This week (April 3-7)

Congress in: The Senate and House are in session. The Senate is expected to consider the nomination of Judge Neil Gorsuch to the Supreme Court.

House Ag hearing: A previously postponed House Agriculture Committee hearing, "Agriculture and Tax Reform: Opportunities for Rural America," has been rescheduled for Wednesday, April 5 (10:00 a.m.).

Finance filing season hearing: On Thursday, April 6 (at 10 a.m.), the Senate Finance Committee will hold a hearing, "The 2017 Tax Filing Season: Internal Revenue Service Operations and the Taxpayer Experience."

Last week (March 27-31)

White House driving tax reform debate: In light of statements by President Trump and House Speaker Paul Ryan (R-WI) last week that they would turn to tax reform now that health care legislation has been put aside, the focus has been on who will lead the tax debate and over what timeframe. White House Press Secretary Sean Spicer asserted March 27 that "obviously we're driving the train on this" and that the Administration will work with Congress on what is a "huge priority" for the President, with more information to come later. Asked whether tax reform could slip into 2018, Spicer referred to Treasury Secretary Steven Mnuchin's comments about wanting the process completed prior to the August congressional recess, said there are many groups that are "going to want a ton of input," and that the timing is going to be dependent on "the degree to which we can come to consensus on a lot of big issues." Asked why the President thinks he can pass significant tax reform this year given the outcome on the health care bill, Spicer said the tax code is outdated and there is a reason that companies are leaving America. "Our corporate and regulatory system has become unattractive for a lot of companies that want to either manufacture here, grow here, or begin here, or want to return jobs here," he said. Spicer said the President and business leaders are cognizant of that and it is not a partisan issue. "I mean, you go out to the tech sector, out in Silicon Valley in particular, there's a lot of these companies out there that admittedly weren't with the President during the election, or continued not to be, and I think recognized that we are not as competitive as we can be when you consider the tax and regulatory climate of other countries around the world," he said. When asked, Spicer did not express an Administration view on whether Affordable Care Act (ACA) taxes should be repealed as part of a tax reform bill. The American Health Care Act would have repealed many ACA taxes beginning in 2017, resulting in a $1 trillion tax cut. Speaker Ryan has suggested repealing ACA taxes in tax reform would require an additional $1 trillion in revenue and therefore they would be kept tied to the fate of the ACA and not dealt with in tax reform. Attempting to clarify the situation March 30, Speaker Ryan said, "Here's the way the math works: If we repeal the Obamacare taxes, then that is a revenue baseline that we don't have to put into tax reform. If we don't repeal the Obamacare taxes, it is my position that we're just going to have to leave those taxes over there with Obamacare and reform the rest of the IRS tax code."

Trump briefed by staff, still in beginning stages: President Trump March 30 was briefed on tax reform by Administration officials, including Secretary Mnuchin. Press Secretary Spicer said "the Secretary, along with the National Economic Council and the rest of the President's team of experts, have been meeting with and hearing from stakeholders on all sides of the tax reform debate." The team is "weighing the best option to develop a plan that will provide significant middle-class tax relief to make American businesses more competitive," he said. "Enacting the first significant tax reform since the 1980s is going to be a serious undertaking and we are at the first stages of this process, beginning to engage with members of Congress, policy groups, business leaders, industry, constituents from around the country, and other stakeholders." Spicer said tax reform has been a part of the political discussion for years, many people have ideas about it, and the Administration intends to hear from them. "He and his team will continue to meet with those who support and oppose the various policy options as they all sit around the table, because the President is committed to delivering results that the American people and American businesses will be able to see and feel in their paychecks," he said. Asked about the interplay between health care legislation and tax reform, Spicer said it is possible to work on both issues simultaneously. "And if you look at the timeline for tax reform, you're talking several months. And so I think that the process is beginning on that," he said. He was further asked whether, during the first phase of tax reform development, the President is being given detailed strategies or broad principles. "I think it's a little of both … they're talking about the process that they intend to partake; you know, how this is going to lay out, who they're engaging with, how they're going to begin that process," Spicer said.

