This week (May 15-19)

Congress in: The House returns from a one-week recess. The Senate is also in session.

Ways and Means hearing: On Thursday, May 18 (at 10:00 a.m.), the House Ways and Means Committee will hold a hearing on "How Tax Reform Will Grow Our Economy and Create Jobs Across America," which is to focus on "tax reform policies that will generate economic growth, create jobs, and increase paychecks for all Americans." Witnesses have not yet been announced. Chairman Kevin Brady (R-TX) said the Committee will "hear from witnesses about specific policy proposals that deliver the most economic growth and how our ideas will directly help hardworking taxpayers and the businesses that create jobs across America."

Brady at Politico event: Chairman Brady is scheduled to participate in a May 17 (at 5:30 p.m.) Politico event titled, "An Audit on Tax Reform: Washington's Road Ahead."

Last week (May 8-12)

Kautter nominated as Asst. Secretary: The White House May 10 announced the nomination of Dave Kautter, a former Director of National Tax at EY, as Assistant Treasury Secretary for Tax Policy, and formally sent the nomination to the Senate the following day. The White House's announcement noted that Kautter "currently serves as Partner-in-Charge of the Washington National Tax practice for RSM, an audit, tax, and consulting services firm. He was also previously the Managing Director of the Kogod Tax Center and Executive-in-Residence at the Kogod School of Business at American University (AU). Prior to his work at AU, Mr. Kautter spent over 30 years at Ernst and Young, including serving as Director of National Tax for over 13 years. Mr. Kautter also worked on Capitol Hill as Tax Legislative Counsel for former Senator John C. Danforth of Missouri. He is a high honors graduate of the University of Notre Dame and received his J.D. from Georgetown Law Center." The nomination must be confirmed by the Senate, a process that will start with a hearing before the Senate Finance Committee. The announcement was welcomed by Finance Committee Chairman Orrin Hatch (R-UT), who said in a press statement, "I look forward to having him before the committee and learn more on how he will work with Congress to advance pro-growth tax reform that will help expand the economy, create more jobs, and increase paychecks for more Americans."

Trump, Mnuchin clarify tax reform views: In an interview in The Economist conducted on May 4 and posted on May 11, President Trump and Treasury Secretary Steven Mnuchin clarified some views on tax reform, including their preference to retain the deductibility of net interest expense in some form for businesses and reluctance to embrace border adjustability. Both of those views run counter to the House Republican Blueprint on tax reform, and came as the Administration and Republicans on Capitol Hill work to develop a "unified" tax reform plan. Regarding interest deductibility, Secretary Mnuchin said "we're contemplating keeping it. That's our preference. But we'll look at everything." A May 12 Bloomberg BNA report cited Republican senators, in the wake of Mnuchin's comments, as doubting that deductibility of net interest expense will be eliminated under tax reform legislation. "I have a strong feeling they're not going to get rid of the interest deduction, but you never know," Chairman Hatch said. Senator Ron Johnson (R-WI) was quoted as saying "my guess is that you will continue to be able to deduct interest."

Asked about border adjustability, President Trump acknowledged that the Administration is working with Congress but said, "it's not really what I'm considering." Responding to a question on his feelings about a value-added tax (VAT), President Trump said "a lot of people consider the border tax a form of VAT." He said he likes the concept of a VAT, but because the United States is accustomed to an income tax, "I don't think it can be sold in this country, I think it's too much of a shock to this system." President Trump continued to call for a reciprocal tax, "conceivably with lots of countries," to align the treatment of foreign goods with how US goods are treated by other nations.

More generally, the President said economic growth is not possible "if your companies are leaving the country because taxes are too high," and repeated previous comments that companies that leave the United States should not be able to import their products into the country tax-free. "[T]hat's not going to happen anymore. They're going to have a very large tax to pay, in the vicinity of 35%," the President said. Regarding budget neutrality and economic growth, he said it is OK for a tax bill to increase the deficit because "we have to prime the pump," meaning "what you have to do is you have to put something in before you can get something out." President Trump said money would flow back into the United States as a result of a reduced rate on repatriation of the foreign earnings of US companies. He said the Administration backs a repatriation tax rate of 10%, which is consistent with his campaign proposal — the rate was left unspecified in the tax reform outline released by the White House on April 26 — as well as reducing the "bureaucracy" associated with repatriation. "We're going to make it simple," Secretary Mnuchin said.

