In his first comments after the decision to withdraw the AHCA from House consideration, President Trump told the assembled media, "I would say that we will probably start going very, very strongly for the big tax cuts and tax reform. That will be next." Treasury Secretary Steve Mnuchin later echoed the President's comments, saying "Health care is a very complicated issue. In a way, tax reform is a lot simpler." While members of Congress would likely disagree with the Secretary's assessment, they have already begun debate over next steps on this Republican priority.

To date, the debate has centered on the Border Adjustable Tax (BAT), a tax proposed by Speaker Ryan that would produce roughly $1 trillion in revenue over ten years by no longer allowing companies to deduct the cost of imports from their profits. The business community is split over the proposal, with importers opposed and exporters in favor. In addition to the BAT, Speaker Ryan's Better Way plan would lower the top individual income tax rate from 39.6 percent to 33 percent, reduce the number of tax brackets from seven to three, repeal the federal deduction for state and local taxes, lower the corporate income tax from 35 percent to 20 percent and end the practice of global taxation.

Before the failure of the AHCA, congressional Republicans had planned on utilizing the FY18 budget reconciliation process to move forward with tax reform. According to Speaker Ryan, "[failure of the AHCA] does make tax reform more difficult … But it does not in any way make it impossible." Much remains uncertain as neither the Senate Republican leadership nor the President have signed on to Speaker Ryan's proposal.

Congressional Democrats remain divided over the issue, with progressive members of the caucus expected to oppose the measure while some moderates have been more receptive, especially if the proposal is paired with an infrastructure investment bill. Representative Jim Himes (D-CT), chair of the moderate New Democrats, recently told the press "We'll get on board with either, and both, provided that the discussion is one that is consistent with our values as Democrats, and that it's constructive."

Takeaway: With the failure of the initial effort at repeal of the ACA, tax reform – a perennial republican priority – is now at the top of the congressional agenda. What exact form it will take remains fluid as neither Senate Republicans nor President Trump have agreed upon a direction forward. Expect some action on tax reform (or at least tax cuts) to move forward before the August recess.