This week (March 6-10)

Congress in: The Senate and House are in session. The Senate is back in session at 2 p.m. on Monday, March 6, and will vote on adoption of a Congressional Review Act disapproval resolution (H.J. Res. 37) regarding the Federal Acquisition Regulation at 6 p.m. Remaining Trump cabinet picks are awaiting committee-level consideration. These include: R. Alexander Acosta to be Secretary of Labor, Sonny Purdue to be Secretary of Agriculture, and Robert Lighthizer to be United States Trade Representative.

House members are expected to be focused on legislative efforts related to the Affordable Care Act.

Last week (February 27-March 3)

President Trump continued to call for the creation of a "level playing field" between US companies and foreign competitors as part of comprehensive tax reform, a goal that would appear to be consistent with the House Republican border adjustability proposal. However, the President's position on that specific House proposal has not been made clear. There have been reports of mixed views within the White House on border adjustability, and Republican Senators said they are discussing alternatives.

Trump address to Congress: The President addressed a joint session of Congress February 28 and said his economic team is "developing historic tax reform that will reduce the tax rate on our companies so they can compete and thrive anywhere and with anyone" and that will provide "massive tax relief for the middle class." The President said "we've spent trillions and trillions of dollars overseas, while our infrastructure at home has so badly crumbled," promised that it would be rebuilt, and referred to some of his foreign policy proposals. "But to accomplish our goals at home and abroad, we must restart the engine of the American economy — making it easier for companies to do business in the United States, and much, much harder for companies to leave our country," he said. The President called for a level playing field for American companies and workers, saying, "Currently, when we ship products out of America, many other countries make us pay very high tariffs and taxes — but when foreign companies ship their products into America, we charge them nothing or almost nothing." He said he "believes strongly in free trade but it also has to be fair trade."

'Reciprocal' tax: During a meeting with the National Governors Association (NGA) February 27, President Trump said the Administration is seeking to reduce and simplify taxes, and make taxation between the United States and other countries fairer. "We're one of the only countries in the world that people can sell their product into us and have no tax, no nothing, and they get rich. And yet if you want to do business with them, you'll have taxes, I've seen, as high as 100%," the President said. "So they sell into us, no problem; we sell into them — because we don't sell them because the tax is so high that they don't want us to sell into them. So I know that's always been a point of contention, but to me it's just fair. It's just fair. It's reciprocal." His comments followed Treasury Secretary Steven Mnuchin's use of the term "reciprocal" during a February 26 Fox News broadcast, when asked about discussions of a retaliatory tax and how that would differ from border adjustability. "It is an idea that he's looking at calling a reciprocal tax, which is basically saying, we want to create a level playing field, so that other countries treat us the way we're treating them," Secretary Mnuchin said. He repeated earlier comments that the President likes some aspects of border adjustability and not others. In a March 1 Fox interview, Secretary Mnuchin said, "We're working on a process to make sure that we have a plan that everybody has bought into, so, when we come out with the full plan, we're going to have the support of Congress and we're going to have the support of the president to get this signed."

Getting healthcare done first: Also during the meeting with the NGA, President Trump said, "The tax cut is going to be major, it's going to be simple, and the whole tax plan is wonderful. But I can't do it until we do healthcare because we have to know what the healthcare is going to cost. And, statutorily, that's the way it is." The FY2017 budget resolution included reconciliation instructions related to the Affordable Care Act (ACA), and the FY2018 resolution will likely provide for tax reform to be processed under a separate reconciliation bill later this year. "So for those people that say, oh, gee, I wish we could do the tax first — it just doesn't work that way. I would like to do that first. It's actually — tax cutting has never been that easy, but it's a tiny, little ant compared to what we're talking about with Obamacare." The President also remarked, "Nobody knew that healthcare could be so complicated." ACA-related action in House committees may occur as soon as the week of March 6.

Views on border adjustability: On February 28, Politico reported Senate Finance Committee Chairman Orrin Hatch (R-UT) as saying of the President's view on border adjustability, "He doesn't want to offend the House. But to be honest with you, I don't think the [White House] is very favorable towards it." A February 28 Bloomberg report cited an unnamed senior Administration official as saying there are mixed views of border adjustability among the President's economic team and top aides, and CNBC March 2 cited an unnamed source in reporting on opposition to the idea. Politico March 2 reported Senate Majority Whip John Cornyn (R-TX) as saying he thinks border adjustability "would have difficulty passing in the Senate, and I think the White House is somewhat of two minds on the issue." He also said "there are people working on other approaches." Politico March 3 quoted Senate Finance Committee member Tim Scott (R-SC) as saying, "There's been a lot of conversations about, 'Where is the actual position of the administration on border adjustability?' … I think it's still TBD, and a little work needs to be done."

In a February 28 appearance on CNBC, Chairman Hatch said he has "some real reservations about" the House border adjustability proposal but is nonetheless open to "good ideas." The Chairman previously said he had questions about the burdens and trade implications of the idea. "All I can say is I think it's got a long way to go and it's going to be a difficult matter to get through both bodies," Chairman Hatch said. He said changing the current tax system will be very difficult because Democrats are not cooperative, but acknowledged there "ripples in our own ranks" with regard to some agenda items.

