House Republicans' failure to repeal Barack Obama's health care law deals a serious blow to another big part of President Donald Trump's agenda: tax reform.
Trump and House Speaker Paul Ryan, R-Wis., say they will soon turn their attention to the first major re-write of the tax code in more than 30 years. But they will have to do it without the momentum of victory on health care.
Just as important, the loss on health care will deprive Republicans of $1 trillion in tax cuts.
The GOP health plan would have repealed nearly $1 trillion in taxes enacted under Obama's Affordable Care Act. The bill coupled the tax cuts with spending cuts for Medicaid, so it wouldn't add to the budget deficit.
Without the spending cuts, it will be much harder for Republicans to cut taxes without adding to the federal government's red ink.
"Yes this does make tax reform more difficult," said Ryan. "But it does not in any way make it impossible."
"That just means the Obamacare taxes stay with Obamacare. We're going to go fix the rest of the tax code," he added.
House Republicans couldn't round up enough votes Friday to repeal and replace a law they despise, raising questions about their ability to tackle other tough issues.
"Doing big things is hard," Ryan conceded as he vowed to press on.
Rep. Jodey Arrington, R-Texas, acknowledged that Friday's turn of events made him doubtful about the Republicans' ability to tackle major legislation.
"This was my first big vote and our first big initiative in the line of things to come like tax reform," said the freshman. "I think this would have given us tremendous momentum and I think this hurts that momentum."
Rep. Mike Kelly, R-Pa., said, "You always build on your last accomplishment."
Nevertheless, Treasury Secretary Steven Mnuchin said Friday the administration plans to turn quickly to tax reform with the goal of getting an overhaul approved by Congress by August.
"Health care is a very complicated issue," Mnuchin said. "In a way, tax reform is a lot simpler."
Don't tell that to House Republicans who have been struggling with the issue for years.
The general goal for Republicans is to lower income tax rates for individuals and corporations, and make up the lost revenue by reducing exemptions, deductions and credits.
Overhauling the tax code is hard because every tax break has a constituency. And the biggest tax breaks are among the most popular.
For example, nearly 34 million families claimed the mortgage interest deduction in 2016, reducing their tax bills by $65 billion.
Also, more than 43 million families deducted their state and local income, sales and personal property taxes from their federal taxable income last year. The deduction reduced their federal tax bills by nearly $70 billion.
Mnuchin said he had been overseeing work on the administration's tax bill for the past two months. He said it would be introduced soon.
Mnuchin said the White House plan would cut individual and corporate tax rates, though he didn't offer specifics.
House Republicans have released a blueprint that outlines their goals for a tax overhaul. It would lower the top individual income tax rate from 39.6 percent to 33 percent, and reduce the number of tax brackets from seven to three.
The House plan retains the mortgage interest deduction but repeals the deduction for state and local taxes.
On the corporate side, the plan would repeal the 35 percent corporate income tax and replace it with a 20 percent tax on imports and domestically produced goods and services that are consumed in the U.S.
Exports would be exempt from the new tax, called a border adjustment tax.
The new tax has drawn opposition from Republicans in the Senate. Mnuchin would not reveal whether the administration will include the border adjustment tax in the White House proposal. He was speaking at a public interview event with the news site Axios.
Republicans often complained that they couldn't do a tax overhaul when Obama was president. Now, Republicans control the House, the Senate and the White House, and they see a great opportunity.
They plan to use a complicated Senate rule that would prevent Democrats from blocking the bill. But there's a catch: Under the rule, the package cannot add to long-term budget deficits.
That means every tax cut has to be offset by a similar tax increase or a spending cut. That's why the loss on health care was so damaging to the effort to overhaul taxes.
Ryan made this case to fellow House Republicans in his failed effort to gain support for the health plan.
"That was part of the calculation of why we had to take care of health care first," said Rep. Tom Reed, R-N.Y.