This week (June 19-23)

Congress in: The House and Senate are in session.

Ryan speech: On Tuesday, June 20 (at 11:15 a.m.), House Speaker Paul Ryan (R-WI) is slated to speak at the National Association of Manufacturers 2017 Manufacturing Summit. Politico reported that Ryan's office said it would be "his first major speech for tax reform" and timed to roughly coincide with the one year anniversary of the release of the House Republican Blueprint on tax reform. Ryan's office said the speech will not go into the "intricacies" of Republican plans for tax reform, but Ryan "will talk about what tax reform looks like, not just the benefits."

Last week (June 12-16)

Brady sees 5-year transition to border adjustability: House Ways and Means Committee Chairman Kevin Brady (R-TX) June 13 said his current thinking involves a gradual, five-year phase in of the border adjustability proposal that is part of the House Republican Blueprint on comprehensive tax reform, as well as potential exceptions to the denial of net interest expense deductibility. Brady said the planned border adjustability modifications are a response to input from companies concerning: existing long-term contracts; dollar-denominated contracts; the need for time to assess supply chains; and the need for time to see whether the dollar will adjust in response to the proposal, and at what level. "A very gradual five-year phase in really resolves the major challenges," he said at The Wall Street Journal CFO Network annual meeting. He also said the proposal will reflect special circumstances for the financial services, shipping, communications, digital services, and insurance industries. "As you know, it's hard to determine where … the border begins in the cloud, and so we will make refinements to reflect those special circumstances," he said. The Wall Street Journal reported that as part of the transition, only 20% of import costs would be nondeductible in the first year of the proposal and increased until reaching 100% in the fifth year, and the tax exemption for exports would also be phased in at the same rate.

The House Republican Blueprint also proposed 100% expensing of capital investments and eliminating the deductibility of net interest expense. Politico reported Brady as saying that he would not eliminate the interest deduction for small businesses, real estate purchases, or utilities. He said small businesses should also be able to take advantage of full expensing of business investments along with interest deductibility. "I foresee an exemption for small businesses so they can take advantage of both. They often don't have access to capital markets," Brady said.

Last week, Brady expressed confidence that, in developing a "unified tax plan," he could work with the White House and Senate to design and transition the border adjustability proposal in a way that addresses concerns that have been raised.

Reaction from other lawmakers: Not everyone agreed that the proposed transition would resolve the challenges of the border adjustability proposal. Bloomberg BNA reported Rep. Jim Renacci (R-OH) as saying he isn't entirely convinced about the phase in, while Rep. Pat Tiberi (R-OH) said it "helps some." Both of those Ways and Means members have expressed concern about border adjustability publicly. Rep. Mark Meadows (R-NC), leader of the House Freedom Caucus, said, "I think the border adjustment tax, whether you phase it in or you put it in all at the same time, is DOA." Senator John Thune (R-SD), the third-ranking Republican and a member of the Finance Committee, said, "Well, I don't know if that idea is going to be more popular in five years than it is now, but at least it will be better understood." Asked about a phase in, Senate Finance Committee Chairman Orrin Hatch (R-UT) June 15 said, "I have to look at it, but I just don't think we have that kind of time."

Hatch seeking input on tax reform: Meanwhile, Chairman Hatch June 16 called for stakeholder input on tax reform — including business and international tax reform — to be submitted by July 17. Hatch said in a letter to stakeholders that, "after years of committee hearings, public statements, working groups, and conceptual exercises, Congress is poised to make significant steps toward comprehensive tax reform," and is in need of the best possible advice and insight.Hatch said while he hopes to receive submissions on a variety of topics, most matters under serious discussion fall under one of four key issue areas:

1. Providing much-needed tax relief to middle-class individuals and families through reforms to the individual income tax system.
2. Strengthening businesses — both large and small — by lowering tax rates and broadening the relevant tax base in order to put the economy on a better growth path and create jobs.
3. Removing impediments and disincentives for savings and investment that exist in the current tax system.
4. Updating our international tax system in order to make our nation more competitive in the global economy and preserve our tax base.

Chairman Hatch said commenters should be considerate of the fact that lawmakers and stakeholders must "manage expectations and remain willing to compromise on" tax policy preferences, and be mindful of fiscal, economic, and procedural constraints. Hatch's letter said submissions, which will be kept confidential, should be made by July 17 to the Senate Finance Committee (taxreform2017@finance.senate.gov).

