This Week (April 3-7)

Aiming for 'cohesive plan,' not on 'same page' yet : The Administration and Republican leaders in Congress suggested they aspire ultimately to coalesce around a single tax reform plan but have yet to do so, leaving the details and timing of the effort largely unsettled. "The House has a plan, but the Senate doesn't quite have one yet. And they're working on one. This White House hasn't nailed it down," House Speaker Paul Ryan (R-WI) said April 5 during a WisPolitics event in Washington. "So, even the three entities aren't on the same page yet on tax reform." National Economic Council Director Gary Cohn suggested during an April 7 Bloomberg TV interview that the goal is to arrive at a cohesive plan and to act during 2017, but not necessarily by a certain date. Asked about a timeframe and the prospect of tax reform by the August congressional recess, Cohn said: "We are spending an enormous amount of time on taxes right now … We are coming up with a cohesive plan. We are going to launch with one cohesive plan together. I don't know if it's August or not. Getting it done well and getting it done right is more important than getting it done soon. We are committed to getting it done this calendar year. So this calendar year is very important to us. And you will see much more out of us on taxes. When the Congress comes back from the recess, we have a lot of important meetings scheduled with congressional leaders in the beginning of next month."

Speaker Ryan's comments followed a question about why tax reform could not have preceded health care legislation, which Ryan attributed to baseline issues — the $1 trillion in Affordable Care Act taxes that would have been cut under the health bill would need offsets in tax reform — and because Congress will need a longer amount of time to do tax reform. Still, he said, tax reform will be easier because "everything you want under tax reform" can be included under the reconciliation process and because "Republicans are wired far more similarly with each other on tax issues than they are, say, on health care issues." Issues like regulatory relief could not be addressed in health care legislation because of reconciliation rules, he said.

Infrastructure link under consideration: President Trump said in an April 5 New York Times interview that he expects to have a "great infrastructure plan" with bipartisan support, and that he may combine it with another issue. Asked whether he is considering accelerating the timetable for the plan, which had been expected later, the President said: "I am. I'm thinking about accelerating it. I'm thinking about putting it with another bill. Could be health care, could be something else. Could be tax reform." NEC Director Cohn said during the interview the President is "spending an enormous amount of time on trade and taxes — those are two big areas." Asked where he is in terms of the border adjustment tax, Trump said: "Well, we're very much — I don't want to announce it yet — but we're very much set, my team and others — [Treasury Secretary] Steve Mnuchin, lot of other people — we're very much set on the concept of the tax." He further said, however, "We want to see what happens with health care first."

Brady on timing, hearings: House Ways and Means Committee Chairman Kevin Brady (R-TX) also signaled that the goal is for Republicans to unite behind a plan. Asked on CNBC April 4 about the timing of tax reform given reports that the White House is looking at new options, Brady said, "I think that one of the lessons from health care is to not rush, to be deliberate. I think the sooner the White House and Congress get on the same plan, the better it is. Look, we are still looking very much [at] tax reform in 2017. We are going to keep that process going forward." Confronted with the notion that tax reform may not happen by August, the Chairman said, "From the House Ways and Means perspective, we are still moving toward spring action in our Committee, but we are also going to make sure we really draw members in, listen to make sure we are creating the best product possible."

Chairman Brady met with Ways and Means Democrats on tax reform on April 5 and, according to various reports, said tax reform hearings would be held as soon as late April or May. Brady reportedly acknowledged that President Trump had not yet decided whether to support border adjustability, but said without it the corporate tax rate could only get cut to about 28% instead of 20%. Tax Notes April 6 reported that Tax Policy Subcommittee Peter Roskam (R-IL) is in charge of scheduling the hearings, and the extent to which they will be held in the full Committee or the Subcommittee has not been determined. "We've got a good story to tell, and we also want to get good feedback and input all the way around on these core themes of growth, simplicity, dealing with base erosion, and making sure we're talking about a permanent code. Those will be the general themes," Roskam said.

On April 6, Brady derided as probably fitting "the definition of fake news" a Freedom Partners and Americans for Prosperity study finding that border adjustability could mean billions in new taxes for businesses in many states. It said cost increases would fall directly on importers — and subsequently consumers — with the auto and retail industries among the hardest hit.