Pelosi says border adjustability costs passed onto consumers: Asked about the issue during a March 3 Politico event, House Democratic leader Nancy Pelosi (D-CA) said "the border tax is a real aggressive tax on working families in our country and we have practically zero" support for it among House Democrats. She said the tax would be passed onto consumers "in order to give a tax break to the wealthy or to lower their corporate tax." There is broad agreement about the need to lower the corporate tax, Pelosi said, and she feels tax reform should allow foreign earnings to be returned at a lower tax rate to provide revenue for infrastructure investment.

GOP leaders at White House: President Trump convened congressional Republican leaders for lunch March 1, including: Senate Majority Leader Mitch McConnell (R-KY), Senator Cornyn, House Speaker Paul Ryan (R-WI), House Majority Leader Kevin McCarthy (R-CA), House Majority Whip Steve Scalise (R-LA), Senator David Perdue (R-GA), and National Republican Senatorial Committee Chairman Cory Gardner (R-CO). Cornyn is skeptical of border adjustability, and Perdue is opposed. The White House said, "Topics of discussion included the budget and tax reform, and the final portion of the meeting revolved around the group's plan to improve the Nation's healthcare system by repealing Obamacare and replacing it with a patient-focused system that expands access, brings down costs, and improves healthcare outcomes."

Perdue touts benefits of rate cut: In a March 1 interview on Bloomberg TV, Senator Perdue said he hoped the border adjustability controversy would not impede tax reform, and that "some reasonable approach" would prevail. "But let's be clear: The purpose of border adjustment tax is only to pay for the tax changes in the corporate tax rate and the repatriation tax reduction and also to simplify the individual tax code," he said. "Those are three things that would actually grow the economy. The only reason border adjustment is being talked about is to pay for those. I don't believe it's necessary." He said other countries have cut their corporate tax rates with the knowledge "that the economy would more than pay for that over time," and he believes that is true in this situation. "At this point in time, I don't mind increasing the deficit in the short term if I believe, in the long term, it's going to have a positive effect in terms of dealing with the debt," Senator Perdue said.

Chairman Brady on timing of tax reform legislation: On Fox News February 28, House Ways and Means Committee Chairman Kevin Brady (R-TX) said of the timeline for tax reform, there is a "big push, not just for this year, but for this summer: I think that is the optimum political momentum to do this." Echoing Secretary Mnuchin, Chairman Brady said the House, Senate, and the President must be headed in the same direction on the issue. "Are we working through some of the bolder provisions? Yes. … " Brady said. "So I'm looking at all these discussions as healthy, exactly what we need right now."

Baucus view on tax reform: A former Chairman of the Senate Finance Committee, Max Baucus (D-MT), who is also the former U.S. Ambassador to China, said on Bloomberg TV February 28 that border adjustability "is a bad idea" and unlikely to happen "because it's so complicated," but that revenue for tax reform must come from somewhere. Asked whether it can come from cutting back on deductions, Baucus said, "If Trump really wants to do it the right ways, broaden the base, lower the rates, it can happen. But this would take a lot of work." Baucus said he had been close to working out tax reform with former House Ways and Means Committee Chairman Dave Camp (R-MI) "until we realized that President Obama … did not want to spend the political capital to get it done. That's why it stalled out."

TPC tax reform event: Border adjustability was a topic of discussion during a March 3 Urban-Brookings Tax Policy Center event, "The Prospects for Corporate Tax Reform." Alan Auerbach, of the University of California, Berkeley — who, as TPC's Bill Gale noted, has done much of the heavy lifting on the border adjustability proposal and is a proponent — said whether the plan is WTO compliant is a legal rather economic question, but there are various equivalences among different systems, including a VAT plus a wage credit. "As far as I understand it, a suitably designed value-added tax and a separate wage credit would be WTO compatible," he said, adding that ensuring compliance should involve negotiation and careful drafting. John Buckley, former chief tax counsel for Ways & Means Democrats and now a visiting professor at Georgetown University Law Center, said there is uncertainty over whether border adjustability is WTO compliant. He said he also sensed that some in the House fear they may be "BTU'd" over the issue, referencing a Clinton-era example of House members taking a politically difficult vote on a proposal that gets cut by the Senate. Doug Holtz-Eakin, president of the American Action Forum and a proponent of border adjustability, said the comments of skeptical Republican Senators should not be viewed as a death knell: If President Trump ends up championing the idea it will be difficult for GOP lawmakers to say no to a tax bill.

NEC staff appointments: On February 27, White House National Economic Council Director Gary Cohn formally announced senior staff appointments, including Special Assistant to the President for Tax and Retirement Policy Shahira Knight, a former Senior Advisor to former House Ways and Means Committee Chairman Bill Thomas (R-CA).

NRF commercial: The National Retail Federation February 28 announced a television, print and digital ad campaign"to educate Americans on the high consumer cost of the border adjustment tax" that includes a commercial to air during "Saturday Night Live" March 4.

Quote of the Week

"I just met with officials and workers from a great American company, Harley-Davidson. In fact, they proudly displayed five of their magnificent motorcycles, Made in the USA, on the front lawn of the White House. And they wanted me to ride one, and I said, 'No, thank you.' At our meeting, I asked them, how are you doing, how is business? They said that it's good. I asked them further, how are you doing with other countries, mainly international sales? They told me — without even complaining, because they have been so mistreated for so long that they've become used to it — that it's very hard to do business with other countries because they tax our goods at such a high rate. They said that in the case of another country, they taxed their motorcycles at 100%. They weren't even asking for a change. But I am." — President Trump, February 28

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