This week (March 13-17)

Congress in: The Senate and House are in session. The Senate will vote on Seema Verma to be administrator of the Centers for Medicare and Medicaid Services (CMS) on Monday, March 13 at 5:30 p.m. The House will continue to focus on the American Health Care Act.

On March 15 (at 10 a.m.), the House Agriculture Committee will hold a hearing on "Agriculture and Tax Reform: Opportunities for Rural America." In announcing the hearing, Chairman K. Michael Conaway (R-TX) said, "The economics of farming and ranching make agricultural producers particularly sensitive to changes in the tax code."

Last week (March 6-10)

Congress and the President have been focused on Affordable Care Act (ACA) repeal and replacement legislation released on March 6 and approved by the House Energy and Commerce Committee and Ways and Means Committee March 9 over Democratic objections aired during marathon markups. As President Trump and Republican leaders have said, tax reform must wait on health care legislation in order to be considered under the reconciliation process allowing 51-vote approval in the Senate. While Republican leaders hope to complete work on health care legislation by the April congressional district/state work period, the fate and timing of the effort remain unclear as leadership seeks to address competing concerns of moderates and conservatives. Some want tax reform completed by the August congressional recess, but Senate Majority Leader Mitch McConnell (R-KY) has now said he thinks it will take longer. The White House is working on tax reform ideas but the President has still not publicly taken a position on the House border adjustability proposal, and neither has McConnell.

American Health Care Act: Repeal and modification of ACA taxes under the repeal/replace legislation, estimated by the Joint Committee on Taxation to cost nearly $600 billion over 2017-2026, "dramatically helps us for tax reform," House Speaker Paul Ryan (R-WI) said. Other provisions will be estimated in a Congressional Budget Office (CBO) analysis expected the week of March 13. In a March 8 Fox News interview, Ryan said repeal of ACA taxes means tax reform legislation — "the next bill up, coming up this spring and summer" — will not have to "also replace the Obamacare taxes" to be revenue neutral. The new American Health Care Act would repeal the 3.8% tax on net investment income and other taxes, effective for tax years beginning after December 31, 2017, and delay the Cadillac tax until 2025. The economic substance doctrine included in the ACA is not addressed in the new legislation.

Cohn says Administration working on tax ideas: National Economic Council Director Gary Cohn said on CNBC March 10, the Administration is "exploring all opportunities" on tax policy and wants to bring manufacturing jobs back to the United States, but tax "is just one of the tools we have at our disposal." Cohn said the Administration is "actively working on a variety of different tax alternatives and we will present a tax plan when we are done with health care." An interviewer said the assumption is that the Administration will eventually express their view on border adjustability or, if they don't like it, propose something in its place to prevent rate reduction from increasing the deficit. "We are going to absolutely do taxes under reconciliation, we are going to have to be deficit-neutral over a 10-year period," taking dynamic scoring into account, Cohn said. "We are working on a bunch of really interesting ideas to reform the tax system in the United States."

Longer than August, McConnell says: During a March 9 Politico Playbook interview, Senate Leader McConnell said he thinks "finishing on tax reform will take longer" than the August recess target that some have set. "[W]e have two reconciliations to do. We have to get the one that we're going to use for health care out of the way before we can go to the second one," Leader McConnell said. Asked about the timetable for tax reform and whether it goes into 2018, he said, "I don't know, it is complicated." On the House border adjustability proposal to exempt exports from tax but deny deductions for all imports, McConnell said he hasn't "taken sides on this: We haven't even started the process, but we are talking about it." Assessing the debate, he said border adjustability and eliminating deductibility of corporate net interest expense raise significant revenue toward rate reduction. "Those who argue against it say, 'the border adjustability is so unpredictable,' with currency valuations and all the other sort of unknowns, they argue it's too risky," he said. McConnell said the revenue-neutral tax reform he prefers can't be done without going after tax preferences, all of which have their defenders.

Flake against border adjustability: Some of McConnell's members are concerned about border adjustability, including Senator Jeff Flake (R-AZ), who said in a March 8 floor speech it could make consumer products more expensive. "From the aisles at big-box stores to the checkout lines in grocery stores, household staples could be pushed out of reach for those who can least afford it," he said. Flake said while some argue the effects of border adjustability will be offset by a stronger dollar, "others are not so comfortable gambling the purchasing power of the average consumer on the unpredictability of international currency markets." He is also concerned about how US trading partners would react.

Trump says tax plan mostly known: During a meeting with the U.S. House Deputy Whip Team March 7, President Trump said he hopes the ACA repeal/replace effort goes very quickly to allow for work on a tax cut. "We're going to be planning a major tax cut. I know exactly what we're looking at. Most of us know exactly the plan. It's going to put our country in great shape and we're going to reduce taxes for companies and for people," the President said. "And I can use the word again, massively. It's going to be a big tax cut, the biggest since Reagan, maybe bigger than Reagan." He again said, "we can't get to that until we take care of healthcare."

Ross on border adjustability: Asked during a March 8 Bloomberg TV interview whether he has a view on border adjustability, Commerce Secretary Wilbur Ross said, "My view is that I'm studying it very carefully as it evolves. And as we get to understand more of the intricate details of it and how it interacts with everything else, that's when we'll take a position." He agreed that it will affect trade flows, saying, "Anything that affects what goes across the border clearly has a trade implication. But it is meant to be part of an overall tax package." He said issues include: (1) whether or not to do a border adjustability; (2) "what magnitude of it is needed;" and (3) details of how it would work. "If you're a solely domestic producer who does some exporting, that's one set of facts. If you're mainly an importer, a different one. If you're both, even more complicated," Ross said. "So it isn't a very simple thing to analyze. And because it's so important and such large numbers — as you know, they're talking about potentially $1 trillion over a 10-year period, that's way too big a number to get wrong."

Post editorial urges look at Camp, Obama proposals: An editorial published in the March 4 Washington Post raised concerns about border adjustability, including the potential for: legal action at the WTO; retaliatory currency manipulation; and a much stronger dollar that would hurt countries that owe US-denominated debt. "As it happens, there are already proposals to cut corporate rates and close loopholes less radically but also, quite possibly, less disruptively than the border-adjustment proposal," the Editorial Board said. "House Republicans and the Obama administration floated them in 2014 and 2012, respectively. Those plans deserve a second look before lawmakers take this leap."

CBO report on corporate tax rates: On March 8, CBO released a report, "International Comparisons of Corporate Income Tax Rates," that focuses mainly on the 2012 tax rates in countries that are members of the G20.

Debt limit: The federal debt limit suspension ends March 15, after which the limit will be reset to reflect cumulative borrowing through the suspension period. On March 7, CBO said extraordinary measures used when previous suspensions have expired could allow the Treasury Department to "continue borrowing and have sufficient cash to make its usual payments until sometime in the fall of this year without an increase in the debt limit, though an earlier or later date is possible." In a March 8 letter, Treasury Secretary Steven Mnuchin urged Congress to raise the debt limit "at the first opportunity."

Quote of the Week

"There is no support in the United States Senate for the border adjustment tax that Republicans in the House are proposing. And I think that in a different time, given what happened in 1986 when Republicans and Democrats could sit down and iron out these differences, that's what we should be looking at as opposed to one side jamming the other." — House Ways and Means Committee Ranking Member Richard Neal (D-MA), March 8 Bloomberg TV interview

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