19 February 2017 EY Center for Tax Policy: This Week in Tax Reform for February 17 Congress out: The Senate and House are out for the Presidents' Day recess. On February 16, House Speaker Ryan announced: "After the House returns following President's Day, we intend to introduce legislation to repeal and replace Obamacare." With the February 17 confirmation of Scott Pruitt as Environmental Protection Agency (EPA) Administrator (52-46 vote), the Senate will next turn to a final vote on the nomination of Wilbur Ross to be the Secretary of Commerce, set for Monday, February 27 at 7 p.m. That vote will be followed by a procedural vote on the nomination of Rep. Ryan Zinke (R-MT) to be Secretary of the Interior. Following is a status update on President Trump's cabinet picks. Secretary of Defense — James Mattis Secretary of Commerce — Wilbur Ross — final vote February 27 Secretary of Agriculture — Sonny Purdue (former GA Governor) — no hearing set President Trump on timing: President Trump indicated February 16 that it may be weeks before his Administration unveils its tax reform plan. During a broad-ranging news conference, President Trump was asked about tax reform and said: "Tax reform is going to happen fairly quickly. We're doing Obamacare … frankly, the tax would be easier, in my opinion, but for statutory reasons and for budgetary reasons, we have to submit the health care sooner. So we'll be submitting healthcare sometime in early March, mid-March. And after that, we're going to come up, and we're doing very well on tax reform." While the exact coordination between the Administration and Capitol Hill on tax reform is unclear, the President's comments are consistent with those of House Speaker Paul Ryan (R-WI) on MSNBC'S "Morning Joe" February 15: "So we have to do Obamacare first in our first budget. And the reason we have to do it first is because the law is collapsing so fast … In our spring budget, that's where we do tax reform." Congress passed an FY2017 budget resolution with reconciliation instructions related to the Affordable Care Act (ACA), and the FY2018 resolution will likely provide for tax reform to be processed under reconciliation, which allows Senate passage with 51 votes. "The way our budget process works is, we pass our budget, it gives us the ability to go write the policy and the budget and that takes you into the summer. And that is what our plan for tax reform is," Speaker Ryan said. "Spring and summer is tax reform, winter and spring is Obamacare, just to give you a thumbnail sketch of the plan." House Ways and Means Committee Chairman Kevin Brady (R-TX) has suggested that a tax reform bill could be out sometime in the first half of the year, but that there is no set timetable. McConnell, Ryan unworried about process: While House Republicans are writing legislation based on their June 2016 Blueprint and the President has promised an announcement on tax reform, there is not currently a Senate Republican plan. Still, Republicans are "100% committed, as a team," to repeal and replace of the ACA and to comprehensive tax reform, Senate Majority Leader Mitch McConnell (R-KY) said during a news conference February 17. "The various episodes or chapters from beginning to end, in my view, from my perspective, are not worth talking about because we don't know exactly what it is going to look like at the end," Leader McConnell said. "There are a lot of internal discussions on tax reform that you all are following — what's the best way to get the rates down — but what we have is a pretty overwhelming desire to do that." Speaker Ryan was similarly confident during a February 16 news conference, saying, "We are doing tax reform — tax reform is going to happen," and dismissing the notion that the effort will be jeopardized by growing Republican opposition to border adjustability. The Speaker referenced the environment that preceded the Tax Reform Act of 1986, and told reporters, "It's going to be up, it's going to be down, it's going to be on, it's going to be off … We're going to get tax reform done. And there's going to be a whole bunch of drama you're going to enjoy covering between now and then." During the news conference, Speaker Ryan was asked about Federal Reserve Chair Janet Yellen's comments when asked about a currency adjustment in conjunction with border adjustability during a House Financial Services Committee hearing a day earlier. Speaker Ryan said, "[I]t is obvious and mathematical that a currency adjustment would occur when we harmonize our tax laws with the rest of the world." He said the Ways and Means Committee is looking at how to ameliorate concerns over the issue and to make a gradual transition to a new system, and that the improvement that border adjustability will make is underappreciated. Responding to a question by Rep. Warren Davidson (R-OH) during the February 15 hearing, Yellen said "there's great uncertainty about how in reality, markets would really respond to these changes," and that the value of US assets held in foreign currencies could be affected. Trump meeting with retailers: Border adjustability remained the primary focus of the tax reform discussion and was the subject of a White House meeting with retail industry CEOs February 15 during which President Trump said, "we're doing a massive tax plan … it will be submitted in the not-too-distant future." He did not provide details and has not taken a position on border adjustability, but affirmed that the plan would simplify the tax system and lower rates "very substantially for virtually everybody in every category," including both individuals and businesses. "We're going to bring down the number of alternatives, and I think it's going to be just a much, much simpler tax code," the President said. The meeting included Target CEO Brian Cornell, Best Buy CEO Hubert Joly, Gap CEO Art Peck, Autozone CEO William Rhodes, Walgreens CEO Stefano Pessina, J.C. Penney CEO Marvin Ellison, Jo-Ann Stores CEO Jill Soltau, and Tractor Supply Company CEO Gregory Sandfort. Autozone's Rhodes later spoke on behalf of the group, and emphasized the 42 million jobs within the retail sector. "We stressed the importance of taking a thoughtful approach to tax reform for both individuals and corporations," Rhodes said. "The President understands we support pro-growth policies that we believe will lead to greater domestic investment." Senate Republicans and border adjustability: Speaker Ryan was said to have discussed border adjustability during his visit to the weekly Senate