This week (May 8-12)

House out, Senate in: The House is out for a one-week recess. The Senate returns to session Monday, May 8 with business that includes the nomination of Scott Gottlieb to be FDA Commissioner. On May 9, the Finance Committee will hold a hearing on "The Children's Health Insurance Program: The Path Forward."

Last week (May 1-5)

House passes health care bill: The House, on May 4, approved by a 217-213 vote, a bill to repeal much of the Affordable Care Act (ACA), which was seen as a victory for President Trump and Speaker Paul Ryan (R-WI) after they were forced to pull a previous version of the bill from the House floor March 24 when it became clear it lacked sufficient Republican votes. The American Health Care Act (H.R. 1628) would repeal many ACA taxes beginning in 2017, including the 3.8% net investment income tax. Changes are expected in the Senate, where the support of nearly all 52 Republicans will be necessary to approve health care legislation, even under the reconciliation process that allows for a simple majority vote. "[W]e will be working to put together a package that reflects our members' priorities with the explicit goal of getting 51 votes," Senate Finance Committee Chairman Orrin Hatch (R-UT) said in a statement on the House vote. "Coupled with the constraints imposed by the budget reconciliation process, we must manage expectations and remain focused on the art of the doable as we move forward." Senate Republican Whip John Cornyn (R-TX) said there is no timeline for a Senate vote: it will happen when there is sufficient support for a bill. Majority Leader Mitch McConnell (R-KY) has appointed a working group to consider what changes should be adopted to the House bill.

If the nearly $1 trillion in tax cuts under the House bill are enacted, it would take pressure off of Congress to address any of the ACA taxes in tax reform. Addressing those tax issues in tax reform in a budget-neutral way would require tax increase offsets. During a White House event following the vote, House Ways and Means Committee Chairman Kevin Brady (R-TX) said it was a "giant step toward a day when Americans aren't struggling under $1 trillion of tax hikes," and toward tax reform. President Trump, who has said cutting taxes under the health bill would be helpful to tax reform, said the process of working toward House passage strengthened his relationship with members. "We just have developed a bond. This has really brought the Republican Party together …," he said. "We're going to get this finished, and then we're going, as you know, we put our tax plan in, it's a massive tax cut … Also, pure tax reform. So we're going to get that done next. And this really helps it."

President Trump on tax reform: In a May 1 Bloomberg interview, President Trump said his tax plan outlined on April 26 — which calls for a 15% business tax rate and a switch to a territorial system of taxing foreign earnings — is a starting point for negotiations. "Hopefully I don't have to change it very much, and maybe I won't have to change it at all, but everything's a starting point," he said. The outline did not address the border adjustability proposal in the House Republican Blueprint, which the Administration does not plan to embrace in its current form. President Trump said he is a "big believer in a reciprocal tax," which he sees as more of a trade issue but one that could bring in significant revenue and cannot be disputed by other nations. "I've even said to other countries — I've said, 'Listen, you're charging us a lot. We're going to charge you the same thing.' They shrug their shoulders. They can't fight it. But if you say you're going to put a 10% tax on — everyone says, 'Oh, you're taxing. You're taxing,'" he said. "I love a reciprocal tax. Nobody can fight it, it's fair and it's something that we are working on very strongly."

Dismissing revenue neutrality: Members of the conservative House Freedom Caucus, who opposed the March version of the health bill and subsequently secured changes that won their support, are now seeking to influence the tax reform debate and are working on a bill. "We're looking at President Trump's tax reform plan to see how we can maybe put some legislative text to that to come alongside the administration," Rep. Mark Meadows (R-NC) said in remarks reported by Politico, "and hopefully agree more than we disagree and move what he proposed in those bullet points the other day. We've got guys working on that." Rep. Meadows, the group's leader who previously said a tax bill does not need to be offset with border adjustability or another proposal, was quoted in a May 5 Reuters story as saying, "If it's revenue neutral, you're not really lowering taxes. You're shifting the burden." Rep. Jim Jordan (R-OH), the group's chairman emeritus who has also expressed concerns about border adjustability, said on Bloomberg TV May 3 he is interested in increasing economic growth and "that's why the principles that the President rolled out last week on the tax reform I think make so much sense, bringing the corporate rate down." The focus on tax cuts over revenue neutrality and border adjustability is at odds with the House GOP Blueprint.

Senate Finance Committee Chairman Hatch told Bloomberg TV May 4 he would not insist on a revenue-neutral bill "if we could cut taxes in an appropriate way that actually it would boom the economy and the economy will start moving forward." He said lawmakers may only be able to reduce the statutory corporate income tax rate to 20% or 25%, but that would still be significant. In a May 1 floor speech, Chairman Hatch said the Trump plan "would make our country more competitive in the international marketplace and reduce the tax burden on millions of middle-class families." On Fox News May 2, Finance Committee member Rob Portman (R-OH) emphasized the importance of dynamic scoring and a current policy baseline that accounts for provisions like bonus depreciation, which is temporary. Finance Committee member John Thune (R-SD) said May 2 Republicans are anxious to work with the President to reform the tax code in a way that "gets the economy growing at a faster rate which will create better paying jobs and higher wages in this country." He said during a May 2 speech that he will soon introduce a bill to ensure pass-through entities "are not left behind" in tax reform.

