. “These reforms, these tax cuts—they need to be permanent,” Ryan told a meeting of the National Association of Manufacturers. “Every expert agrees that temporary reforms will only have a negligible impact on wages and economic growth. Businesses need to have confidence that we won’t pull the rug out from under them. They need the certainty from permanent tax cuts to hire more workers, invest in their businesses, and plan for the future.”
Ryan’s aides billed the address as his first major speech on tax reform, an attempt by the Republican lawmaker to reinvigorate an effort that appeared to be flagging amid divisions within the party. But aside from Ryan’s aspirational vow to finish legislation by the end of the year, his 20-minute talk offered few new details. He made no direct mention of the biggest bone of contention: the House GOP’s proposal to use a tax on imports known as border adjustment to raise $1 trillion in revenue to offset the cost of rate cuts. And while Ryan said Republicans would preserve popular tax exemptions for homeowners, charitable giving, and retirement savings, he did not delve into the many loopholes lawmakers might seek to eliminate, such as those protecting employer-provided health insurance and allowing individuals to deduct state and local taxes from their federal bill.
What he did do on Tuesday was try to head off a shift toward a more limited tax plan that would short-circuit his long-running push for broad-based reform. As Ryan often jokes, the last time Congress truly overhauled the tax code, in 1986, was the year the 47-year-old Wisconsinite got his driver’s license. Along with reforming entitlement programs, no issue is more important to the speaker, who is the former chairman of the tax-writing House Ways and Means Committee.
While the principles Trump’s advisers unveiled last month align with Ryan’s vision in the abstract—lower rates, fewer income brackets, a simpler overall code—the president is desperate for a legislative win and loathe to wage the much more difficult battle to raise the revenue necessary to offset a steep fiscal cost. Conservative groups and a number of Republicans in the Senate are already running an aggressive campaign to kill Ryan’s preferred border-adjustment tax on the grounds that it would result in higher retail prices for consumers. Without that tax, however, Republicans would have to find $1 trillion somewhere else to pay for reducing rates.
Simply cutting taxes would be easier. Yes, it would add trillions to the deficit, but Republicans have long argued—despite evidence to the contrary—that the economic growth generated by cutting taxes ultimately leads to increased revenue. As Treasury Secretary Steven Mnuchin said last month: “The tax plan will pay for itself with economic growth.”