VAT or carbon tax said to be options: CNBC's question to Brady about the White House looking at new options followed an April 4 Washington Post report that a value-added tax and a carbon tax are being explored, which the Administration appeared to dismiss. "As we have said many times, the President's team is hearing input from experts on all sides of the tax reform debate as we formulate what will ultimately be the President's plan to enact the first significant tax reform since 1986," Deputy Press Secretary Lindsay Walters said in a press statement. "As of now, neither a carbon tax nor a VAT are under consideration."

McConnell pessimistic on bipartisanship: Senate Majority Leader Mitch McConnell (R-KY) has his doubts about bipartisanship on tax reform. "Today's Democratic Party, seems to me, believes that tax reform is about income redistribution — how much can we get out of successful people in order to push down to those who have been less successful," he said during an April 7 news conference. "That's not about growing the economy, and so I would love to be able to do tax reform on a bipartisan basis, but I think most of the Democrats today believe tax reform is a tax hike and tax reform is about making America more competitive." Senator McConnell said the United States did not have a single year of 3% growth during the Obama presidency, and a lack of interest among Democrats in getting the economy growing again probably means Republicans must use budget reconciliation for tax reform. "I'd love for the Democrats to be a part of that. I don't think they look at this the same way we do, as a jobs issue, and so I am not anticipating their cooperation," Senator McConnell said.

Several of McConnell's Republican members have expressed wariness about the House border adjustability proposal. Former Chairman and current Finance Committee member Chuck Grassley (R-IA) was the latest to comment, telling reporters April 3 that opponents of border adjustability need not worry because the Senate won't entertain it. "If the Senate starts working on a tax bill of its own, you aren't going to hear anything about border adjustment in the Senate Finance Committee," he said, as reported by Bloomberg BNA.

House Ag hearing: An April 5 House Agriculture Committee hearing on "Agriculture and Tax Reform: Opportunities for Rural America" aired concerns about issues including deductibility of net interest expense, which the House Blueprint on tax reform would eliminate while providing full expensing for all capital expenditures except land. Chairman Michael Conaway (R-TX) noted that both he and the ranking member are CPAs and said the hearing was an opportunity to offer members an understanding of how the tax system affects farming and ranching, a sector subject to "many unknowns" related to weather, international trade, and other factors. Ranking Member Collin Peterson (D-MN) said he had "some real questions" about the effect on agriculture of eliminating the deductibility of net interest expense, and also that border adjustability could collapse export markets. Ways and Means Committee members testified at the hearing, including Rep. Kristi Noem (R-SD), who said the concerns expressed by Rep. Peterson have been debated in Ways and Means meetings. Noem, who is running for governor, said the agriculture industry is highly leveraged, with producers taking loans for land, machinery and operations. Rep. Lynn Jenkins (R-KS) also discussed the importance of interest deductibility. Agriculture Committee member Steve King (R-IA) said interest expense is an essential write-off for young and beginning farmers. "I never imagined that anyone would propose that you wouldn't be allowed to deduct your interest expense," he said, adding that it would unfairly benefit those with cash over those who borrow. Witness Patricia Wolff of the American Farm Bureau Federation said in response that agriculture is almost completely debt-financed. Rep. Bob Gibbs (R-OH) said agriculture is a highly cyclical industry and, "This notion to do away with the interest deduction is ludicrous."

Next Week (April 10-14)

Congress out: The Senate and House are out of session until the week of April 24.

The next Senate vote will be at 5:30 p.m. on Monday, April 24, on the nomination of Sonny Perdue to be Secretary of Agriculture.

Votes are scheduled to resume in the House on April 25.

PIIE event: On April 13 (at 12:15 p.m.), The Peterson Institute for International Economics will hold a discussion on "Upgrading the Tax System to Boost Productivity." Participants include: Vitor Gaspar, director of the IMF Fiscal Affairs Department; Jason Furman, senior fellow at Peterson; and Mihir Desai, professor of law at Harvard Law School.

Quote of the Week

"We're not going to be able to realize opportunities for the next generation unless we get the country growing again. So I expect we'll be left with the reconciliation device because of a central lack of interest on the Democratic side in trying to get us going again. The two things that will get us going again — one is regulatory relief, and we've done 11 CRAs already. We hope to do a few more before the time runs out. The Administration is trying on its own to curb, delay or stop some of the most egregious regulations that have slowed the economy down. If we can succeed in serious regulatory reform and get a more rational tax code, we can get this country growing again, which will provide more jobs and opportunity for everybody." — Senate Majority Leader Mitch McConnell (R-KY), April 7

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