Republican lunch on February 14, as a growing number of Senators express wariness. Senate Republican Whip John Cornyn (R-TX), who was among the first in the chamber to publicly question the idea, said Ryan is an effective advocate for the "high-risk proposal" but may not have changed any minds, and that he himself is still a "question mark," Politico reported. Senator John Hoeven (R-ND) has questions about whether the proposal would be compliant with WTO rules, how it would affect the economy, and its impact on manufacturing, agriculture, and real estate: "We need some more information." Senator Roy Blunt (R-MO) said he is not there yet as a supporter. Hatch on border adjustability: Asked on Bloomberg TV February 13 whether the House tax proposal is dead in the Senate in its current form given the controversy over border adjustability, Senate Finance Committee Chairman Orrin Hatch (R-UT) said, "No, I don't think so. Well, who knows … we would look at anything the House sends over," but may want to amend it. He said he has questions about border adjustability but held open the possibility that House tax writers "will put it in such good language … that it'll be something that we can all support." Chairman Hatch said the main question is whether border adjustability will increase taxes, expenses, or costs on American citizens. Asked about corporate views on border adjustability, Hatch said: "Some companies love the idea, other companies don't because it'll be very detrimental to their bottom line … So you're going to have different points of view on something that significant no matter what you do." House members have questions: Some members of the Ways and Means Committee have raised questions on border adjustability as well. Press reports cited Rep. Mike Kelly (R-PA), an auto dealer, as saying he has questions about complicated supply chains, especially for the auto industry. Rep. Vern Buchanan (R-FL), also involved in auto dealerships, did not take a position on border adjustability in an appearance last week, and apparently will not do so until the full tax reform package is assembled. Politico February 15 reported Rep. Jim Renacci (R-OH) as saying he is concerned that border adjustability amounts to "picking winners and losers," and also about WTO compliance and who is burdened by the proposal. Bloomberg BNA February 14 reported Rep. Pat Meehan (R-PA), mindful of the proposal's effects on oil refiners, as saying, "I'm hoping that there may be an ability to consider the methods of recognizing that a commodity can only be purchased overseas, maybe a precious metal, oil that in its natural state that helps support manufacturing jobs here." Ways and Means Committee Chairman Brady has said he is "not expecting any exceptions or carve-outs" for the border adjustability proposal, but that transition rules could soften the impact of the plan. On CNBC February 14, Rep. Devin Nunes (R-CA) expressed his view that tax reform will not happen without border adjustability. From the Democratic perspective, Ways and Means Ranking Member Richard Neal (D-MA) said, "I don't think that we want to embrace anything specific until there's a chance to have some hearings on it," Politico reported February 16. He said he thought there may be three competing Republican proposals between the President, the House, and the Senate. On Bloomberg TV February 15, Rep. Suzan Delbene (D-WA), a new member of Ways and Means, said there is a lack of detail on the border adjustability proposal, and there needs to be a better understanding of the impact on different business sectors and how the WTO will react. "I'm a former businesswoman and entrepreneur, and I know that certainty, predictability, stability are so important to business," she said. Challenge for border adjustability: The Financial Times reported February 13 that the European Union "and other US trading partners have begun laying the groundwork for a legal challenge" to border adjustability, quoting Jyrki Katainen, the European Commission vice president who oversees trade policy, as saying, "If someone is behaving against our interests or against international rules in trade then we have our own mechanisms to react." Chad Bown, a senior fellow at the Peterson Institute for International Economics, said February 1 that the border adjustability proposal could draw retaliation from US trading partners in the hundreds of billions of dollars, eclipsing previous disputes. The Financial Times also quoted Jim Bacchus, a former congressman and former chairman of the Appellate Body of the WTO, as saying, "It will help no one for the US and other countries to engage in a whole slew of WTO cases and other retaliatory tit-for-tat actions over border tax adjustments." The report cited an unnamed European official as saying the initial assessment is the border adjustability plan will not be WTO compatible, and that there are doubts that it can be made so. Tax Notes February 14 reported Chairman Brady as saying the House border adjustability provision will be "written in a way that is WTO consistent and compliant, and we will prevail in any challenge that they bring." AICPA view: At a February 15 House Small Business Committee hearing on the tax system's and start-ups, Troy Lewis testified on behalf of the American Institute of Certified Public Accountants that it is important to consider how border adjustability would impact small businesses like small accounting firms that participate in global alliance networks. "The forced reliance on such services, which may be considered 'imported' and therefore nondeductible, may impact their ability to continue to service their clients in the U.S.," he said. Mnuchin confirmed: The Senate February 13 confirmed the nomination of Steven Mnuchin to be Treasury Secretary, by a 53-47 vote. Bishop joins Ways & Means: Rep. Mike Bishop (R-MI) has been added to the House Ways and Means Committee, replacing Tom Price, who is now Secretary of Health and Human Services. "Our state is home to one of the most diverse economies in the nation, and that includes our pivotal role in international trade," Bishop said in a press release. "We want to compete and we want to sell to customers outside of the United States, we want to grow our economy, and pass on our small businesses, farms, and ranches to future generations. That's the American dream and that's why we are working to do tax reform on the Ways and Means Committee." - Rep. Kristi Noem (R-SD), February 14 Tax Reform Tuesday video
Document ID: 2017-0341 | |||||
