Republicans Face Tough Choice: Repeal Obamacare or Cut Taxes

(Bloomberg) -- After the collapse of the Obamacare repeal, Republicans may have to choose between pursuing another health bill or pushing through a tax overhaul this year, because there's almost certainly not enough time to do both.

And that's not even their biggest problem -- which is, they can't agree on either. The Senate debate last week laid bare how sharply divided the party remains over health care. And Thursday, the group in charge of developing a tax plan made clear that it's agreed on very little.

Making matters worse, both the Senate and House face a pileup of urgent must-do items in September that require cooperation with Democrats: funding the government after Sept. 30 and lifting the debt ceiling, which the Treasury Department said on Friday must happen by Sept. 29.

That raises the possibility of another drawn-out debate that would derail action on health care, taxes, or both -- or a government shutdown fight, an idea President Donald Trump seems open to. For Republicans, still in search of a major legislative accomplishment under Trump, time is running out for 2017.

The House is already in its summer recess. The Senate is in session this week, but Senator John McCain has returned to Arizona for cancer treatment, leaving Republicans with a bare 51-48 majority and a debate over who's to blame for the defeat of one of their party's top priorities.

Goaded on Twitter

In short, Republicans aren't happy, including with their own leaders. For one thing, they can't escape withering eruptions from the White House and Trump's Twitter account. On Saturday, Trump said Senate Republicans “look like fools and are just wasting time.” He goaded lawmakers to prove they're not “total quitters” by having another go at repeal and replace.

“If ObamaCare is hurting people, & it is, why shouldn't it hurt the insurance companies & why should Congress not be paying what public pays?” Trump said Monday on Twitter.

Many in the party have also fumed over the closed-door process employed by Majority Leader Mitch McConnell of Kentucky and House Speaker Paul Ryan Wisconsin to write their health-care bills -- out of sight of the public, Democrats and most of the party's own members. But so far, Republican leaders are going down the same road on their tax bill.

“When you're doing something complicated, get with your fellow members much earlier, because they may not be from the world of taxes or health care finance, they have different specialties in life,” said Representative David Schweikert, an Arizona Republican who's a member of the Ways and Means committee and the conservative Freedom Caucus. He derided “the arrogance of just saying, ‘Hey this is good stuff.'”

Top-level tax talks over recent months have produced no specifics for the public beyond Ryan's decision to give up on his idea of a border-adjusted tax intended to make American-made goods more competitive. 

Limited Scope?

Without that revenue, or tax cuts from the health-care bill, leaders instead will have to squeeze existing tax breaks harder to bring down corporate and individual rates in a revenue-neutral way. Or they'll have to dial back the scope of their ambitions.

But many Republicans now feel even more pressure to get a deal on taxes, assuming the health effort remains in limbo, because of the political imperative to get a win ahead of next year's midterm elections.

A few are even talking about some kind of tax and health care combination. Mashing two such complex issues is procedurally possible, but could prove politically unworkable. The idea was discussed at a Republican conference meeting on Friday, but was largely dismissed, according to lawmakers in the meeting.

The suggestion, said conservative Republican Dave Brat of Virginia, is “grasping at straws.”

‘Journey' Continues

Still, several Republicans insisted they weren't ready to give up on health care.

“This is a journey and we're not yet done with this journey,” Republican Senator Ted Cruz of Texas said after the failed vote. “I believe we will repeal Obamacare. I don't expect any of the media coverage to reflect that. But the democratic process has a way of taking strange turns.”

Senators Lindsey Graham of South Carolina, Bill Cassidy of Louisiana and Dean Heller of Nevada met with Trump Friday on a fresh proposal focused on returning money to the states that they hope could win 50 Republican votes. Graham said in a statement that Trump had been “optimistic” about the plan: “I had a great meeting with the president and know he remains fully committed to repealing and replacing Obamacare.”

One reason to keep pushing, said Representative Jodey Arrington, a freshman Republican from Texas, is that Obamacare repeal is needed to carve out room for tax cuts.

“We need this domino to fall to get real bold tax reform and we need to give our president some momentum,” he said. “That's a lot of big things riding on this legislation. It's an overwhelming disappointment.”

Shutdown Showdown?

More immediately in September, Congress must approve legislation to keep the government open past the end of the fiscal year on Sept. 30. Trump's insistence on $1.6 billion to begin building a wall on the U.S. border with Mexico, along with Democrats' objections to domestic spending cuts, could set the stage for a nasty fight.

Lawmakers narrowly averted a shutdown in May when they convinced Trump to sign a spending deal stripped of his priorities and proposed spending cuts, but that may prove harder in the fall. At the time Trump mused that “our country needs a good ‘shutdown' in September to fix mess!”

Indeed, the health failure could increase the odds for a shutdown given Trump's signature on the must-pass spending measure might be his biggest leverage point with Congress.

A fight could also play out over Trump's threat to cut off Obamacare subsidies used to make insurance accessible to poorer Americans. He's at odds with Democrats, who've said those cost-sharing reduction payments must continue.

Debt Limit

Congress must also raise the debt limit, with the administration having repeatedly pushed to do so before the August recess to no avail. McConnell will have to decide whether to try and attach it to a must-pass bill like a veterans' health benefits extension, a leading option, or a stopgap spending measure. Conservatives have said they'll insist on deep spending cuts to win their votes on the debt ceiling, while Democrats have said they'll reject any Republican conditions.

No matter what, Republicans face a second half well short of the transformative governing promised in the 100- and 200-day agenda laid out after they added the White House to their majorities in the House and Senate.

To the extent there's a cause for optimism, it came in the form of an olive branch from Senator Chuck Schumer of New York in the wake of McConnell's humiliating defeat on the health-care bill.  

The Senate Democratic leader offered to work cooperatively to advance bipartisan bills and advance many of Trump's nominations. He urged Republicans to use the health-care defeat as a turning point, and return to the bipartisan ways of old on a range of issues.

Republicans now have to decide whether to take him up on the offer.

--With assistance from Anna Edgerton

To contact the reporter on this story: Steven T. Dennis in Washington at sdennis17@bloomberg.net.

To contact the editors responsible for this story: Kevin Whitelaw at kwhitelaw@bloomberg.net, Elizabeth Titus, Justin Blum