12 June 2017

EY Center for Tax Policy: This Week in Tax Reform for June 9

This week (June 12-16)

Congress in: The House and Senate are in session.

Senate Small Business hearing: On June 14 (at 3 p.m.), the Senate Small Business and Entrepreneurship Committee will hold a hearing to examine tax reform, focusing on removing barriers to small business growth. Witnesses:

— Brian Reardon, President, S Corporation Association
— Annette Nellen, Chair, AICPA Tax Executive Committee
— Mark Mazur, Director, Urban-Brookings Tax Policy Center

Last week (June 5-9)

Perspectives on tax reform timing: In a June 5 briefing on the President's legislative agenda, White House Director of Legislative Affairs Marc Short suggested, consistent with comments from National Economic Council Director Gary Cohn, it will likely be after Labor Day before the release of the Administration's detailed tax plan with input from Congress. "What we're trying to avoid is to have a House bill, a Senate bill, and a White House bill," he said. A June 6 meeting included Cohn, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell (R-KY), Senate Finance Committee Chairman Orrin Hatch (R-UT), House Speaker Paul Ryan (R-WI), and House Ways and Means Committee Chairman Kevin Brady (R-TX). Cohn said the group is "on schedule" for tax reform. In a Fox News interview, Chairman Brady said this meeting was one of a series of regularly scheduled meetings and that they are "sticking to the timetable" for tax reform to be completed this year. "We're just going to stay the course, grind this out, work through the big problems, have a unified tax plan going forward," he said. Tax Notes reported Brady as saying June 6, with regard to the House Republican tax reform Blueprint's border adjustability proposal that is the subject of significant opposition, "I'm convinced that working with others — the White House and Senate — that we can design and transition it in a way that addresses the concerns that have been raised." Earlier June 6, President Trump met at the White House with Republican congressional leaders, including Speaker Ryan and Senator McConnell. In remarks at the start of the meeting, the President said the Administration is working with Congress "to pass a massive tax cut which will be the biggest tax cut in our country's history if it's passed the way we'd like to have it passed. It will be the biggest tax cut in our country's history, and it will spur business like never before."

Hatch speech: Chairman Hatch June 7 said leaders in both chambers of Congress and the White House are "making some serious headway toward a workable framework" on tax reform, with some unresolved but not insurmountable issues. Hatch said he does not believe an "up-front commitment to revenue neutrality" is necessary. "Personally, I don't see a problem with a tax reform proposal that loses revenue in the short-term if we can show that it will help put our economy on a better growth path," he said during a speech at a transfer pricing conference co-sponsored by Bloomberg BNA. "But, like I said, we'll need to see where the votes are." He said "virtually any" potential revenue offset should be on the table, including the Border Adjustment Tax from the House Blueprint, but that, "given the small margin of error we have in the Senate and the number of senators who oppose the very concept of a BAT, the proposal will have a difficult time becoming law." Senator Hatch said he would not publicly rule anything out until he sees the specifics of the proposal, but The Wall Street Journal reported him as saying that a plan that can't attract 51 senators is a "waste of time." Regarding tax rates, Hatch said he expects House leaders and the Administration are "willing to compromise and move off of their specific targets if it means getting a bill passed."

Freedom Caucus: The House Freedom Caucus is increasingly trying to influence the tax reform debate, with members calling for moving past the border adjustability proposal and tying welfare spending cuts — specifically in the Supplemental Nutrition Assistance Program and Temporary Assistance to Needy Families — to tax reform as a condition for supporting an FY 2018 budget resolution. During a Heritage Foundation event June 9, Rep. Jim Jordan (R-OH), the group's chairman emeritus, said the budget's reconciliation instructions should call for a specific dollar amount from welfare reform and suggested that could convince Caucus members to support higher discretionary spending limits. "You can't get tax reform if you don't have reconciliation instructions. You can't get reconciliation instructions if you don't pass a budget. And right now a budget cannot pass in the House of Representatives … " he said. "Maybe we as the Freedom Caucus can live with a higher budget number if in fact we do real welfare reform on the tax bill." Politico reported Rep. Mark Meadows (R-NC), the group's leader, as saying with Republicans needing to reach agreement between moderates and conservatives on spending levels, the Freedom Caucus can exert its influence on tax reform. "Probably the biggest leverage has nothing to do with tax reform," he said. "It has more to do with the budget and budget reconciliation." During the Heritage event, Meadows said members should arrive at a tax reform plan by the end of July that provides: corporate and small business tax rates of 20%; repatriation over the next 20 months at an 8% rate; accelerated depreciation, perhaps through permanent 50% bonus depreciation; and double the standard deduction for individuals. He said Congress should stay in session during August if it hasn't yet coalesced around a proposal, and should recognize the lack of consensus for the border adjustability proposal. "The sooner we acknowledge that and get on with a plan that actually works and actually can build consensus, the better off we will be," he said. Additionally, the Heritage Foundation published a paper June 8 titled, "Time to Move Past the Proposed Border Adjustment Tax."

Health care: Senate Republicans are working to develop their own approach to replacing the Affordable Care Act (ACA) and there have been suggestions they may retain some ACA taxes, many of which would be repealed beginning in 2017 under the House-passed bill. "I want to get rid of all the taxes, but we have to be realistic in terms of what we can get done and how we can maintain stability in the marketplace for the foreseeable future and until some of the longer-term reforms that we intend to make have had a chance to be put in place," Senator John Thune (R-SD), third-ranking Republican and a member of the Finance Committee, said in a Politico report. The Washington Post quoted Senator James Lankford (R-OK) as saying some taxes will probably stay in because, "We still need to have some way to fund whatever is going to happen." Others stressed opposition to the taxes. In a June 6 Fox interview, Chairman Brady said he is anxious for the Senate "to do their work, not just on health care, but getting those $1 trillion of tax hikes out of the economy. That really clears the way and more importantly, I think, creates momentum for finishing tax reform as well." A June 8 release from Finance Committee Republicans said, "The law's nearly $1 trillion tax hike on the American people has been a stark contrast to what patients and taxpayers were promised."

Infrastructure Week: The White House designated this "Infrastructure Week" and the President appeared at events related to the issue, including embracing a plan to privatize Air Traffic Control. The Administration also touted the fact that the President "has dedicated $200 billion in his budget for infrastructure that can be leveraged for a $1 trillion investment into our crumbling systems," and said investing in rural infrastructure is a key part of the plan. Democrats did not embrace the ideas, with Senate Democratic Leader Chuck Schumer (D-NY) saying the focus on privatization means much less construction and fewer jobs, particularly in rural areas, in addition to more tolls. Still, in a Senate floor speech, Schumer said, "We will have to wait and see what the full details of the plan are before we judge it, but we Democrats welcome a discussion on infrastructure." House Ways and Means Committee Ranking Member Richard Neal (D-MA) this week continued to push for using revenue from a lower tax rate on repatriation of foreign earnings for infrastructure funding.

Quote of the Week

"We have also proposed a historic tax cut — biggest in the history of our country, by the way — and we are fighting for fair trade that creates a level playing field for all of our American companies and our American workers. We are not on a fair playing field, but it's getting fairer by the day. We are bringing back our jobs." — President Trump, June 8

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Contact Information
For additional information concerning this Alert, please contact:
 
Washington Council Ernst & Young
   • Any member of the group, at (202) 293-7474.

Document ID: 2017-0934