Brady wants to merge two plans: Consistent with Administration officials saying they will release more details on a tax reform plan they support only when there is buy-in from congressional Republicans, Ways and Means Chairman Brady has signaled that he doesn't plan to move a bill out of the Committee before the Administration releases a more detailed proposal. In the midst of a Ways and Means Republicans tax reform retreat April 30-May 1, Tax Notes reported Chairman Brady as saying Committee hearings on tax reform will likely begin in May, but first they hope to merge the House Blueprint with proposals outlined by the White House. "The goal … is a unified plan with the White House, the Senate, and House Republicans, that dramatically improves the chances for success, and do it this year," Chairman Brady said on Fox News May 2. "I'm not worried about the month, I'm focused on the year. And 2017 is our best chance in 30 years." Asked during a separate Fox interview May 1 whether it may be time to let go of the border adjustability proposal that some say would tax consumers, Chairman Brady said: "Oh, no, and here's why. It isn't a tax at all on consumers or the economy. What we have right now is a trillion-dollar tax break for foreign products over made in America products. That of course, has to end. And that same tax rate encourages American jobs to leave, which has been devastating. So we're saying as conservatives, equal taxation, no special breaks. Let's grow this economy in a bold way."

Cohn talking to stakeholders: In a May 5 Fox Business News interview, National Economic Council Director Gary Cohn said the Administration has met with the Freedom Caucus since the rollout of the President's tax plan April 26, and plans to meet with industry groups and others to understand and address tax reform concerns. "We're just starting down the path of taxes. And unlike health care, we are out talking to all the groups that are going to be interested in our tax plan," he said. Cohn emphasized the need to reduce the corporate rate and suggested a simplified tax system could actually increase revenue collected from some companies: "Think about the reality here: OECD average tax rate for businesses is 23% … 15% is a number we have to get to and remember the way the tax code is written today we have a lot of companies that don't even pay the 15% tax rate and at 35% they are using all the deductions and all the tools that they have created in the tax code to get their marginal rate down to zero. If we can get those businesses back up to 15%, there is a lot of revenue in this tax plan." During a CBS This Morning interview May 1, Cohn would not say when a more detailed plan may be released. "We want to get an enormous amount of input before we draft the final bill. When we deliver the final bill, we are going to have a bill that is bought into by the House and the Senate …," he said. "We're going make this tax bill work. And the way to make the tax bill work is to work with Congress before we draft the bill."

Mnuchin says details released "as fast as we can:" Asked during a May 1 CNBC interview about when additional details will be released, Treasury Secretary Steven Mnuchin said, "As fast as we can," adding that there are meetings weekly at the leadership level and more often at the staff level. Mnuchin said the White House did not come out with a more detailed tax plan because they want to work with the House and Senate and have a joint agreement. "So when we release this plan, it's something that can pass Congress and the President can sign," he said. Asked whether the Administration is concerned that high-income individuals could benefit from the 15% business tax rate that will be available to pass-through entities, which is far lower than the proposed 35% top individual rate, Secretary Mnuchin said rules will make clear that wage earnings will be taxed as wage earnings.

Taxation of financial products, energy: Senate Finance Committee Ranking Member Ron Wyden (D-OR) May 2 introduced a bill (S. 1005) that aims to provide one set of rules for taxing derivatives by requiring the recognition of gains each year ("mark to market") and applying ordinary tax treatment to such gains. The Modernization of Derivatives Tax (MODA) Act of 2017 is similar to a discussion draft issued a year ago, but includes technical modifications, many of which were based on stakeholder input. The Joint Committee on Taxation noted that the bill would expand the scope of the mark-to-market rule to a broader group of taxpayers and contracts than has been subject to the rule in the past, and has scored the bill as raising about $16 billion over 10 years.

On May 4, Senator Wyden unveiled a bill that "proposes a dramatically simpler set of long-term, performance-based energy tax incentives that are technology-neutral and promote clean energy production and storage in the United States."

Carried interest bills: Rep. Sander Levin (D-MI) and Senator Tammy Baldwin (D-WI) May 2 introduced carried interest bills "to provide for the proper tax treatment of personal service income earned in pass-thru entities" (H.R. 2295, S. 1020). The President's tax plan did not address carried interest, but on ABC's This Week April 30, White House Chief of Staff Reince Priebus said, "Carried interest is on the table and the President wants to get rid of carried interest. So that balloon's not going to stay inflated very long. I can assure you of that."

Quote of the Week

"Overall, the President's tax plan would make our country more competitive in the international marketplace and reduce the tax burden on millions of middle-class families. Clearly, as the effort moves forward, Congress and the administration will have to fill in the specifics. We'll need to see how the numbers work out and where the votes are for any particular reform proposal. This is going to take some time. But, as the Chairman of the Senate's tax-writing committee, I believe we can be ready to move in relatively short order, and I intend to work closely with my colleagues on the Finance Committee, our leadership here in the Senate, leaders in the House, and, of course, the administration to finalize a reform package and get it across the finish line." — Senate Finance Committee Chairman Orrin Hatch (R-UT), May 1 Senate floor speech

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