Ryan on CBS This Morning: Asked during an interview that aired on CBS This Morning March 30 who is driving the agenda on tax reform, the White House or Republicans in Congress, Speaker Ryan said "I think it's a collaborative effort. It's the House Ways and Means Committee, it's the Senate Finance Committee — which are the primary drivers in Congress — and the White House." Confronted with Spicer's comments that the White House is driving the agenda, Speaker Ryan said, "That's fine with me. I don't really care who's driving it, as long as we get to an agreement and get it done." On differences between the Trump campaign tax plan and the House Blueprint on tax reform, the Speaker said, "We always knew this was the beginning of the process. You never go into a legislative process and say, 'Here's my plan, take it or leave it.'" Speaker Ryan said his relationship with President Trump is good and that they talk frequently, including about tax reform. On the ordering of health care and tax reform, Ryan said: "The House is the only one with a plan right now. The White House is still working on a plan, the Senate doesn't have a plan. So it is inconceivable that we would've been able to write a tax reform bill — and into law before summer." He also said, "We are not going to have a government shutdown" when current funding expires April 28.

Brady wants House bill as basis for reform: Addressing what will be the basis for a Republican tax reform proposal during a Fox News interview March 26, House Ways and Means Committee Chairman Kevin Brady (R-TX) said, "We have so much in common with the Trump administration, it wouldn't make sense to have a separate tax bill from Secretary Mnuchin, a separate one from Gary Cohn, a third from whomever. Why not take the basis of the House plan? … Let's work together to make those adjustments, along with the Senate. Let's be ready to move this year." He said tax reform is "tough stuff" and that he expected special interests and Wall Street to weigh in on the issue. Asked about the House Republican Blueprint's border adjustability proposal, Chairman Brady continued to say that he believes its inclusion is "a given," not because of revenue but in the interest of leveling the playing field between foreign- and American-made products. He also repeated earlier comments that "We are working on significant modifications to make sure we phase this in, [and] design it right." Brady did not embrace the prospect, raised in press articles, of revenue limitations allowing for a reduction in the statutory corporate tax rate only to 28%, saying such a rate would not make the United States competitive. Tax Notes March 31 reported Chairman Brady as saying there have been no decisions on changing the border adjustability proposal despite daily meetings on the design and transition period, but that the goal is to ensure that businesses "that have contracts in dollar denominated currencies" have a long enough transition period to make decisions. In a Politico interview published March 31, Chairman Brady said that with regard to the Blueprint proposal to eliminate deductibility of net interest expense, he anticipates "modifications and clarifications" related to existing debt on the books today.

Hatch working on tax solutions: In a Senate floor speech on the Finance Committee agenda March 30, Chairman Orrin Hatch (R-UT) said he is "actively working with the members of the Finance Committee to find various solutions to our nation's tax problem." The Chairman said "on health care, I think it's safe to say that the ongoing effort to repeal and replace Obamacare took a hit last week," but that he hopes that lawmakers can "find a workable path forward" in the near future. Similar to a February 1 speech, Chairman Hatch said it is too early for him to take a position on the House border adjustability proposal, and that he has questions about: who will bear the tax; whether it is consistent with US international trade obligations; and whether adjustments are necessary to keep it from unduly burdening specific industries. He noted the many public opinions on the proposal — several Republican senators have expressed concern — and said, "I'm anxious to see what it looks like once our friends in the House put it all together." Chairman Hatch also continued to call for a "robust and substantive tax reform process in the Senate," and to say senators will not simply approve a House bill without significant input. He encouraged bipartisan cooperation on tax reform, saying, "I've been banging a drum on tax reform for six years now, and, throughout that time, I've invited my Democratic colleagues to join in this effort."

Portman on CNBC: Finance Committee member Rob Portman (R-OH) is the latest Republican senator to speak against border adjustability, arguing on CNBC March 29 for a "more traditional" approach to tax reform that focuses on broadening the base, lowering rates, and moving to a territorial system. Portman said while he can understand some of the economic reasons in favor of border adjustability, including its revenue potential, "we ought to do what we can to get tax reform done." He also said he believed tax reform could get tied up with other issues, including infrastructure. Bloomberg BNA March 31 quoted Portman as saying, "The last thing I want to do is to be viewed as being unsupportive of what they're trying to do. But there are alternatives. The one that has been part of a number of proposals over the past several years is to lower the rate and broaden the base of taxation to pay for that and to move to a competitive territorial system." In July 2015, Portman and now-Senate Democratic leader Chuck Schumer (D-NY) put forward an international tax framework to move to a territorial system and impose a one-time "deemed repatriation" tax on untaxed foreign income of US companies at a reduced rate, with some of the resulting revenue being devoted to infrastructure.

