This week (March 28-April 1)

Congress: The House and Senate are in recess. The next Senate vote is scheduled for April 4, and the House is due to return the following week.

This Week in Tax Reform will not be published next week while both chambers are out of session.

Last week (March 21-25)

Boustany on international tax reform: Rep. Charles Boustany (R-LA), chairman of the House Ways and Means Tax Policy Subcommittee, said March 23 that anti-base erosion measures are among the unfinished elements of the international tax reform proposal that is under development, Tax Notes reported. "We have a few base erosion issues we have to work through," said Rep. Boustany, who also mentioned the need to meet with Republican members regarding outstanding issues under the developing draft. Committee member Jim Renacci (R-OH) echoed previous comments by Rep. Boustany in stating that weekly meetings of the Task Force on Tax Reform — which is working to develop a comprehensive tax reform plan among all House Republicans, not just those on Ways and Means — are "slowing things down" with regard to development of an international tax reform proposal. Ways and Means Committee Chairman Kevin Brady (R-TX) told reporters the Task Force met March 23 to discuss cash flow tax reform proposals that were the subject of the March 22 Ways and Means hearing, and that "Reagan-style" income tax reforms will be a focus in April. Bloomberg BNA reported that Boustany has dropped his earlier intention to include a corporate tax rate reduction in the international tax reform proposal; that issue can be dealt with at a later date, he said. Brady suggested that while a rate reduction is a key to the international reform effort, it may be an issue for 2017.

Ways & Means cash-flow, consumption tax hearing: The Ways and Means Tax Policy Subcommittee Members' day hearing March 22 focused on alternative tax system proposals including cash flow and consumption-based approaches to taxation. Rep. Devin Nunes (R-CA) discussed his bill, the American Business Competitiveness (ABC) Act (H.R. 4377), which would tax business income on a cash flow basis at a top rate of 25%. The tax would be imposed on the net business income of both corporations and owners of unincorporated businesses, 100% expensing would apply to all capital expenditures, and interest would not be deductible. The bill would also move to a territorial tax system with no minimum tax or other anti-base erosion measures. Rep. Nunes said his bill reflects a focus on what is actually achievable. Rep. Renacci expressed concern that the Nunes bill would amount to picking winners and losers in that those who can afford to capitalize a business without debt would be able to immediately expense the purchase of property; while a small business owner who relies on debt financing would not be able to deduct interest expense. Nunes said the ABC Act should not be looked at through the lens of an income tax, and that those who raise the point about interest expense do not realize the bill would do away with the income tax for all business activity and convert the system to a consumption tax. Rep. Michael Burgess (R-TX) discussed the Flat Tax Act (H.R. 1040), which would allow businesses and individuals to opt-in to a 17% flat tax and to be taxed on a cash-flow basis for business activities; and Rep. Robert Woodall (R-GA) discussed the FairTax Act of 2015 (H.R. 25) to replace federal income, payroll and withholding, and estate and gift taxes with a national retail sales tax.

Ways and Means plans additional hearings: During the March 22 hearing, Rep. Boustany announced that the next Members' day tax reform hearing, on April 13, will focus on income-based approaches to taxation. The same day, Committee Chairman Brady said he is planning to hold a hearing in May on proposals that are more specific than broad tax reform, Tax Notes reported.

Brady says no to extenders bill: Chairman Brady has continued to express the view that tax extenders were dealt with in the December 2015 tax bill and that the remaining temporary provisions will be part of the tax reform debate, not another year-end package. "Any further action will occur either within overall tax reform or as stand-alone bills," Brady said March 22, according to Tax Notes. "So no, we are not bringing an extenders package to the floor out of the House this year." Politico reported Rep. Boustany as expressing the same view, saying the preference would be to not address temporary tax measures this year. "We're trying to move away from that," he said. The debate was reignited when Senate Finance Committee ranking member Ron Wyden (D-OR) March 17 signaled he was eyeing a longer-term Federal Aviation Administration (FAA) bill to carry tax provisions slated to expire at the end of the year. "I'm working with my colleagues on the Finance Committee, in leadership and in the House to make sure the renewable energy extenders set to expire this year don't get left behind," he told an energy conference.