The President said he may align his tax plan with infrastructure investment, which appeals to Democrats. Mnuchin said he has been meeting with Democratic senators, many of whom "actually believe we're on to the right tax plan to bring back business to America, and that's what they're all about, they want to grow jobs in their states, just like the president does."

Senators on Administration views, ACA taxes: Administration officials have been holding meetings with Republican senators on tax reform, and Bloomberg BNA reported Finance Committee Chairman Hatch as saying Secretary Mnuchin and National Economic Council Director Gary Cohn are against border adjustability. Hatch and other Republican senators have also expressed concerns about the House proposal. The Chairman did acknowledge that the Senate will have to look for ways to offset the cost of the Trump tax plan. "We'll have to raise revenue, there is no question about that," he said.

Meanwhile, with attention now on the Senate following the May 4 House approval of a bill to repeal and replace much of the Affordable Care Act (ACA), Republican senators including Chairman Hatch said some ACA tax provisions may need to be retained to offset health provisions. The American Health Care Act (H.R. 1628) would repeal many ACA taxes beginning in 2017, including the 3.8% net investment income tax. Tax Notes reported Senator Susan Collins (R-ME) as saying May 9, "I don't see how you can repeal all of the pay-fors that were used to finance the ACA and still meet the goal of providing health insurance coverage for people who truly need assistance." Senate Republican Whip John Cornyn (R-TX) was quoted in a May 10 Wall Street Journal report as saying he is skeptical of retroactive tax provisions and that, "We're going to save a whole bunch of money, but we're going to have to spend some money too, to make sure people have access. So how that sorts out is part of the puzzle."

Ryan in Ohio and on Fox: House Speaker Paul Ryan (R-WI) held a roundtable discussion with local businesses in Ohio May 10, seen as part of an effort to pivot from health care to other issues like tax reform. The New York Times reported Speaker Ryan as telling the group that he is working on ways to ensure that the border adjustability proposal included in the House Republican Blueprint does not harm US industries. The article also reported on concerns about the proposal expressed by Ohio businesses.

On Fox News May 10, Speaker Ryan said he hoped that health care legislation could be wrapped up by the end of the summer, with the Senate advancing it in a month or two, and remains confident that tax reform will get done this year. "At the same time we're going to be working on tax reform," he said. "So it's not as if we wait for one to be finished and then go work on something else." Speaker Ryan said the tax reform process is "more collaborative. It's more organic and bottom up." He acknowledged that the road to tax reform is bumpy, but repeated comments suggesting that, "We are wired as Republicans with the same DNA, which is stop overtaxing manufacturers and producers. Stop hurting families with an abusive IRS and a complicated tax code. So we are in such agreement on the critical principles of tax reform and we also know that this is key for economic growth."

Wyden on infrastructure: Senate Finance Committee Ranking Member Ron Wyden (D-OR) May 11 called on the Trump administration to address long-term funding issues facing America's aging infrastructure and expressed concern about the Trump campaign proposal for "a massive privatization of public infrastructure assets" underwritten by taxpayers. "I write today to express my strong concern over the Trump administration's pursuit of policies that will enrich wealthy investors with tax giveaways, at the expense of direct investments that would drive our economy forward, improve productivity, and create middle class jobs," Wyden said in a letter to Secretary Mnuchin. He also referred to the infrastructure plan released by Senate Democrats in January, which called for $1 trillion in investment and closing unspecified "tax loopholes." Senate Commerce, Science, and Transportation Committee Chairman John Thune (R-SD) was quoted by Politico May 10 as saying "from a scheduling standpoint," it will be hard for Congress to address infrastructure this year. "We've got to do the budget to do tax reform and finish health care first," he said.

Quote of the Week

"There are two to three trillion dollars … of money sitting overseas that can't come back in to America to be reinvested in our economy because of our tax laws. So we've got to make it so that all these businesses … can bring their money home. Because right now, what the tax code says is, 'If you make money overseas, keep that money overseas, invest overseas, build factories overseas' — we don't want to do that. Let people bring their money back home, companies bring their money back home, and reinvest it in this country. That is a critical piece of tax reform that we know will create jobs and economic growth." — House Speaker Paul Ryan (R-WI), May 9 on "Fox & Friends"

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