How the Trump tax law passed: Breaking the gridlock 

The Republican effort to overhaul the nation's tax code was stuck.

House Republican leaders, most notably Speaker Paul RyanPaul Davis RyanKenosha will be a good bellwether in 2020 At indoor rally, Pence says election runs through Wisconsin Juan Williams: Breaking down the debates MORE (Wis.), were pushing for a controversial provision called “border adjustment” that would tax imports and exempt exports. Many House Republicans were skeptical of the plan while GOP members in the Senate said it was dead on arrival if it ever got to the upper chamber.


In April 2017, President TrumpDonald John TrumpBiden leads Trump by 36 points nationally among Latinos: poll Trump dismisses climate change role in fires, says Newsom needs to manage forest better Jimmy Kimmel hits Trump for rallies while hosting Emmy Awards MORE huddled with his senior advisers on strategy. The White House was poised to release its own plan and the president's team was debating whether they should hit the brakes. The one-page blueprint notably didn’t include border adjustment and there was some discussion of postponing release of the White House proposal.

“No, we're moving forward,” Trump said, according to a senior White House official. “It's time to move forward.”

The White House's action was the beginning of the end for the border adjustment idea, which attracted intense criticism from retailers and influential GOP donors Charles and David Koch. 

Trump’s plan “broke the gridlock” on border adjustment, the senior White House aide said.

House Majority Leader Kevin McCarthyKevin Owen McCarthyTrump asked Chamber of Commerce to reconsider Democratic endorsements: report The Hill's Morning Report - Sponsored by The Air Line Pilots Association - White House moves closer to Pelosi on virus relief bill Trump's sharp words put CDC director on hot seat MORE (R-Calif.) said he didn’t think the proposal would ever get off the ground.

“Paul [Ryan] was always for that, but I never felt that had the votes to pass,” McCarthy told The Hill.

Gary CohnGary David CohnGary Cohn: 'I haven't made up my mind' on vote for president in November Kushner says 'Alice in Wonderland' describes Trump presidency: Woodward book Former national economic council director: I agree with 50 percent of House Democrats' HEROES Act MORE, who was Trump's top economic adviser, said, “We knew talking to Senate leadership there were virtually no votes in the Senate for a border-adjusted tax.”

Over the past several months, The Hill has interviewed dozens of Trump administration officials, lawmakers, aides and stakeholders to report the behind-the-scenes stories of the most sweeping changes to the tax codes in decades.

The tax cuts are both Trump’s biggest legislative achievement to date and the most important bill passed during the retiring Ryan’s Speakership. Republicans promised they would further unshackle a growing economy, and they have been rewarded with economic growth of 4.2 percent in the second quarter of this year.

But the tax cuts have not paid big political dividends for Republicans to date, and there is a growing pile of evidence that suggests Democrats are winning the current political debate over the measure. A poll commissioned by the Republican National Committee on Trump's tax law, obtained and published by Bloomberg last week, found that most voters say the tax law benefits corporations and wealthy individuals more than the middle class. The analysis on the poll concluded that the GOP has “lost the messaging battle on the issue.”

Over the next week, The Hill will delve into how a GOP tax bill evolved into a blockbuster legislative package that effectively ended the ObamaCare mandate that all Americans buy health insurance and opened a portion of the Arctic National Wildlife Refuge in Alaska to drilling.

It will examine how the law is playing out in the battle for Congress and the 2018 midterm elections, and how the legislative debate uniquely reflects the Trump era in Washington.

Trump's role on tax reform

Frustrated with the constant delays from the GOP-led Congress and its ultimate failure to repeal ObamaCare, Trump played a more hands-on role with taxes, according to several of his top advisers.

He constantly worked the phones, trying to nudge on-the-fence Republicans to get to "yes." Treasury Secretary Steven MnuchinSteven Terner MnuchinLawmakers fear voter backlash over failure to reach COVID-19 relief deal United Airlines, unions call for six-month extension of government aid House Democrats plan to unveil bill next week to avert shutdown MORE and Cohn briefed Trump on a daily basis on tax reform. 

Several senior White House officials said Trump was especially interested in significantly lowering the corporate tax rate and getting the bill done in 2017. And while Trump for the most part didn't make public remarks that surprised congressional Republicans who were working on the tax package, there were times when he weighed in on Twitter.

In fall of last year, lobbyists started hearing that Republicans were considering a sharp cut in pre-tax 401(k) contribution limits. The idea immediately attracted negative media attention. 

At 7:42 a.m on Oct. 23, 2017, Trump buried the idea with one tweet: “There will be NO change to your 401(k). This has always been a great and popular middle class tax break that works, and it stays!”

Still, the GOP-controlled Congress wrote the bill and rejected some ideas coming out of the White House such as then-Trump aide Stephen Bannon's idea to increase taxes on the wealthy — which would have never gotten the votes to pass. 

