06 February 2017 EY Center for Tax Policy: This Week in Tax Reform for February 3 Congress in: The Senate and House are in session. The Senate will reconvene at noon on Monday, February 6, to resume consideration of Betsy DeVos to be Secretary of Education. A confirmation vote may not occur until Tuesday. Confirmation votes are possible during the week of February 6 for: Steven Mnuchin to become Treasury Secretary; Rep. Tom Price (R-GA) to be Secretary of Health and Human Services; and Senator Jeff Sessions (R-AL) to be Attorney General. It will be a short week in the House, with the last votes to occur during the evening hours of Tuesday, February 7, in light of a Democratic retreat. Tax Foundation on border adjustment: On Monday, February 6 (at noon), the Tax Foundation will present, "A Discussion of Border Adjustability, Cash Flow Taxes, and U.S. Companies." Tax Foundation President, Scott Hodge, will moderate the panel. Speakers will include: BPC on pass-through businesses: On Wednesday, February 8 (at 9:30 a.m.), the Bipartisan Policy Center will hold an event titled, "Are Pass-Through Businesses the Key to Tax Reform?" Ways and Means member Vern Buchanan (R-FL) will deliver the keynote address. ACCF on border tax adjustment: On Wednesday, February 8 (at 3 p.m.), the American Council for Capital Formation Center for Policy Research will host a forum on "Understanding the Potential Impacts of Border Tax Adjustments" to explore the theoretical aspects and potential economic impact of increased taxes on imports, as well as a look at how the potential real world implications could work for different industries. Participants include Michael Graetz of Columbia University, Alan Viard of AEI, and Gary Hufbauer of PIIE. Trump meeting with CEOs: During a Strategy and Policy Forum meeting with CEOs at the White House on February 3, President Trump said, "We're bringing back jobs, we're bringing down your taxes. We're getting rid of your regulations. And I think it's going to be some really very exciting times ahead … We're going to be coming up with a tax bill soon, a health care bill even sooner. And it's really working out." The President said the meeting would include discussion of what the CEOs think can be done to bring back jobs, cut taxes, and address regulation. In a CNBC interview, EY Global Chairman and CEO Mark A. Weinberger said there was an emphasis during the meeting on the importance of getting tax reform done this year: "The expectations are high; for the investment and jobs to come, it's got to be done; and the economic effect will be delayed if the process is delayed, so make it the number one priority." Mr. Weinberger said the most important thing is getting the rates down and making sure we have a competitive international system. He said the President himself is engaged and, along with Administration officials, asked questions about the details regarding border adjustability, tax rates, and the international system: "So I get a sense that this dialogue is going on, they are trying to move forward." Asked during a separate Fox Business News interview whether the President was receptive to a border tax, Mr. Weinberger said, "It was part of the discussion: What effect would a border tax have on the companies in the room? How would it affect the exchange rates and the prices? How would it be structured? Is that something that needs to be part of the package?" He said the right questions were asked by Administration members and they are focused on this issue: "What can we do to get a more competitive tax system?" Other members of the forum include: — Paul Atkins, CEO, Patomak Global Partners, LLC, Former Commissioner of the Securities and Exchange Commission; — Kevin Warsh, Shepard Family Distinguished Visiting Fellow in Economics, Hoover Institute, Former Member of the Board of Governors of the Federal Reserve System; In remarks in a meeting with Harley-Davidson executives and union representatives February 2, President Trump said, "We're going to be competitive with anybody in the world. We're going to be doing [tax] policies very soon, it's going to be coming out. And I know health care is a big problem … every company as you know has suffered from Obamacare because of the tremendous cost and that's one of the things that we're working on hardest — that and tax policy, and tariffs and trade." Cohn on border adjustability: Asked in a February 3 CNBC interview ahead of the Strategy and Policy Forum meeting whether the White House would support a border tax adjustment, Gary D. Cohn, director of the National Economic Council, said the White House is "open to every option" to reduce the corporate tax rate as much as possible. He said: "We have got a lot of expenditures here in this country, we want to preserve many of our expenditures, so we have to deal with the revenue side of the equation. We are open to everything … but I am not telling you we are including that. It is one of the options that's on the table. You should not take it from me that that's the option we're going with, but I'm not going to exclude that option." Asked about opposition