The House is set to leave for its August recess without havingtaken the first essential step to overhauling the U.S. tax code:agreeing on a 2018 budget resolution.

Disputes among House Republicans over spending levels and thecontroversial border-adjusted tax proposal are preventing SpeakerPaul Ryan from winning enough support to schedule a floor vote onthe budget that a House panel approved last week. With Housemembers planning to leave Washington Friday for a five-week recess,the lack of a budget is raising doubts that a tax rewrite—one ofPresident Donald Trump's top priorities—can be accomplished thisyear, or even before the 2018 elections.

“Clearly, no budget, no tax reform,” said the House's chief taxwriter, Rep. Kevin Brady, a Texas Republican.

While Ryan has abandoned his original dream of completing byAugust a tax overhaul that would slash individual and corporaterates, the speaker had until recently hoped to have an agreed-uponbudget by now.

The budget is a key part of the process known as reconciliation,which Republicans want to use to enact a tax code revamp withoutDemocratic support. The House and Senate previously approved adetail-free 2017 budget resolution that they intended to use torepeal the 2010 health-care law with only Republican votes.

Senate Republicans, who've been focused on that repeal effortfor months, have said they'll wait to see what the House does withthe 2018 budget resolution.

“The budget resolution is absolutely critical for taxreform. I don't think there's a workaround,” said Jonathan Traub, atax specialist at Deloitte Tax and former staff director forWays and Means Committee Republicans. “It sounds like there arepretty strong battle lines now.”

House conservative leaders have said they fear they'll be forcedto vote to advance the budget vehicle for tax changes withoutknowing tax-plan details, setting up a repeat of Congress'stroubled efforts on health care. They've called for deep tax cutsto be paid for by reductions in spending, rather than solely byraising new revenues through limits on deductions, exemptions andcredits.

“What you hear from people who aren't there yet on the budget isI'd like to see the tax bill,” said Rep. Tom Cole, an OklahomaRepublican who's a member of the Budget committee.

Rep. Mark Meadows, chairman of a caucus of about three dozenconservatives, told reporters this month that his members need tosee more than $200 billion in entitlement cuts required as part ofany final tax bill.

Meanwhile, the moderate Tuesday Group has said $200 billion incuts is too much.

“We've still got a long way to go,” Budget Committee memberMario Diaz-Balart said this week.

Border Tax

Some GOP conservatives are also demanding that leaders use thebudget to rule out the use of a border-adjusted tax. The borderadjustment proposal, which is endorsed by Ryan and Brady, wouldreplace the 35% corporate rate with a 20% levy on companies'domestic sales and imported goods, while exempting their exports.It's been under attack by retailers and other industries that relyon imported goods and criticized by White House officials andSenate Republicans.

During the House Budget committee vote last week, conservativeMark Sanford attempted to offer an amendment to the budget thatwould have blocked the eventual tax bill from including aborder-adjusted tax. Committee Chairman Diane Black wouldn't allowthe committee to vote on the amendment.

Dave Brat, a Virginia Republican, told reporters Wednesday thathe had two conditions to obtain his vote for the budget—first, makeclear the border-adjusted tax won't be part of a tax bill, andsecond, suggest other ways to account for the $1 trillion or so inrevenue the proposal has been estimated to raise over a decade.

If the budget doesn't specify that the border-adjusted tax won'tbe adopted, “then the gang of six should pull what they worked on,they should deep six it,” Meadows said to reporters Wednesday,referring to the White House officials and congressional leaderswho meet weekly to discuss tax priorities.

The budget technically sets the top-line amounts for 12 annualspending bills. Idaho Rep. Mike Simpson said one way to jump-startits progress would be to pass those spending bills separately. Thatwould at least take disputes over next year's military and domesticspending off the negotiating table.

Steve Bell, a senior adviser at the Bipartisan Policy Center andformer staff director for Senate Budget Committee's Republicans,pegged the chance of Congress adopting a 2018 budget resolutionthis year at no more than 30%.

“Right now, it's my impression that they don't have the votes inthe House, and they are far, far, far away from getting anywhere inthe Senate,” Bell said of a fiscal 2018 budget resolution.

Ryan has insisted that a tax overhaul must happen in 2017 since2018 midterm elections could complicate the task next year. IfRepublicans can't agree on a budget, tax overhaul efforts would bedead unless the Senate can get Democratic support. That's unlikelyif the legislation includes tax cuts for top earners.

September Vote

Mark Walker, chairman of the conservative Republican StudyCommittee, said that Ryan had told him he was confident the Housebudget could be ready for a full vote the first week of September.Meadows told reporters that his faction wasn't part of any deal tobring up the budget in September. A House leadership aide wasunaware of a plan to vote on the budget that week.

A statement about the progress of ongoing tax discussionsbetween congressional leaders and White House officials is comingbefore week's end, Brady said after a meeting of the so-called BigSix Wednesday. Areas of agreement among House, Senate and WhiteHouse leaders could be highlighted in the statement, which wouldlikely be more than the one page outline that the White Housereleased in April, but shorter than draft legislation, according toa person familiar with the negotiations.

Those principles could be incorporated into the budget and helpput tax legislation back on track for completion before the end ofthe year.

“I think it is possible to do tax reform this year,” Diaz-Balartsaid.

Grover Norquist of Americans for Tax Reform said Republicanleaders need to break the impasse by deciding whether they want taxchanges to be permanent or temporary—as they'd have to be if theyadd to the long-term deficit. Even temporary cuts would helpstimulate growth, he said.

“There is a growing consensus that this needs to be abouteconomic growth. It doesn't need to be a thing of beauty, itdoesn't need to solve all problems,” Norquist said. “This canget done.”

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