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House Freedom Caucus Chairman Mark Meadows said his "preference" is to do tax reform without the border adjustment tax on imports, a key component of House leadership's Better Way tax plan; "Let's go ahead and pass one without border adjustment, assuming that we can lower corporate [taxes] to 20 percent, flatten the rate out for individuals," he told me in an interview in his office.
Why this matters: Border adjustment is a key element of Republican tax strategy because it would raise so much money — more than $1 trillion over a decade — to offset other changes to tax law (or be a down payment on the wall with Mexico.) It would also serve Trump's policy goals by taxing imports. There are other ways to pay for tax reform, like closing loopholes and getting rid of deductions, but few are as likely and as lucrative. As chairman of the House Freedom Caucus, opposition from Meadows sends a signal to 35-or-so other members on the issue.
Without the revenue from a border adjustment tax, Meadows said he thinks the package could still pass the House, even if it wasn't revenue-neutral. "Assuming that lower taxes is good for growth, economic growth, why would you have to pay for something that's good for economic growth?" he asked.
The problem: Republicans want to pass tax reform through budget reconciliation, which means they don't need Democrats in the Senate. But to comply with reconciliation rules, the legislation can't add to the deficit. Which means the package needs to raise at least as much money as the tax revenue it eliminates through lower rates.
- Meadow's answer to the reconciliation problem: "I think there's growing number of us who are willing to look at an individual bill, not through reconciliation, because your point's well-taken there, we're just saying alright, let's go ahead and advance tax reform on its own individual merits without the pay-for with the border adjustment tax. I believe we can pass it in the House, and we might even be able to pass it in the Senate, depending on how many senators are up for re-election, how much pressure they get from their constituency, et cetera."