Here's the next hill Trump, Ryan and House Republicans could die on

The AHCA is dead, long live the AHCA.

The healthcare bill's swift death occured, in part, because House Speaker Paul Ryan and the Trump administration are anxious to get to some legislative policy where they can rack up a win - specifically, tax reform.

But it's not going to be that easy, especially not without the spending cuts the passage of the AHCA would've provided.

Republicans needed those cuts because they are trying to pass tax reform through a mechanism called budget reconciliation. That allows a measure to be passed by a simple majority - so no Democracts can filibuster - as long as its revenue neutral (doesn't add to the deficit).

Now, without the AHCA cuts, it's going to be harder to go with the substantial tax cuts Trump and Ryan's plan have proposed without adding to the deficit, so that's one hurdle.

Another is in the details of Ryan's "Better Way" bill itself, and they aren't small details. Ryan's plan fundamentally changes America's tax system by significantly lowering the corporate tax rate from 35% to 20%, cutting out breaks for corporate America - like net interest deductions - and implementing a border adjustment tax (BAT).

The border adjustment tax would be a huge change for us. Most simply, it's a tax on imported goods and a tax break for exported goods. The way supporters of the measure reason it, the tax domestic importers have to pay will be offset by a strengthening dollar. Plus, it will go a long way in raising revenue to make this tax bill passable through reconciliation, so fiscal hawks (like the intractable Freedom Caucus) like it.

But the measure is controversial, and here's why.

• Domestic importers hate it. Wal-Mart and the Koch network have already mounted an offense against the legislation. The CEO of Kohl's said the impact on the consumer "would be massive" in an interview with CNBC because prices will go up dramatically. It could also result in job losses for those companies.
• We should note that smaller importers are even more terrified than the big guys. Republicans have said they will try to find a way to make this policy work for them, but have also said they have no plans to create an exemption for small businesses.
• A bunch of economists don't think the dollar will get strong enough to offset taxes on imports, turning the whole policy into a drag on the economy.
• It doesn't sound like the White House is totally sold on it. Trump said he didn't like it in an interview with the Wall Street Journal last month (though he's also said positive things about the proposal). And former Goldman Sachs COO and Trump's National Economic Council head Gary Cohn has sounded pretty non-commital about the whole idea.
• Then there's the idea that BAT could be a violation of World Trade Organization rules. Specifically, "like" goods made domestically should be treated the same (tax-wise) as goods made abroad and imported. "Publicly available descriptions of the Republican proposal raise concerns that it would permit certain deductions (and thus establish lower tax rates) for domestically-produced goods, while denying the same deductions for the same imported products," write tax experts at law firm White and Case.

So, to review, the White House and Speaker Ryan are now in a position where, more than ever, they need to get the entire party on board with a very controversial policy in order to pass tax reform. Besides being untested, the policy has powerful enemies across the country, and it could also really upset our trading partners.

Or as analysts at Morgan Stanley put it last month:

A 'border tax' in its various potential forms is the critical uncertainty in tax reform, often the differentiator between more and less positive risk outcomes. Building on the unintended consequences we've previously identified (see Reality Bites), our economists argue there isn't a clear case for the near-term benefits of a border tax,even when paired with regulatory reform,given the path for USD seen by our FX strategists. Furthermore, our corporate credit team sees meaningful risks from this provision,given elevated business model uncertainty and a weak starting point on corporate fundamentals.