Senate Finance Committee members questioned Treasury Secretary Steven Mnuchin on May 25, 2017, about Administration ideas for how to pay for tax reform given the lack of detail in the President's FY 2018 Budget and April tax reform outline. Mnuchin said during a hearing that the Administration was not ready to release additional tax reform details in the Budget, and there are "lots of different issues for base broadeners that are critical" to pay for a tax reform that should be revenue neutral when accounting for economic growth.

Asked by Senator Dean Heller (R-NV) about border adjustability, Secretary Mnuchin said the Administration has suggested to House Republicans that they go back and rework their proposal. Regarding other ways to pay for tax reform, Mnuchin said revenue would come from base broadening and the Administration is looking closely at different alternatives. "Nothing is off the table as far as we're concerned," he said.

Senator Chuck Grassley (R-IA) asked whether the Administration favors slowing or accelerating depreciation or full expensing, given that former House Ways and Means Committee Chairman Dave Camp's (R-MI) tax reform bill proposed slowing depreciation and the President's tax reform materials have been silent on the issue. Mnuchin said they recognize the need for capital investment to fuel economic growth, "So, no, we do not support slowing depreciation and we're looking at various different alternatives as we build the tax plan." Mnuchin repeated earlier comments that the Administration's preference is to retain interest deductibility under any tax reform.

Senator John Thune (R-SD), who recently introduced a bill to make permanent 50% bonus depreciation and improve cost recovery and accounting for small businesses, also asked about the Administration's plans in that area. Mnuchin said the Administration is "looking at a variety of ways to increase depreciation." Thune also said some have concerns that increasing the standard deduction could create disincentives for charitable giving, which Mnuchin said he would follow up on.

Senator Sherrod Brown (D-OH) told Mnuchin "you're not at all specific on taxes yet" given that the Administration's tax outline is "a single page of bullet points." He asked if the Administration is planning to propose changes in several specific tax areas. Secretary Mnuchin's answers are provided in the following list:

— Earned Income Tax Credit and the child tax credit? "It's not a focus of ours at the moment."

— Deductibility of mortgage interest? "No, we are not considering that."

— Like-kind exchanges? "That is one of the many different things that could be looked at, but we've made no decision on it."

— New Markets Tax Credit? "At the current time we are not."

— Treatment of cash accounting? "Again, I would just say, we are in the process of developing the overall plan so we haven't gone through all of these."

— Last In, First Out accounting? "Again, it's not something we're considering at the moment."

— Treatment of life insurance companies? "Again, as I've said, we're developing the overall plan so we're looking at many, many different ways of broadening the base. So that specific one I haven't seen but, again, I just want to emphasize, we are looking at things across the board."

— Treatment of state and local bonds? "Again, I have said our preference is strongly to keep the interest deductibility of state and local bonds."

— Low-Income Housing Tax Credit? "Again, at the moment that's not something that I've seen."

Senator Bob Casey (D-PA) asked whether the Administration plans to propose changes to the deduction for student loan interest or higher education expenses, which Mnuchin said he does not expect but is not prepared to say for sure as consideration of base broadening continues.

Energy issues

Senator Grassley also discussed his American Renewable Fuel and Job Creation Act that would convert the current biodiesel blenders' credit to a producers' credit, in an effort to ensure that the credit incentivizes domestic production and not imported fuel, such as fuel from Argentina. Mnuchin said it "sounds like a good plan and we look forward to working with you on the details of that."

Senator Heller talked about his desire for parity among tax credits for solar, geothermal, and wind, and said the 2015 PATH Act left some credits out, including for geothermal. He said "these alternative energies like solar, geothermal and wind have a huge potential in the state of Nevada as far as job creation," and asked about finding equal treatment among the different industries. Mnuchin said, "I'm only broadly aware of the issue, but I'd be more than happy to follow up with you and your staff on it."

Tax reform process

In an opening statement, Chairman Orrin Hatch (R-UT) said he thinks demands that Republicans abandon the use of budget reconciliation for tax reform are odd given that most major tax bills that have moved through reconciliation have had bipartisan support. Foreclosing the use of reconciliation "would be to ensure that the minority would be able to more easily block any bill from passing," he said.

Ranking Member Ron Wyden (D-OR) said reconciliation is "inherently a partisan process," and lamented that the Administration has offered only a "one-page tax cut proposal that is shorter than the typical drug store receipt" and "is dusting off the old disproven idea that tax cuts completely pay for themselves." Senator Wyden concluded the hearing by referencing his own previous tax reform bills and saying Democrats agree "that the current system is a mess" and want to work in a bipartisan way on changes to create more well-paying jobs. "And I made it clear this morning that I would work very closely with my friend Chairman Hatch because he believes that we also will try to work in a bipartisan way, but you're going to have to speed this up in terms of getting specifics," he said.

Statements from Chairman Hatch and Senator Wyden are attached, along with Secretary Mnuchin's testimony.

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ATTACHMENTS

Mnuchin Testimony

Hatch Statement

Wyden Statement