FAA extension: The House March 21 cleared by voice vote a Senate-passed bill (H.R. 4721) to extend FAA programs and revenue provisions through July 15, 2016. A previous House-passed version with an extension of revenue provisions through March 31, 2017, was seen as an effort to head off the extenders debate by removing the potential for a must-pass revenue bill for 2016. That approach was opposed in the Senate, which aligned the dates and sent the bill back to the House.

Budget report: The House Budget Committee March 23 filed its FY 2017 budget resolution (H. Con. Res. 125) and released an accompanying Committee report. The Committee approved the resolution March 16, though a vote in the full House has not been scheduled amid opposition by some Republicans to adherence to the Bipartisan Budget Act of 2015's $30 billion increase in discretionary spending caps for FY 2017 (to $1.07 trillion).

Pelosi on PAYGO: House Democratic leader Nancy Pelosi (D-CA) said March 21 it is "simply unconscionable" that House Republicans would leave for a two-week recess without bringing a budget resolution to the floor. In a subsequent March 22 New York Times editorial, Leader Pelosi repeated the criticism and said Republicans' refusal to pay for the $622 billion in tax extenders in the year-end 2015 tax bill casts "a long shadow over America's future" and demonstrates the need to adhere to pay as you go rules requiring offsetting budget cuts or revenue increases for new expenditures. "The historic Tax Reform Act of 1986 — sponsored by Democrats and signed into law by President Ronald Reagan — was grounded in this rule," she said. Pelosi also said Republican refusal to adhere to PAYGO "undermines the long-overdue passage of broad, bipartisan tax reform that would lower the corporate rate, close special interest loopholes, end costly tax expenditures, and ensure that all Americans are paying their fair share."

JCT estimate of President's budget: On March 24, the Joint Committee on Taxation released "Estimated Budget Effects of The Revenue Provisions Contained in the President's Fiscal Year 2017 Budget Proposal" (JCX-15-16).

Lew on infrastructure: Treasury Secretary Jack Lew testified before the House Financial Services Committee March 22 on "The State of the International Financial System," saying he remained hopeful about using repatriation revenue from business tax reform for infrastructure investment. Rep. Emanuel Cleaver (D-MO) lamented that Congress has not done more for the nation's strained infrastructure as gas tax revenue has dwindled. Democrats view the funding level under the five-year highway bill enacted in 2015 as insufficient. Secretary Lew acknowledged the drop in revenues into the Highway Trust Fund and said other means of infrastructure investment should be pursued. "We proposed using tax reform — business tax reform as a way to bring one time money in for the next several years to get the kind of increase in infrastructure investment that we need for our economy," Lew said. "I wish that was something we could make progress on, even this year."

Speaker Ryan on state of politics: On March 23, House Speaker Paul Ryan (R-WI) delivered an address on the state of American politics that focused on the potential to move beyond the harsh political discourse and distrust in government in the current environment. Ryan said politics can appeal to peoples' aspirations rather than their anxieties, and can be conducted such that "we aren't afraid to disagree with each other" in a respectful manner. He also spoke about aspirations of moving beyond pure opposition toward proposing clear and compelling alternatives and thereby winning the enthusiasm of voters. That point is consistent with Speaker Ryan's effort to involve all House Republicans in developing a pro-growth agenda, through the task forces on tax reform and other issues, which can be presented to voters this year. The Speaker delivered the address in the Ways and Means Committee hearing room, which he said was appropriate because his time on the Committee exemplified decorum and respect among lawmakers. "[I]t is here, in this committee, that we debate some of the biggest, most consequential issues. Our tax code, health care, trade, entitlement programs, welfare reform," Ryan said. "It's a big deal to be on this committee. And understanding the privilege and the responsibility that came along with it, we took our job seriously."

Quote of the Week

"To contain and reduce the national debt, we must return to a simple rule called pay as you go. We can restore fairness to the tax code, delivering reforms that support bigger paychecks and better infrastructure for the American people, even as we honor basic fiscal realities." — House Democratic leader Nancy Pelosi (D-CA), New York Times op-ed, "You Budget. Why Shouldn't Congress?," March 22