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Republican unity on U.S. tax overhaul shows sign of fraying

By David Morgan

WASHINGTON (Reuters) - Republican efforts to unite the White House, Senate and House of Representatives behind a single tax reform plan appeared to be unraveling on Thursday, when one of the "Big Six" negotiators said the group would not dictate tax policy in the Senate.

At the outset of a congressional hearing on tax reform, Senator Orrin Hatch said the Senate Finance Committee he chairs would not be a rubber stamp for the other congressional Republican leaders and senior aides to President Donald Trump who make up the select group that has been working on a tax reform framework for months. The Big Six is preparing to release its framework on Sept. 25, a release that will sound the starting gun for Hatch's panel and the House Ways and Means Committee to produce tax reform legislation that is now expected in October.

Overhauling the U.S. tax code is a top priority of Trump and congressional Republicans, who campaigned on it last year. They have made little progress since taking power in Washington in January via a closed-door process that has excluded Democrats.

"The group – some have deemed us the Big Six – will not dictate the direction we take in this committee," Hatch said. "The Finance Committee will not be bound by any previous tax reform proposal or framework when we start putting our bill together."

Some analysts viewed the Utah Republican's comments as the beginning of what could be a widening rift among Republicans in the Senate, House and White House that could jeopardize hopes of completing the first overhaul of the tax code in 31 years before January.

"Disagreements over both substance and process are driving a wedge between senior House Republicans involved in the tax-writing process and their Senate counterparts," Henrietta Treyz of investment advisory firm Veda Partners said in a report.

But House Ways and Means Committee Chairman Kevin Brady, Hatch's congressional counterpart, described potential divergence as a natural and even healthy development that would be kept in check by common ground on major tax issues.

"We'll work this out by the end of the year," Brady told reporters. "At the end of the day, we just have to sit down and find common ground."

Hatch and Brady are among the Big Six, which also includes Treasury Secretary Steven Mnuchin, House Speaker Paul Ryan, Senate Republican leader Mitch McConnell and White House economic adviser Gary Cohn.

'SIGNS NOT PARTICULARLY POSITIVE'

There have already been two statements of general tax principles from Republicans: a one-page document from the Trump administration in April and a joint statement from the Big Six negotiators in July. Democrats have criticized Republican plans as too favorable to the wealthiest Americans and corporations.

With the latest blueprint due in less than two weeks, Brady and Mnuchin appeared to differ on Thursday over how much detail the document would contain.

Brady told a policy forum that he did not expect the document to offer specifics on tax rates, while Mnuchin said the plan would contain extensive details including a specific corporate rate. Brady later told reporters that talks continued over what the document would contain.

"It is still clearly possible that tax reform could be enacted over the next near. However, the signs are not particularly positive at the moment," analyst Jan Hatzius of investment bank Goldman Sachs said in a research note on Thursday.

After months of talks, basic questions on the Republican tax plan remain unanswered, such as whether or not the tax cuts they want will expand the U.S. budget deficit.

Trump told reporters aboard Air Force One on Thursday that the tax reform plan would be revenue neutral, if economic growth spurred by the legislation is taken into account.

Revenue neutrality is fast emerging as a divisive issue in Congress, where deficit hawks have expressed misgivings about adding to the deficit.

In White House meetings with top Democrats in recent days, Trump has shown a new willingness to deal with the opposition.

Senate Democratic leader Chuck Schumer and House Democratic leader Nancy Pelosi talked about tax reform with Trump after their Wednesday discussion on immigration, according to Representative Richard Neal, the top Ways and Means Democrat.

Neal said the White House appeared to be "in synch" with Democrats for now on tax relief for the middle class.

"I think that there could be some room there for conversation," he told the same policy forum where Brady spoke.

(Reporting by David Morgan; Additional reporting by Lindsay Dunsmuir and James Oliphant; Editing by Kevin Drawbaugh and Peter Cooney)