This week (January 16-20)

Congress in inauguration mode: Business in the House and Senate is expected to be light due to preparations for the presidential inauguration January 20, and the focus will be on cabinet nomination hearings. The Senate is out until Tuesday, January 17, at 3 p.m.

On January 19 (at 10 a.m.), the Senate Finance Committee will hold a hearing on the nomination of Steven Mnuchin to head the Treasury Department. Other Senate nomination hearings include the following:

— January 17 (at 10 a.m.) Energy and Natural Resources Committee hearing on the nomination of Rep. Ryan Zinke (R-MT) to be Secretary of the Interior

— January 17 (at 5 p.m.) Health, Education, Labor and Pensions (HELP) Committee hearing on the nomination of Betsy DeVos to be Secretary of Education

— January 18 (at 10 a.m.) HELP Committee hearing on the nomination of Rep. Tom Price (R-GA) to be Secretary of Health and Human Services

— January 18 (at 10 a.m.) Commerce, Science, and Transportation hearing on the nomination of Wilbur L. Ross, Jr., to be Secretary of Commerce

— January 18 (at 10 a.m.) Environment and Public Works hearing on the nomination of Scott Pruitt to be Administrator of the Environmental Protection Agency

— January 19 (at 10 a.m.) Senate Energy and Natural Resources Committee hearing on the nomination of former Texas Gov. Rick Perry to be Secretary of Energy

Last week (January 9-13)

Trump news conference: During a January 11 news conference, President-elect Donald Trump responded to a question regarding timing of a repatriation and corporate tax cut package by referring to his interactions with individual companies planning to move certain manufacturing outside of the United States and to import goods back into the country. "What really is happening, is the word is now out, that when you want to move your plant to Mexico or some other place, and you want to fire all of your workers from Michigan and Ohio and all these places that I won, for good reason, it's not going to happen that way anymore," the President-elect said. Trump said he would strengthen the border for companies selling goods back into the United States through a significant border tax. "There will be a major border tax on these companies that are leaving and getting away with murder," he said. "And if our politicians had what it takes, they would have done this years ago." It is unclear how Trump's comments relate to the House Republican Blueprint's border adjustability proposal that is expected to be included in the tax reform bill under development in the Ways and Means Committee, though top aides to Trump have expressed some interest.

Ryan meeting with Trump team: Border adjustability was said to be part of the discussion during a January 9 meeting between House Speaker Paul Ryan (R-WI) and members of the Trump team, including incoming White House Chief of Staff Reince Priebus, economic adviser Gary Cohn, and chief strategist Steve Bannon. "It's a concept that we're working through," Bannon said after the meeting, as reported by the Wall Street Journal, adding that participants were also working through how the Blueprint would tax US companies' foreign earnings and "making sure everybody understands it and is on the same page." Asked during a January 10 Trump transition team teleconference about the ordering of Affordable Care Act (ACA) repeal efforts and tax reform, Sean Spicer, press secretary for President-Elect Trump, said, "With respect to the discussions last night, as far as the tax reform, again I think that one of the things you're going to see is the president-elect isn't going to just focus on one thing. He's got a lot of priorities, a lot of change that he wants to bring to Washington." He continued, "We're going to make sure that we dual-track some of these things in terms of the repeal and replace of Obamacare, as well as fundamental tax reforms. Last night was another example of a meeting to coordinate that effort, to make sure that we have a plan going forward."

CNN Town Hall: Asked during a January 12 CNN Town Hall meeting about improving trade deals, Speaker Ryan cited the need to get other nations to "play by our rules" and said tax reform is "really critical" in leveling the playing field between US and foreign businesses. In addition to calling for lower rates, Ryan noted that most US competitors have systems to border adjust their taxes so that "when they make something to sell overseas into America, they take the tax off of it and then it comes into America, and it's tax-free." He called for doing "the same thing they do to us that we do to them and by doing that, by saying we take our tax off our exports and place it on our imports, we are levelling the playing field and at the end of the day we're making China pay for our tax reform." Later, Ryan affirmed that the tax reform is intended to be revenue neutral, and cited border adjustability as "raising a trillion dollars in revenue to help us lower our tax rates."

Ways and Means members on border adjustability: Rep. Peter Roskam (R-IL), the new House Ways and Means Tax Policy Subcommittee Chairman, has been championing the border adjustability proposal, saying it will prevent the need for complicated international tax rules. "It completely eclipses all of the consternation that we have about inversions and the 385 regs — you don't have to do any of that stuff," Roskam said, according to a January 10 Politico report. Regarding the potential for the idea to raise $1 trillion or more over 10 years, Roskam said, "If it's not border adjustments, then what? You're back to pay-for after pay-for after pay-for" to make the bill revenue neutral. Rep. Roskam cited the potential for transition rules for retailers and others, but appeared determined to include the proposal, which he said is among newer ideas that take time to become acquainted with. "There's no way to do tax reform in a format that doesn't run into some objections," he said. More generally, Roskam said in a January 9 news release, "We have a once-in-a-generation opportunity to fix our broken tax code and enhance American competitiveness for generations to come."

