By Richard Rubin 

WASHINGTON -- The U.S. policy makers on taxes known collectively as the "Big Six" are scheduled to gather Tuesday with President Donald Trump at the White House -- and they have some big decisions to make.

Republicans are trying to rewrite significant portions of the tax system by year's end, which gives them little time to figure out the broad policy contours and fine details, then muscle them through Congress.

The six are Reps. Paul Ryan and Kevin Brady, Sens. Mitch McConnell and Orrin Hatch, Treasury Secretary Steven Mnuchin and White House economic policy chief Gary Cohn.

In July, the group released a 594-word principles statement. Last week, Mr. Mnuchin said that the group would release a more detailed blueprint in a few weeks.

Many Republicans are optimistic about getting a tax bill done. With control of the House, Senate and White House, the GOP is eager for the chance to overhaul tax policy and lower rates. Failure to do so would mark a political setback. But they must contend with inherent trade-offs, competing priorities and a tight time frame.

"I can't imagine they can get to the end of the year without passing something but I can't figure out what the something would be or how they would get it done," said Leonard Burman, a fellow at the Urban Institute in Washington and a former Treasury official in the Clinton administration.

Here's a quick look at the choices ahead.

'Tax Cuts' vs. 'Tax Reform'

Mr. Trump, who made his first major tax speech in Missouri last week and heads to North Dakota on Wednesday, uses the terms "tax cuts" and "tax reform" almost interchangeably.

The former term generally refers to lowering the tax burden, while the latter typically means making structural changes and repealing tax breaks to make the system simpler and more economically efficient.

Republicans, particularly Messrs. Ryan and Brady, have long talked about "reform" that would limit or repeal tax breaks. And some Republicans may be concerned about increasing budget deficits.

But tax cuts are broadly popular among GOP policy makers.

Republicans could end up splitting the difference by removing some tax breaks but not enough to cover the cost of the tax cuts.

Temporary vs. Permanent

Under budget rules that allow Republicans to pass a tax bill through the Senate without Democratic votes, the bill can't increase budget deficits after its first 10 years.

To hit that target, Republicans could set expiration dates for some tax cuts, muting potential revenue losses for the government beyond the first decade and thus complying with the 10-year rules. Business groups providing public support for Republicans plans, however, want permanent policy that will let them plan investments with relative certainty.

"I don't think there's anybody who really wants temporary policy," said Ray Beeman, a former GOP aide to the House Ways and Means Committee. "It's really a matter of what's more realistic."

Again, Republicans could split the difference, locking in business rules for the long run and setting some individual tax cuts to expire. They would be gambling that a future Congress would vote to extend lapsing tax cuts.

That approach worked in 2001 and 2003, when President George W. Bush's tax cuts were passed andset to expire after 2010. Almost all of them -- the biggest exception being tax cuts for high-income households -- became permanent in 2013.

Budget Maneuvers

To make their plans fit budget rules, Republicans are considering several approaches to reduce the apparent impact on budget deficits.

First, they may assume that expired or expiring tax breaks remain in place. That way, extending them or replacing them with other tax cuts wouldn't count as reducing revenue. This strategy could reduce the estimated fiscal cost of tax cuts by about $450 billion over a decade; that is equivalent to about 1% of projected federal revenue over that period.

Second, they are likely to use what is known as dynamic scoring to measure their plan. That is the assumption that tax changes generate economic growth, yield additional tax revenue and partly pay for themselves.

They may also change rules governing retirement accounts by making it harder for people to put pretax money in retirement accounts such as 401(k) plans, nudging or pushing people toward so-called Roth-style accounts funded with post-tax dollars that could be withdrawn tax-free in retirement. That move would generate money for the government in the near term because a bigger share of income would be taxed.

"It's a dial they could use and put it at any level they want to and whatever they can sustain politically," said Mr. Beeman, now at Ernst & Young LLP. Mr. Beeman helped write a 2014 tax plan with a similar provision.

House Majority Leader Kevin McCarthy (R., Calif.) questioned the idea during a Tuesday appearance on Fox Business Network.

"You only tax on them if you want people to do less of it," Mr. McCarthy said. "I want people to actually save more of their own money."

What Gets Priority and Who, if Anyone, Gets Hit?

At some point, Republicans will face budgetary constraints, whether it is the limits of the revenue they can raise from repealing tax breaks or what 51 senators will support.

When that happens, they'll have to decide whose taxes to prioritize -- corporations, individuals, estates or businesses that don't face the corporate tax but instead report and pay their taxes on their owners' individual returns

Republicans have proposed repealing the state and local-tax deduction, which would hurt high-income residents of high-tax states. They also have proposed doubling the standard deduction, which would help middle-income households but also would have the effect of limiting the number of people who could tax advantage of tax incentives for mortgage interest and charitable donations.

They also are considering imposing a minimum tax on U.S. companies' future foreign earnings, an idea opposed by a coalition of multinational firms.

So far, Mr. Burman said, Republicans haven't put together a tax plan without large revenue gaps.

"Donald Trump just has a list of bullet points and the plan's pretty incoherent," he said. "I don't see any evidence at all that they've made progress."

Republicans say they are in broad agreement and are refining the details, with Mr. Trump last week citing what he called a "once-in-a-generation opportunity to deliver real tax reform for everyday hardworking Americans."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

September 05, 2017 15:26 ET (19:26 GMT)