to border adjustability by Senators from states where retailers have a lot of influence, and about the timetable for tax reform, Cohn said the White House is working aggressively and putting time and energy into tax reform but has other responsibilities, including a budget. Brady on border adjustability: Following a speech to Georgetown Law's Institute of International Economic Law (IIEL) and the International Tax Policy Forum (ITPF) conference on tax competition on February 3, House Ways and Means Committee Chairman Kevin Brady (R-TX) said that with regard to WTO compliance of the border adjustment proposal, "talk of a trade war is silly." Brady said House Republicans "decided against a value-added tax (VAT) for a number of reasons," including that the border adjustability proposal is more pro-growth and simpler to comply with, but that their proposal is economically equivalent to the VAT. He said he is confident that a challenge at the WTO can be overcome because of the transformation to a cash flow tax. During his speech, Chairman Brady said, "unlike our foreign competitors, this is not a VAT. Also, unlike our current tax system, it's not an origin-based business income tax." He continued to explain: "No longer will foreign imports have an advantage over 'Made in America' products here in the United States. Instead, all products will be taxed equally … Additionally, no longer will the 'Made in America' tax on U.S. exports put our businesses, workers, and products at a disadvantage overseas. If your American-made product or service is sold abroad, it's not going to bear U.S. tax." With regard to concerns about the proposal from retailers and refiners, Chairman Brady said he is convinced that as we strengthen the US economy and exports, the dollar will strengthen — alluding to the idea that currency adjustments would offset tax increases on import-reliant industries. Brady said he recognizes that the Senate needs to develop their own ideas on tax reform and, regarding the White House, "I see the common ground growing more and more each day" and "these discussions are exactly where I hoped they would be at this point and going in the right direction." Trump meeting with tax writers: On February 2, President Trump held a meeting with Chairman Brady, Finance Committee Chairman Orrin Hatch (R-UT), and ranking members Rep. Richard Neal (D-MA) and Senator Ron Wyden (D-OR) that was described as focusing on trade. The New York Times, reporting that congressional Republicans are trying to steer President Trump away from his previous proposal for a 35% tariff on the imported products of companies that move jobs out of the United States, quoted Chairman Brady as asserting that the White House is considering the border adjustment idea: "Like us, they're just not satisfied with a tax code today that favors foreign products over US products, and I think they are looking carefully at ending that 'Made in America' export tax so that we can compete around the world." The report said Brady is confident that the White House and concerned companies are warming to the proposal: "The more people learn about why we need to tax equally within the U.S., at this new low business rate of 20%, they come on board in gangbusters." The New York Times report cited opposition to the plan by Freedom Partners, a group affiliated with the Koch Brothers, as well as support for the proposal by the American Made Coalition. Another group, the retailer-focused Americans for Affordable Products, was launched to oppose "any Border Adjustment Tax (BAT) because it will increase the cost of clothing, food, medicine, gas, and other essential items that Americans rely on." Hatch says Senate will go through own process: Addressing the Senate's role in the process, Finance Committee Chairman Hatch February 1 said the chamber will conduct its own tax reform process and cannot be expected to simply accept a bill that comes out of the House. "This is not to say that I plan to oppose or disregard Chairman Brady's bill when it comes out. Far from it. I am confident that their tax reform plan will provide a strong, legitimate path forward," Chairman Hatch said in remarks on the Committee's agenda at the U.S. Chamber of Commerce. "I'm simply saying that a major concern on tax reform is producing a bill that can get through the Senate, and that is likely going to require a separate Senate tax reform process, which will almost surely end up looking different from what passes in the House." Chairman Hatch also said that despite being barraged with questions related to the border adjustability tax proposal being advocated heavily by House Republican tax writers, "The fact is, it's too early for me to have a definitive position on this issue." Hatch said he is aware that "at least a handful of Senators have serious reservations about border adjustability, and that requires us to consider the bigger picture." According to Hatch, outstanding questions with regard to border adjustability include: — Who will bear the tax, and to what extent will it be borne by consumers, workers, shareholders, and foreigners? — Would