President-elect Donald Trump’s tax and tariff plans could face obstacles next year in a key congressional committee as some Republican lawmakers are wary of sweeping new tariffs and the prospect of using such duties to fund additional tax cuts.
Trump touted the revenue-raising potential of tariffs during the presidential campaign and proposed an across-the-board tariff of up to 20% on all U.S. imports, as well as fresh tariff hikes on Chinese imports. Earlier this week, in a pair of Truth Social posts, the president-elect said he would impose 25% tariffs on all Mexican and Canadian products on the first day of his administration and announced "an additional" 10% tariff on Chinese goods.
Meanwhile, Trump advisers are reportedly considering including tariffs in a tax package expected next year and using their projected revenues to offset new tax cuts.
But such an approach could face pushback from Republicans on the House Ways and Means Committee – the committee responsible for tax and trade legislation. Tax bills must originate in the House.
“I don't believe they should be used as a revenue-generating tool,” Rep. Greg Murphy, R-N.C., told Agri-Pulse. Murphy said he expected tariffs to be “on the table, as well a zillion other things,” in discussions of tax legislation next year. But Murphy argued that the purpose of tariffs should be limited to helping U.S. business compete with foreign countries' unfair trading practices.
“There are going to be a lot of challenges with getting the tax package out next year,” Murphy added.
Lawmakers and the Trump administration are still determining how to realize their tax policy ambitions. Unless Congress takes action, Trump’s 2017 tax cuts will expire next year and on the campaign trail, the incoming president floated further tax reductions – like further reducing the corporate tax rate and exempting tips from federal income tax.
With a slim Senate majority, however, GOP leaders are aiming to use a budgetary process known as reconciliation to pass tax legislation with a simple majority of 51 votes in the Senate. Aides to Republican leaders met on Monday afternoon to discuss what could be included in such legislation, according to Politico. The reconciliation process requires policies to impact the federal budget and says new spending must be offset by measures to increase revenue. Even if, as some GOP lawmakers argue, extending the existing tax cuts would not require offsets, new proposals to further trim the corporate tax rate and exempt tips from income tax certainly would.
Even lawmakers who approve using tariffs to offset new tax cuts may have reservations over other aspects of Trump’s tariff agenda. The blanket tariff Trump proposed on the campaign would apply to all U.S. imports regardless of country or sector to, as he claims, extract revenue from foreign governments. Rep. Nicole Malliotakis, R-N.Y., however, told Agri-Pulse she is in favor of a “strategic” approach to deploying tariffs.
“Can tariffs pay for tax bills? Yes,” Malliotakis said, but added, “it's got to be strategic. I mean, tariffs are a tool in the toolbox. And I think it needs to be looked at specifically to achieve a certain goal.”
Malliotakis gave the example of using a tariff to bring supply chains in specific industries back to the U.S. or applying a tariff to specific countries to promote trade ties with allied economies.
Tariffs are “effective and should be used, not necessarily as a 'pay-for' but to achieve an intended result,” Malliotakis said.
The tariffs announced on Mexico, Canada and China this week, which Trump said would be implemented by executive order, had more specific objectives, however. The president-elect said he wants the tariffs on China to spur Beijing to stem the flow of fentanyl to the U.S. and those on Canada and Mexico to encourage action on curbing illegal migration across the U.S. border.
Others on the Ways and Means Committee could share Malliotakis’ view that tariffs should be targeted. More than 107 Republicans, led by then-Ways and Means Chair Kevin Brady, R-Texas, wrote Trump in March 2018 urging the president to “tailor” his proposed global tariff on all U.S. steel and aluminum imports. Several signatories to that letter will likely still sit on the committee next year, including Ways and Means Trade Subcommittee Chair Adrian Smith, R-Neb.
In addition, the Senate is still stocked with free trade Republicans like Chuck Grassley, R-Iowa, who sits on the influential Finance Committee, who could be hostile to sweeping tariff hikes.
Malliotakis, however, was optimistic that the GOP could find a way forward on the tariff issue.
“I think generally Republicans are thought to be free traders. But I think President Trump makes a very good point when he talks about tariffs being an effective tool,” Malliotakis said. “If we have a good reason, I think that it can be sold to the conference.”
Ways and Means Chair Jason Smith, R-Mo., was more emphatic, telling Agri-Pulse, “We’re going to be able to fulfill the president's priorities.”
To be sure, Trump will find some on the committee receptive to his tariff proposals. Asked whether tariffs could be used to offset additional tax cuts, Rep. Greg Steube, R-Fla., was deferential to the president’s priorities.
“I think the president should use tariffs however he sees fit. And I think that the House should support the president however he wants to do that,” Steube said.