In the end, the bill Trump signed a few days before Christmas was in many ways a traditional Republican tax-cut measure. Ryan, along with Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyBusinesses, states pass on Trump payroll tax deferral Trump order on drug prices faces long road to finish line On The Money: US deficit hits trillion amid pandemic | McConnell: Chance for relief deal 'doesn't look that good' | House employees won't have payroll taxes deferred MORE (R-Texas) and former chairman Dave Camp (R-Mich.), had laid the groundwork for years before Trump’s victory over Democratic presidential nominee Hillary ClintonHillary Diane Rodham ClintonBiden leads Trump by 36 points nationally among Latinos: poll Democratic super PAC to hit Trump in battleground states over coronavirus deaths Battle lines drawn on precedent in Supreme Court fight MORE. And for the first time since 2006, Republicans controlled the White House and Congress. 

Trying to raise money for tax reform

For years, Republicans had been pushing a revenue neutral tax reform and the Ryan/Brady border adjustment plan, first proposed in June 2016 as part of the Speaker’s “Better Way” agenda, would raise $1 trillion to pay for the entire package. Specifically, the Better Way plan aimed to stop companies from moving their headquarters, jobs and intellectual property overseas by pairing territoriality with a “border adjustment” provision to tax imports and exempt exports. Under the border adjustment proposal, goods consumed in the U.S. would be subject to U.S. taxes no matter where they are made.  

The problem was it never had a chance to pass.

Sen. Pat ToomeyPatrick (Pat) Joseph ToomeyAppeals court rules NSA's bulk phone data collection illegal Dunford withdraws from consideration to chair coronavirus oversight panel GOP senators push for quick, partial reopening of economy MORE (R-Pa.) said he knew border adjustment was doomed in early 2017 when he explained the idea to Senate Republicans at a retreat in Philadelphia. The idea went over like a lead balloon.

“It was obvious to me after that retreat in Philadelphia, when I stood up and explained it to my Republican colleagues,” Toomey said. “I was not pitching it as an advocate but I was saying, ‘Here’s the mechanism, here’s the argument for it,’ and everybody immediately said, ‘Oh my God, it’s going to destroy importers and retailers.’

Toomey added that the hostility to the border adjustment proposal was “widespread and very vociferous.”

“It was immediately clear to me this has no chance of surviving,” Toomey recalled. “That also underscored, of course, the need for this to not be revenue neutral. That was a trillion dollars worth of revenue that in the House [plan] is not going to happen.”

Sen. David Perdue (R-Ga.), one of the earliest senators to come out against the proposal, said that he thought House members’ explanation of why the border tax would work was “not correct.”

“There were a lot of people that didn’t know a lot about border adjustment tax, and once we had that kind of open dialogue in Congress, you saw a lot of people sort of gravitating to be against it,” he said.

In February 2017, Sen. Lindsey GrahamLindsey Olin GrahamMcConnell locks down key GOP votes in Supreme Court fight Will Republicans' rank hypocrisy hinder their rush to replace Ginsburg? Momentum growing among Republicans for Supreme Court vote before Election Day MORE (R-S.C.) said the House border tax plan "won't get 10 votes in the Senate."

Retailers mobilized quickly to advocate against the proposal because they were worried it would lead to higher prices on goods. By the end of February, retailers were confident that there were enough senators who opposed the tax to torpedo the idea.

Even on the House side — and within the Ways and Means Committee — there were concerns with the proposal.

In summer 2016, GOP Reps. Pat TiberiPatrick (Pat) Joseph TiberiOhio New Members 2019 Many authors of GOP tax law will not be returning to Congress GOP Rep. Balderson holds onto seat in Ohio MORE (Ohio), who has since left Congress, Mike KellyGeorge (Mike) Joseph KellyFederal judge rules Pennsylvania's coronavirus orders are unconstitutional Judge halts Trump campaign's mail-voting lawsuit against Pennsylvania Rep. Dan Meuser tests positive for COVID-19 MORE (Pa.) and Jim RenacciJames (Jim) B. RenacciOhio is suddenly a 2020 battleground Democrats fear Ohio slipping further away in 2020 Medicare for All won't deliver what Democrats promise MORE (Ohio) were leaving a meeting when they started talking about the border adjustment proposal. Kelly, a car dealership owner, said he started thinking about Monroney labels, which are stickers on new cars that mention the percentage of parts made in various countries. Kelly brought in the Monroney labels to show lawmakers that fall as part of an effort to express concerns about how a border adjustment tax might increase the price of cars.

“We’re not talking about dollars, we’re talking about thousands of dollars,” Kelly said.

In March 2017, Kelly went on TV and publicly came out against the tax. He told The Hill he would never have been able to get to "yes" on the proposal.

Renacci, who is running for the Senate, expressed reservations about the tax early on. He worried that it would hurt businesses in his state.

“I was willing to listen,” he said. “I was not comfortable with the border adjustment tax but I was not writing it off entirely. I had asked for a hearing at one point in time so we could get some outside information.”

But at some point, Renacci said, he made it “public within the family” that he wouldn’t support the plan.

For the most part, Brady and Ryan stood firm in support of their proposal.

“We talked to Ryan and Brady frequently, we talked to their staffs frequently. They weren’t budging,” said David French, senior vice president of government relations at the National Retail Federation. 

