This week (January 30 - February 3)

Congress in: The Senate and House are in session. A Senate procedural vote on the nomination of Rex Tillerson to be Secretary of State will occur on Monday, January 30 at 5:30 p.m. A vote on the nomination of Elaine Chao to be Secretary of Transportation will occur on Tuesday, January 31 at 12:20 p.m.

The Rules Committee has posted resolutions for possible House consideration addressing congressional disapproval of five regulations:

— Interior Dept. stream protection rule
— SEC resource extraction rule
— Social Security rule implementing the 2007 The National Instant Criminal Background Check System (NICS) Act
— Defense/GSA/NASA rule on federal acquisitions
— Bureau of Land Management rule on waste prevention/resource conservation

In a January 25 Wall Street Journal op-ed, House Majority Leader Kevin McCarthy (R-CA) said, "In the weeks to come, the House and Senate will use the Congressional Review Act to repeal as many job-killing and ill-conceived regulations as possible."

Peterson Institute border tax conference: On Wednesday February 1 (at 8:30 a.m.), the Peterson Institute for International Economics will hold a conference to discuss border tax adjustment and corporate tax reforms including a keynote address from Jason Furman, former chair of the Council of Economic Advisers under the Obama administration and now a senior fellow at the Institute.

Last week (January 23-27)

Border adjustability could fund Mexico wall: The profile of the House Republican border adjustability proposal was raised as President Trump's press secretary said the idea could be used to pay for the wall along the Mexican border called for under a January 25 executive order, then clarified it is just one option under consideration. Sean Spicer said aboard Air Force One January 26: "I think when you look at the plan that's taking shape now, using comprehensive tax reform as a means to tax imports from countries that we have a trade deficit from, like Mexico … If you tax that $50 billion at 20 percent of imports — which is, by the way, a practice that 160 other countries do — right now our country's policy is to tax exports and let imports flow freely in, which is ridiculous. But by doing it that way we can do $10 billion a year and easily pay for the wall just through that mechanism alone. If you think about what a tax — a border tax on imports from countries like Mexico that we have a huge trade deficit does, that's really going to provide the funding." Subsequently, NBC reported Spicer as suggesting that border adjustability is not an Administration policy proposal and is only one example of the options to pay for the wall. "The idea is to show that generating revenue for the wall is not as difficult as some might have suggested. One measure alone could do this," Spicer said, as reported by RealClearPolitics. "Here's one way. Boom. Done. We could go in another direction. We could talk about tariffs. We could talk about other custom user fees. There are a hundred other things." The New York Times quoted him as saying it is not the job of the White House to "roll something out" on tax policy. White House Chief of Staff Reince Priebus was widely reported as saying border adjustability is among a "buffet of options" to pay for the wall.

In remarks to the congressional Republican retreat in Philadelphia, President Trump said, "We're working on a tax reform bill that will reduce our trade deficits, increase American exports and will generate revenue from Mexico that will pay for the wall if we decide to go that route." In a January 27 CBS interview, Counselor to the President Kellyanne Conway cited the comments from other aides that "one possibility is to tax the imports from Mexico, anywhere from 5 to 20 percent — that's one option on the table."

House leaders react: Asked about the developments on Fox News January 26, Ways and Means Committee Chairman Kevin Brady (R-TX) said, "What I heard President Trump tell House and Senate Republicans here in Philadelphia was that he's going to fight for American citizens just as hard as others fight for their citizens, and so in tax reform leveling the playing field between imports and exports, just like our competitors do, and ending the 'Made in America' tax on our exports, just like our competitors do." Prior to the President's remarks, House Speaker Paul Ryan (R-WI) was asked about Trump's views on border adjustability. "We are in a very good place on tax reform. It can get complicated when you get into the details of tax reform, but once we go through how tax reform works and what it's going to take to get the kind of competitive tax system — the kind of competitive tax rates, I think most people agree that this is the right approach," the Speaker said during a joint news conference with Senate Majority Leader Mitch McConnell (R-KY). Chairman Brady continued advocating the border adjustability proposal in a number of public appearances, including a January 24 speech at the U.S. Chamber of Commerce. "This border-adjusted tax is stunningly simple and based on a pro-growth principle: if your product or service is consumed in the United States it is taxed equally. It will bear the same rate of U.S. tax regardless of where it is produced, regardless of whether you're a foreign company or a domestic one," Brady said. "In tandem, if your product, service, or intellectual property is developed here and sold abroad, then your 'Made in America' export will no longer be subject to U.S. tax. This change immediately levels the playing field with our global competitors." Meanwhile, campaign advisers Larry Kudlow and Stephen Moore recommended in a January 27 Wall Street Journal op-ed that the President call on Congress to pass a business-focused tax bill in his first 100 days in office — including a reduction in the business tax rate to 15-20%, a 10% rate on repatriation, and dedication of repatriation revenue to infrastructure — rather than the comprehensive reform over the first 200 days that House Republicans are pursuing.