During a January 12 CNBC interview, Ways and Means member Devin Nunes (R-CA) said border adjustability is not controversial and, given how many other nations have such a system, it is "a bit offensive" that some major US companies who do business worldwide are raising concerns. Asked about support for the concept from the Trump team, Nunes said the President-elect has made clear that tax systems in other nations are unfair to US companies and he wants to fix it, and making the US tax structure the same as other nations is the only way to do that aside from tariffs. While he refuted the notion that border adjustability would harm retailers at a time when some department stores are already facing difficulties, Rep. Nunes acknowledged that the proposal is unfamiliar and complicated.

Not everyone is supportive. Trump adviser Larry Kudlow appeared on the same CNBC program to oppose border adjustability. "This is the kind of thing that could doom business tax reform … I think we are going to get hung up on it," he said, adding that the country is not ready to change the entire tax system. During a January 12 speech at the National Press Club, Ways and Means Ranking Member Richard Neal (D-MA) said he understands the "optics" of the border adjustability proposal, but is concerned about compliance with World Trade Organization guidelines, Tax Notes reported.

Some alums of the current Administration came out against the idea. In a January 9 Washington Post op-ed, Larry Summers, former Treasury Secretary under President Clinton and economic adviser to President Obama, raised potential flaws in the plan, including disparate treatment of business sectors. Former OMB Director Peter Orszag wrote in Bloomberg January 12 that a border-adjustment system has potentially desirable attributes, including eliminating the incentive for companies to shift profits abroad, but has little chance of being enacted into law. That is also true of eliminating interest deductibility, he said, given the amount of debt taken on under the assumption that interest would be tax-deductible and the multiple business models that are based in part on that.

Brady on tax reform: During a January 11 appearance on the Hugh Hewitt radio show, Ways and Means Committee Chairman Kevin Brady (R-TX) confirmed plans to consider tax reform legislation through budget reconciliation later in the year — under another budget resolution, not the FY 2017 resolution to allow for consideration of ACA repeal under reconciliation — and that the tax proposal as it currently stands would preserve the home mortgage interest deduction. Asked about the Blueprint proposing to eliminate deductibility of State and local taxes, Brady said, "Well, there's a key principle here, which is today, Washington raises your federal taxes so that some can deduct their state and local income taxes, and as a result, every state subsidizes every other state." He continued, "Rural communities subsidize urban communities, low tax states subsidize high tax states. So our proposal is why don't we lower the taxes for everyone, and they pay, everyone pays their own taxes?"

Ways & Means working groups: Recently assembled informal Ways and Means Republican working groups continued to consider unresolved tax issues under the Blueprint and developing tax reform proposal. Bloomberg BNA reported on a January 10 meeting of a group studying pass-through issues, including what Rep. James Renacci (R-OH) described as how to eliminate "loopholes" in the taxation of those businesses. "Anytime you change the tax code you have to look at opportunities surrounding the changes, making corporations and pass-throughs competitive," he said. Rep. Kenny Marchant (R-TX) was reported as saying the current favorable treatment of carried interest is supported for the time being, but that could change. It is possible that "when they put this whole thing together, they'll look at it and say, 'we need to treat carried interest different and make it subject to ordinary,' which would raise it up to the 25% rate," Marchant said.

Democratic subcommittee assignments: Democratic subcommittee assignments for the House Ways and Means Committee were announced January 11, with Rep. Lloyd Doggett (D-TX) becoming ranking member on the Tax Policy Subcommittee. Other members of the Subcommittee are: Reps. John Larson (D-CT), Linda Sánchez (D-CA), Mike Thompson (D-CA), Suzan DelBene (D-WA), and Earl Blumenauer (D-OR).

Spicer on assistant secretary: Asked during aJanuary 9 Trump transition team news briefing via teleconference, Trump Spokesman Spicer was asked about whether the President-elect has given any thought to the position of assistant secretary for tax policy, in light of the fact that tax reform is a top priority. Spicer said there are a couple open slots at the Cabinet level, but "we continue to have conversations and meetings at the both deputy undersecretary and assistant secretary level through the departments and the ambassador ranks. So that work is being done … " he said. "But I think especially at the assistant secretary level, we're going to have — we'll see the deputies go first and then obviously the 'unders.' But that, by no means, doesn't mean that those conversations aren't taking place through the various departments."

Obama farewell address: During his January 10 farewell address in Chicago, President Obama alluded to some of the tax principles he championed during his presidency. "And so we're going to have to forge a new social compact to guarantee all our kids the education they need; to give workers the power to unionize for better wages; to update the social safety net to reflect the way we live now; and make more reforms to the tax code so corporations and individuals who reap the most from this new economy don't avoid their obligations to the country that's made their very success possible," President Obama said. He went on to question how lawmakers can "rage about deficits when we propose to spend money on preschool for kids, but not when we're cutting taxes for corporations" — a juxtaposition frequently cited by the Administration and congressional Democrats in recent years.

Quote of the Week

"We propose the lowest rates in local businesses in modern history so they can compete and win anywhere, especially here at home. For the first time, full and unlimited write off immediately of all that new business investment … Then we redesign the international tax code to meet what our competitors are already doing because our goal is this, we want to not only become a magnet for — in the 21st century for those new jobs, those new manufacturing plants, we're going to eliminate every tax reason to move U.S. jobs or technology or headquarters overseas. It all fits together." — House Ways and Means Committee Chairman Kevin Brady (R-TX), January 11 on Bloomberg TV

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