“Full expensing is what you would need to do to create a meaningful amount of growth,” said Kyle Pomerleau, director of federal tax projects at the conservative-leaning Tax Foundation in Washington. Pomerleau's research shows that immediate expensing has a greater impact on GDP growth than just cutting the corporate rate. Trump's tax plan calls for slashing the corporate rate to 15%, while the House GOP plan would set it at 20%.

The current corporate tax rate is 35%, but many companies pay a far lower effective tax rate by using various exemptions and credits in the tax code. Determining which tax breaks to drop to help pay for rate cuts will occupy much of Congress's time over the rest this year.

The nascent split over interest deductibility isn't the first time the White House has taken issue with a key provision in the House GOP tax plan. The border-adjusted tax, which would replace the corporate income tax with a 20% levy on companies' domestic sales and imported goods, has also faced scrutiny from senior administration officials because of concern that it would raise consumer prices on imported goods.

The BAT is estimated to raise more than $1 trillion over a decade. Dropping it and retaining the corporate interest deduction would make it far harder for any tax legislation to avoid adding to the federal deficit. And that's a problem for Republicans: Under Senate rules, a tax bill that would add to the deficit after 10 years would either need Democratic support or its provisions would have to be temporary.

Still, if the stakes are high, congressional Republicans have sought to downplay any disagreements with the White House on tax specifics.

Ryan, who toured a small business in central Ohio Wednesday, said he and his fellow Republicans “completely agree” with the president's tax principles and are eager to get started on an ambitious tax-code revision.

“Once in every generation, you have an opportunity,'' he said at the start of a roundtable with business leaders at Accel Inc. “We have got a great opportunity in front of us to get this economy growing.”

Asked about the White House's support for keeping interest deductibility, a spokeswoman for Republicans on the House Ways and Means Committee touted the benefits of immediate expensing. The panel's GOP members “have proposed full and immediate expensing for all businesses because it will deliver robust economic growth and create jobs,” said spokeswoman Emily Schillinger, who added that it's just one component of the proposed tax overhaul.

The committee is scheduled to hold its first hearing on tax legislation next week. It will focus on economic growth.

Trump and his economic advisers have said their tax-cut plan will pay for itself by eliminating deductions and loopholes and by helping to create annual economic growth of 3%. In the Economist interview, Trump, who has shown little desire for a revenue-neutral tax overhaul, said “it is OK” if the plan increases the deficit in the short term in order to “prime the pump” for growth. He also said he has yet to reach a decision on interest deductibility.

Many economists say projected “supply side” growth of 3% is unrealistic, and Pomerleau of the Tax Foundation said the goal is even more remote without the immediate expensing provision from Ryan's plan. The White House press office didn't respond to a request for comment Thursday evening.

During the campaign, Trump said companies should have a choice of either continuing to deduct interest expenses or immediately deducting the cost of capital expenses. Proponents of keeping the interest deduction, which include real estate and private equity investors, say it would help to achieve policy makers' top priority of achieving pro-growth tax reform.

Regardless of Trump's ultimate decision, the interest deduction's proponents may have allies in the Senate.

'Strong Feeling'

“It's important to a lot of companies,” said Sen. John Thune, a South Dakota Republican. “And that issue is going to have to be dealt with. They've had different ideas on how to maintain some level of deductibility, because it's important.”

Sen. Orrin Hatch of Utah, the chairman of the tax-writing Finance Committee, also indicated that the interest deduction would survive.

“I have a strong feeling that they're not going to get rid of interest deduction,” Hatch said. “But you never know.”

Senate Majority Whip John Cornyn said Republicans will have to “come up with a unified plan” on taxes and the fate of the interest deduction is “just one piece of the larger puzzle.” For now, the Senate is focused on crafting health-care legislation, and it's too early to get into specific details on taxes, he said.

“I think everybody's sort of in the listening stage,” Cornyn said.

Bloomberg News

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