The House Republican border adjustability proposal continued to be a primary topic of discussion in comments from House Speaker Paul Ryan (R-WI) and a House Ways and Means Committee hearing on the FY2018 Budget featuring Treasury Secretary Steven Mnuchin. The Secretary also addressed the federal debt limit and potential changes to the budget window.

In response to questioning by Rep. Lloyd Doggett (D-TX), Secretary Mnuchin affirmed that he has concerns with the proposal in its current form and said his understanding is that Chairman Kevin Brady (R-TX) is going to look at changes. "I don't think it's our job to fix it," Mnuchin said. He later confirmed the Administration's continued interest in a "reciprocal tax" but did not provide details about what that would involve, and again stated that his preference is to retain interest deductibility in any tax reform legislation.

Secretary Mnuchin also declined to say whether the Administration might release additional tax reform details in the near future. "I can assure you, Chairman Brady, Chairman Hatch, myself, Gary Cohn at the White House — we are all working as fast as we can possibly be," he said. "This is our highest priority."

Speaker Ryan, during an Axios interview, described a similar level of coordination and said changes to border adjustability, including possibly dropping it, are being considered. Asked whether he could envision the House passing tax reform without border adjustability, Ryan said, "Of course, that's the kind of conversation we're having." In light of Secretary Mnuchin's comments about not supporting the proposal in its current form, Speaker Ryan said: "I've long been saying we don't want to precipitate a 25% currency appreciation overnight … The intention of the Blueprint was not to say, 'We are going to require a 25% currency appreciation tomorrow.' We know that there are import-sensitive industries, retailers that could be severely disrupted if this is done the wrong way."

Notably, a senior Republican on the Committee, Rep. Pat Tiberi (R-OH), during the hearing said he wanted to associate himself with colleagues who expressed concern with the current border adjustability proposal and its effects on consumers and workers during the Committee's tax reform hearing on May 23.

Despite concerns from other Republican Committee members, Tax Policy Subcommittee Chairman Peter Roskam (R-IL) continued to champion border adjustability as an anti-base erosion mechanism, which is an issue Roskam said was a struggle in recent years for the Committee and for the Obama Administration. Other proposals on the issue do not work, including the previous Administration's Section 385 regulations, he said. "The attractive thing about border adjustment is that it works," Roskam said. "So if all we are doing is lowering the corporate rate and flipping to a territorial system, it's a huge incentive to put IP out of the country." Mnuchin later declined to comment on timing of the tax regulatory review that is expected to include the Section 385 regulations.

Debt limit

In response to a question from Chairman Brady, Secretary Mnuchin asked Congress to raise the debt limit prior to the August congressional recess, and said there is a preference for a clean increase, without addressing other issues. The statement was supported by Committee Democrats, including Rep. John Larson (D-CT), who said Congress cannot leave in August with the issue uncertain. OMB Director Mick Mulvaney told the House Budget Committee during a May 24 hearing that tax receipts are coming in slower than expected, which could require a debt limit increase sooner than previously anticipated.

Like Mulvaney, Secretary Mnuchin also expressed openness to a budget window of longer than 10 years, which some have raised as a possible way to accommodate a corporate tax rate cut under reconciliation. Asked about the issue during the Budget Committee hearing, Mulvaney said he agrees Congress should consider a longer budget window "and my understanding is that you can do that without legislative change …"

"We are exploring the possibility of also looking a little further out," he said.

In an April 25 letter to Speaker Ryan, the chief of staff of the Joint Committee on Taxation projected that the revenue loss for a three-year cut in the corporate tax rate to 20% would be significant and that there would be "nonnegligible" losses in the tax years immediately following the 10-year budget window. The letter suggested that even "sunsetting" a 20% corporate rate after such a short time will create problems under the Senate's budget reconciliation rules that could subject a bill containing such a provision to a 60-vote point of order. Senator Pat Toomey (R-PA) has suggested the use of a "longer horizon" to navigate obstacles under reconciliation that are related to the budget window.

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