Club for Growth President David McIntosh said Ryan and Brady were “completely tone deaf” to the arguments against the tax.

But a former senior House GOP aide countered that both legislators were open to letting go of the border plan if there was a viable alternative.

Ryan and Brady had hoped Trump would endorse it, but the White House was careful with what they said about the plan publicly. And behind the scenes, various Trump aides were divided about the proposal.

“It was too controversial to find 51 Republican senators to support that," former White House Legislative Affairs Director Marc Short told The Hill. “So there is a policy argument about it, but there was also just the political reality that we can debate this all night long, but it's not going to get 51 votes. So, why are we continuing to kick this around?"

Cohn opposed the border tax and opponents of the proposal got the sense from their meetings with him that he was in their corner.

Lobbying Trump 

Trump held a series of meetings on an array of topics with business leaders during the early months of his presidency, including with retailers and major exporters.

On Feb. 15, 2017, Trump huddled with more than a half dozen retail CEOs. When one executive in the room said the border adjustment tax would make the company’s tax rate 120 percent, Trump replied something along the lines of, “That’s not good,” according to Brian Dodge, senior executive vice president of public affairs for the Retail Industry Leaders Association, who was briefed on the meeting.

Executives who attended the meeting came away with the strong sense that Trump knew the difference between tariffs, which he was interested in, and Ryan’s idea. The president “was not embracing border adjustment tax at that point, and ... we had an opportunity to keep the White House from embracing the idea,” Dodge said.

"The president didn't support it. He made it very clear, and so, you know, that was initially a big part of paying for the bill. And ultimately he became very clear that wasn't going to be in the bill,” House Majority Whip Steve Scalise (R-La.) said. “And so Brady and his team went back to work."

Shortly before the White House's one-page plan was unveiled in April 2017, Mnuchin and Cohn briefed several groups about it. Mnuchin first gave a “long, careful” answer about why the Ryan/Brady provision wasn’t in the plan. Then Cohn said, “It’s dead,” a key source stated.

After months of pushback on the tax from lawmakers, retailers and conservative groups, Brady proposed phasing in the proposal over five years. But that didn’t ease any of the opponents’ concerns.

Brady subsequently convened a hearing on the topic in May 2017, which some involved in the tax process viewed as a turning point.

Besides Renacci and Kelly, Tiberi and Rep. Erik PaulsenErik Philip PaulsenMinnesota Rep. Dean Phillips wins primary Pass USMCA Coalition drops stance on passing USMCA Two swing-district Democrats raise impeachment calls after whistleblower reports MORE (R-Minn.), one of Brady’s roommates, expressed concerns about the concept at the hearing.

“Paulsen, that was the first time [his opposition] became public,” Renacci said.

Democrats this fall are targeting Paulsen, whose district was won by Clinton in 2016. Paulsen has doubled down on the tax cuts and has touted the new law repeatedly in his reelection campaign.

Brady said he still thinks border adjustability is a “game changing” idea that would “level the playing field for American companies.” He added the plan might have gotten more support if lawmakers had several years to examine it.

But Brady said that by about June 2017, it became clear that the blueprint was dividing the business community and lawmakers.

“It was clear it needed to be set aside, that we needed to find a way to level the playing field internationally without it,” he said.

Brady added that he and Ryan didn't shelve it until they got a commitment from the other key tax negotiators that there would be an alternative way to address the erosion of the U.S. tax base.

The border adjustment was formally scrapped in July 2017 in a statement released by the “Big Six” — Ryan, Brady, Mnuchin, Cohn, Senate Majority Leader Mitch McConnellAddison (Mitch) Mitchell McConnellOcasio-Cortez to voters: Tell McConnell 'he is playing with fire' with Ginsburg's seat McConnell locks down key GOP votes in Supreme Court fight Video shows NYC subway station renamed after Ruth Bader Ginsburg MORE (R-Ky.) and Senate Finance Committee Chairman Orrin HatchOrrin Grant HatchBottom line Bottom line Senate GOP divided over whether they'd fill Supreme Court vacancy  MORE (R-Utah).

Retailers and conservative groups that had focused their energy on killing the plan, switched gears and started to promote an overhaul of the tax code. And Republican lawmakers started to become more productive.

The Big Six statement came hours before Senate Republicans’ efforts to repeal ObamaCare fell short. That failure prompted Republicans and outside groups to be even more motivated to enact tax legislation.

Renacci recalled that when Ways and Means Committee Republicans held a retreat in September, “you could start to see there were some principles that were starting to come forward. There were some agreements starting to be made on many of the issues between members of the Ways and Means Committee, and I think that it started to gel.”

“I actually think once the border adjustment was taken out of the mix, you started to see this plan starting to gel more and more,” he said.

Members of The Hill's staff who have worked on this tax reform series over the past several months are Alexander Bolton, Juliegrace Brufke, Timothy Cama, Jordain Carney, Bob Cusack, Niv Elis, Naomi Jagoda, Mike Lillis, Peter Sullivan, Megan R. Wilson and Melanie Zanona.