Senate views: During their joint news conference, Senator McConnell was asked about Speaker Ryan's 200-day agenda — which is said to envision having tax reform completed by the August recess — given the time-consuming nature of Senate procedures. "The two biggest issues we're moving forward with in the first half of the year obviously are repeal and replacing Obamacare and tax reform. Both of those we anticipate having little or no Democratic cooperation, so we're working with the House to make sure these measures are reconcilable and the Speaker understands the challenges of getting things through the Senate," McConnell said. In the midst of the developments regarding the House proposal, Senate Republican Whip John Cornyn (R-TX) tweeted, "Many unanswered questions about proposed 'border adjustment' tax." Senator Lindsey Graham (R-SC), who has jostled with Trump going back to the Republican primary, tweeted, "Border security yes, tariffs no. Mexico is 3rd largest trading partner. Any tariff we can levy they can levy. Huge barrier to econ growth." He followed up with a second message saying, "any policy proposal which drives up costs of Corona, tequila, or margaritas is a big-time bad idea." Inside U.S. Trade January 24 reported Finance Committee member Rob Portman (R-OH) as saying about tax reform, "The House has a plan but in the Senate we haven't even taken that step … We have a lot of educating to do. We need to look at the pros and cons of a cash-flow tax. A lot of thinking needs to go into this, in the Senate but in the House also." Bloomberg January 26 reported that the Republican retreat included a 90-minute session on tax reform led by Brady and Senate Finance Committee Chairman Orrin Hatch (R-UT), who, according to a spokeswoman, will need to see legislative language on border adjustability "before being able to weigh in on whether it's something he can get behind." A meeting among Trump, Brady, and Hatch scheduled for January 26 was postponed.

Trump meeting with manufacturers: On January 23, President Trump met with CEOs of large manufacturers and asked that they present to him within 30 days recommendations for stimulating the manufacturing economy. In a press availability during the meeting, Trump said: "The regulations are going to be cut massively and the taxes are going to be cut way down. So you're going to have now incentive, incentive to build." The President continued to promise a border tax, saying, "A company that wants to fire all of its people in the United States and build some factory someplace else and then thinks that that product is going just flow across the border into the United States, that's not going to happen. They're going to have a tax to pay, a border tax — substantial border tax." In further comments, President Trump said, "if as an example, we sell a car into Japan and they do things to us that make it impossible to sell cars in Japan, and yet, they sell cars into us and they come in like by the hundreds of thousands on the biggest ships I've ever seen, we have to all talk about that. It's not fair, it's not fair."

Brady at FSR: During a January 25 Financial Services Roundtable event titled "Breaking Down the Barriers to Financial Security: A Tax Reform Discussion," Chairman Brady discussed border adjustability, as well as his commitment to lowering rates as the best means to support savings and investment and building a pro-growth economy. Brady observed that "we are not a nation of savers, and we need to be." In response to questions about how retirement savings tax incentives would be treated under tax reform, Brady said lower rates encourage savings. He said people are more likely to save through plans offered at work, and he wants to make it easier to use those plans, to make the plans more flexible, and to increase the limits. Brady said he wants to make it easier for small businesses to set up retirement plans, and to simplify savings provisions.

Senate Democratic infrastructure plan: On January 24, Senate Democrats released a $1 trillion infrastructure plan calling for closing unspecified "tax loopholes used by corporations and super-wealthy individuals." During a press conference, Democratic leader Charles Schumer (D-NY) acknowledged a split between Democrats who don't think infrastructure investment needs to be paid for and those who want to derive the revenue from closing "loopholes." President Trump has also made infrastructure a top priority. "If the president is serious, we challenged him today to negotiate with us and we'll come up with some way of dealing with the funding issue that we can all agree on," Schumer said. In his speech January 26, Trump affirmed his commitment to the issue, saying "The thing I do best in life is build."

CBO Outlook: In the "Budget and Economic Outlook: 2017 to 2027" released January 24, the Congressional Budget Office projected that the deficit in 2017 will total $559 billion (or 2.9 percent of GDP) — less than the $587 billion deficit posted in 2016 — "but over the next decade, budget deficits would eventually follow an upward trajectory, as growth in revenues would be outpaced by rising spending for retirement and health care programs that target older people and for interest on the federal debt." In 2027, the deficit is projected to reach $1.4 trillion and debt held by the public nearly $25 trillion, or 89% of GDP.

Quote of the Week

"This Congress is going to be the busiest Congress we've had in decades, maybe ever, maybe ever. Think of that. And think of everything we can achieve. And remember who we must achieve it for. We're here now because tens of millions of Americans have placed their hopes in us to transfer power from Washington, D.C. and give it back to the people." — President Trump, January 26

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