Leaders of the House Freedom Caucus are urging House GOP leaders to drop the contentious border-adjusted tax proposal in the tax reform bill, and consider canceling August recess to hasten passage of legislation.
The conservative group is also weighing a demand for welfare reform as part of the bill.
HFC members laid out their priorities at the conservative Heritage Foundation as the Trump administration and congressional Republican leadership continue to negotiate a unified tax plan.
The caucus, which includes several dozen members, proved its ability to shape major legislation in last month's passage of an Obamacare replacement. The group's leader, Rep. Mark Meadows, R-N.C., helped negotiate the final healthcare bill.
One demand Meadows made Friday was for the House to move forward without a key provision favored by Speaker Paul Ryan, R-Wis., namely the border-adjusted tax.
"The political facts are: There is not consensus to have support for the border adjustment tax," said Meadows. Even though the Freedom Caucus doesn't have a position on the idea, which has met harsh opposition from retailers and other import-intensive industries, Meadows argued that the controversy over it is slowing tax reform.
Ditching the border-adjusted tax would leave a major hole in the tax reform math. It would raise around $1 trillion over 10 years.
Under the proposal, companies would no longer be allowed to deduct the cost of imported goods and services, but would no longer pay any taxes on revenues from exports. In today's system, U.S. companies are taxed on all profits, whether they are earned in the U.S. or abroad.House leadership says that the change would encourage more manufacturing within the U.S., and discourage companies from moving production overseas.
Freedom Caucus members, however, favor tax reform legislation that cuts federal revenues. Leaders favor reform that doesn't add to the deficit, in part to ease the path for tax reform through the legislative process.
Meadows stated that House Republicans could quickly come to agreement on a tax plan that cut tax rates for businesses, permanently extended "bonus" depreciation that allows companies to immediately write off half of the value of some new investments, allowing companies to return foreign earnings at a lower rate, and doubling the standard deduction for families.
In order to pass tax reform legislation, Republicans aim to use the budget process known as reconciliation, which allows bills to pass with a simple majority in the Senate, bypassing a Democratic filibuster.
Using that procedure, however, requires them to first write a budget for fiscal year 2018. Doing so would be difficult given conservative demands to balance the budget, cut spending, and reform entitlements.
Jim Jordan of Ohio, a member of the Freedom Caucus, said Friday that the group would be willing to entertain higher spending in exchange for including welfare reform measures in the ensuing tax bill.
Those reforms should include work requirements and time limits on benefits, Jordan said, explaining that "it's good policy to encourage work."