adjustments need to be made to ensure we're not unduly increasing the tax burden on specific industries? The Senate is in the early stages of its tax reform process, but the hope is to have a proposal "in one form or another to discuss publicly in the near future," the Chairman said. Cornyn urges Finance hearing: Meanwhile, Senate Republican Whip John Cornyn (R-TX) continued questioning border adjustability and said he has discussed with Chairman Hatch the possibility of holding a hearing on the subject. "The point is I don't want the House to get a bunch of momentum behind something that isn't going to fly in the Senate," Cornyn said, according to a January 31 Bloomberg BNA report. A subsequent Politico report quoted Cornyn as saying the House "seems pretty dug in," but he has a lot of questions, particularly in light of his State's oil refiners and manufacturers that are part of supply chains for Mexican products. "I want to make sure we understand [the proposal] well and we can engage in a dialogue with [House Republicans] about what tax reform should look like," he said. "There seems to be scholars that have a disagreement on what its impact would be, both pro and con … There doesn't seem to be any consensus, and so that worries me." Peterson Institute event: The lack of consensus on the issue has been on display during policy seminars on the border adjustment tax, of which there have been many, with experts saying there is not enough detail on the border adjustment to make a judgment. During a February 1 Peterson Institute for International Economics (PIIE) event, Jason Furman, former chair of the Council of Economic Advisers in the Obama administration and now a senior fellow at the Institute, said, "however elegant this idea is, I'm not confident that it's been put through the paces and the tires kicked and is ready for primetime." He said it comes down to the impact on households, which is complicated and requires information about the direct incidence of the taxes, how it's going to affect the economy and before-tax incomes, etc. "All of these are very difficult and depend on the plan as a whole," he said. Furman said there might be a 75% chance of a complete exchange rate adjustment, but "If I were in the retail industry and I thought there was a 25% chance that that wasn't going to happen, I would be rather agitated about this proposed shift in the tax system." Caroline Freund, a senior fellow at PIIE, said the real exchange rate will likely appreciate, but it won't happen fast. Gary Hufbauer, a senior fellow at PIIE, said many countries might be persuaded not to bring a WTO complaint against a border tax adjustment plan because it would be too big for the system. Chad Bown, another senior fellow at PIIE, said that a case of this magnitude involving potentially hundreds of billions of dollars in WTO retaliation would eclipse previous awards, including $4 billion for the well-known FSC/ETI dispute. Speaker Ryan on timing: On Fox & Friends February 2, Speaker Paul Ryan (R-WI) said tax reform cannot be done right away because of the near-term focus on Affordable Care Act (ACA) changes under reconciliation instructions in the FY 2017 budget resolution. Tax reform would be written under reconciliation instructions expected to be included in the FY 2018 budget. "It's just the way the budget works that we won't be able to get the ability to write our tax reform bill until our spring budget passes, and then we write that through the summer," Ryan said, also refuting speculation that consideration of tax reform could slip into next year. Ways & Means Democrats: In a February 2 CNBC interview, Ways and Means Ranking Member Neal said he hoped there would be an opportunity for bipartisanship with regard to tax reform, and also noted the political difficulty of reducing the corporate tax rate on a revenue-neutral basis. Separately, Rep. Judy Chu (D-CA) will join the Democratic side of Ways and Means, replacing Rep. Xavier Becerra (D-CA), who is now Attorney General of California. Finance reports out Mnuchin, Price: On February 1, the Senate Finance Committee reported out the nominations of banker and financier Steven Mnuchin to become Treasury Secretary, and of Rep. Tom Price (R-GA) to be Secretary of Health and Human Services. Both Mnuchin and Price were reported out of the Finance Committee by votes of 14 to 0, with all Republicans voting in favor. In light of a continued boycott of the session by Committee Democrats, who have sought more information from the nominees, the Committee passed a unanimous consent motion to suspend a rule regarding quorum requirements for nomination votes in an executive session. JCT reports: The staff of the Joint Committee on Taxation (JCT) released: "Estimates of Federal Tax Expenditures for Fiscal Years 2016-2020" (JCX-3-17); and "General Explanation of Tax Legislation Enacted in 2016 (JCX-4-17)," known as the Bluebook. "Meeting with biggest business leaders this morning. Good jobs are coming back to U.S., health care and tax bills are being crafted NOW!" — President Trump tweet, February 3
Document ID: 2017-0246 | |||||