Trump, Spicer say work continues: The White House this week signaled that work on tax reform continues, and the President again called for tax cuts and tax reform. In remarks at a lunch with members of Congress June 13, President Trump said "a very big focus for us over the next short period of time are going to be tax cuts, tax reform," in addition to "putting in a very major infrastructure plan." In a June 12 briefing, White House Press Secretary Sean Spicer said, "The president's tax reform team is also continuing to hold meetings and discussions, both at the principal level and the staff level, as we work towards a consensus plan" to provide tax simplification. He said Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn continue to listen to members of Congress from both sides of the aisle. "These meetings have been incredibly productive, and we believe that tax reform is well on track for the president to sign later this year," Spicer said. Administration officials have said they expect to have a tax plan reflecting ongoing negotiations with Republican leaders when Congress returns from the August recess.

Budget window and debt limit: Appearing before the Senate Budget Committee June 13, Treasury Secretary Mnuchin repeated previous comments that the Administration is open to considering a budget window of longer than 10 years. Mnuchin said he is hopeful about getting bipartisan support for tax reform legislation, but if not, "reconciliation is an alternative, and I look forward to working with you and the Senate on ideas, such as a 20-year window as opposed to a 10-year window, to explore that." He was responding to Senator Pat Toomey (R-PA), who suggested consideration of a budget window longer than the traditional 10 years and noted the statute requires only the budget window be at least five years. "A permanent tax reform is the best, but it takes bipartisan support. You just heard we're not going to get that," Toomey said. "So the next best thing is a temporary, great tax code, but making it long enough that we can actually enjoy the benefit." In a May 4 Bloomberg op-ed, Senator Toomey said nothing in the law precludes Congress from using a 20- or even 30-year time frame. "The governing law, the Budget Act of 1974, forbids a relevant tax bill from increasing the deficit beyond the time frame contemplated in the enabling budget resolution. But it does not limit the duration of that time frame," he said. Bloomberg June 15 reported that Senate Finance Committee Chairman Hatch and Rep. Meadows, the leader of the Freedom Caucus, are open to the idea. "The 10 years is problematic," Hatch said. The developments follow the chief of staff of the Joint Committee on Taxation projecting in April that a three-year cut in the corporate tax rate to 20% would result in "nonnegligible" losses beyond the 10-year budget window, which could subject a bill containing such a provision to a 60-vote Senate point of order.

Mnuchin also clarified his view on the debt limit, saying while he would prefer that Congress address the issue before leaving for the August recess, obligations can be met through September. "In regards to the specific timing, we do have plans, if you don't do it beforehand, that — we can fund the government through September, when you get back," he said.

Infrastructure tie-in seen as unlikely: Administration officials seemed to downplay the prospects of tying tax reform to infrastructure investment, which has at various times been seen as an opportunity for bipartisan cooperation. Asked by Senator John Kennedy (R-LA) about the idea of a bipartisan deal to use revenue from a reduced tax rate on the repatriation of foreign earnings for infrastructure, Secretary Mnuchin said, "We want to spend money on infrastructure. We want to bring that money back. Whether we link them or we don't link them … I look forward to working with you and the rest of the Senate on that." Pressed further, Mnuchin said linking the two issues is "an interesting idea," but that, "My job for the moment is to figure out what the right tax plan is for the American people … " Politico reported Transportation Secretary Elaine Chao as saying during a House Appropriations subcommittee hearing June 15 that, "In the beginning part of our discourse internally, there was discussion about having this be part of the — having some portion of tax reform be involved in funding infrastructure. Those discussions, it seems, have ebbed … receded. So it may come back again."

Quote of the Week

"I'm blessed to hold the seat from somebody who's kind of a political hero of mine, Bill Bradley, and I'm really proud of the work he did in 1986 but since then we've screwed things up remarkably. You all put it right: we've seen a lot of special interest groups come in here, narrowing our tax base, keeping it where it was, which is highest corporate tax rate as far as I know, on the planet Earth. And it's ridiculous." — Senator Cory Booker (D-NJ), June 14 Senate Small Business and Entrepreneurship Committee hearing on tax reform

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