Brady says no decision on CRA for Section 385 regulations: Tax Notes reported Chairman Brady as saying March 30 that it is premature to consider whether the Congressional Review Act (CRA) would be used to eliminate regulations under Section 385 (TD 9790). "We're having discussions with Treasury on a number of [their] regulations that were promulgated, some [that] were not," he said.

Energy & Commerce hearing: The House Energy and Commerce Subcommittee on Energy held a hearing March 29 on "Federal Energy Related Tax Policy and its Effects on Markets, Prices, and Consumers" that aired a range of opinions about the appropriateness of tax provisions for renewable energy and fossil fuels, and whether they should be continued. Chairman Fred Upton (R-MI) said, "With tax reform on the horizon, Congress should be asking 'how can we level the playing field and encourage competition?' and 'will this policy grow our economy and keep energy prices affordable and reliable?'" Rep. Greg Walden (R-OR), the chairman of the full Committee — which has jurisdiction over energy policy, but not taxes — said, "much of our federal energy policy is designed to address an antiquated marketplace that looks entirely different than the one we see emerging today," and asserted that Congress has allowed tax measures to accumulate without sufficient oversight. Full Committee Ranking Member Frank Pallone (D-NJ) said the government should be incentivizing technologies that are "cleaner, safer, and more protective of the health of all Americans" than coal, oil and gas. "Renewable energy sources, in particular, provide societal benefits that cannot be effectively valued by the markets," he said.

The hearing came on the heels of President Trump's March 28 Executive Order on "Promoting Energy Independence and Economic Growth," which generally called for rolling back Obama administration climate change policies, including Clean Power Plan regulations. Rep. Jerry McNerney (D-CA) said it was unfortunate the Administration is attempting to undo the nation's progress on renewable energy. Rep. Dave Loebsack (D-IA) said in Iowa, the production tax credit has been a boon not only for its environmental effects but for its economic effects in creating jobs. Rep. John Sarbanes (D-MD) argued that fossil fuel tax subsidies have not been sufficiently scrutinized, which a witness said is due in part because those provisions are permanent. Rep. Tim Walberg (R-MI) said, in the context of the broader tax reform debate, he has been made aware of the importance of the deductibility of net interest expense for regulated electric and gas companies. Witness Ben Zycher of the American Enterprise Institute said enacting expensing in place of deductibility of net interest expense makes sense in other contexts but not for the regulated utility sector, primarily because regulated ratemaking uses each year's accounting costs to determine rates that generate a fair and reasonable return: If a given utility invests in a capital asset and expenses it, rates will be driven down under a normalization process, then in the subsequent year driven back up. Zycher said substituting expensing for interest deductibility would create a lot of instability in regulated rates for consumers, and if Congress opts for that approach, there needs to be a provision made for the unique circumstances of regulated utilities and the ratemaking process.

Post editorial: An editorial in the March 29 Washington Post said "the legislative shelf is full of policy options from which to choose" instead of designing a tax plan from scratch as Secretary Mnuchin intends. These include former House Ways and Means Committee Chairman Dave Camp's (R-MI) Tax Reform Act of 2014, which the editorial noted would lower rates on a revenue-neutral basis by eliminating or reducing certain current provisions. "[T]he GOP is the governing party, and it's in a major policy and political jam, which can be escaped by offering plausible plans with at least potential bipartisan appeal," the editorial stated. "We wonder how many Republicans remember that their erstwhile top tax-law writer bequeathed them a proposal that fits that description. It is right there on the shelf, waiting."

Quote of the Week

"If you are going to broaden the base and lower the rates, you are going to have to spend a lot of time working. It just cannot be jammed. I hope that's a lesson that's learned in the effort to repeal and replace the Affordable Care Act." - former Senate Finance Committee Chairman Max Baucus (D-MT), March 28 Washington Post

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