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This Week (June 26-30)

Congress in: The House and Senate are in session. Senate Republican Leader Mitch McConnell (R-KY) has noted his strong desire to take up and vote on the health care legislation before the July 4 recess, which is slated for the week of July 3rd.

CBO projections: In addition to estimates of the Senate health care legislation, CBO will release its updated 10-year budget and economic projections on Thursday, June 29 (at 2:00 p.m.). CBO's most recent projections were released in January.

Last Week (June 19-23)

Ryan says search on for best reform plan 'we can pass:' House Speaker Paul Ryan (R-WI) June 20 made the case for enacting comprehensive, permanent tax reform legislation in 2017, and said lawmakers are currently trying to decide on the best version of tax reform in terms of low rates and an internationally competitive system, and "the best one we can pass." In a speech at the National Association of Manufacturers (NAM) 2017 Manufacturing Summit, Ryan said, "U.S. companies are leaving to become foreign companies, when it should be the other way around." He referenced the border adjustability proposal that is part of the House Republican Blueprint on tax reform, but he also acknowledged that other alternatives are being discussed and that he is open to that discussion. He said the country must begin thinking differently so that we can increase US exports. "There are a number of ways to achieve this — we in the House have our own idea — and that is one of the things that we are discussing with the administration," Speaker Ryan said. In a CNBC interview following the speech, Speaker Ryan repeated previous comments that House Republicans never intended for border adjustability to fully take effect on day one because they don't want the currency to have to appreciate 25% overnight. "So we don't want to do things that severely disrupt companies … ," he said. "What we want to do, though, is we want to have international tax reform that is lasting and endurable, that puts America at a good competitive advantage going forward." Ways and Means Committee Chairman Kevin Brady (R-TX) has suggested a five-year phase in of the border adjustability proposal. Ryan acknowledged that without border adjustability, there would be a revenue gap that would have to be filled and the need for alternative anti-base erosion rules under a territorial system. "So what we are doing right now, the tax writers, is we are just comparing and contrasting various versions of reform to get the best possible one that gives us the lowest possible rates and the most internationally competitive tax system, and the best one we can pass," Speaker Ryan said. "That's the analysis we are going through right now. We are going to stick the landing because we know we've got to. And that's why I'm really confident that at the end of the day we are all going to agree on how to do this." In the speech, Ryan emphasized the importance of moving the US to a territorial system of taxing foreign earnings. He also spoke in favor of permanent rather than temporary tax policy. "Every expert agrees that temporary reforms will only have a negligible impact on wages and economic growth," Ryan said. "Businesses need to have confidence that we will not pull the rug out from under them."

Speaker Ryan exuded the same confidence in completing tax reform this year in tweeting out a photo June 22, saying "Had another very productive meeting about tax reform with Senate and @WhiteHouse leaders today. We are going to get this done in 2017."

Cohn wants bill on House floor by fall: Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn met with technology industry officials on tax reform June 20. The Washington Post reported Cohn as saying he wanted the tax bill to be on the floor of the House in the "early, early fall," and that open issues must be resolved by then. "We don't want to be negotiating the tax bill on the floor," Cohn said, adding that President Trump frequently checks in on the progress of the tax effort. Cohn previously said the Administration would deliver a detailed tax plan to Congress that reflects ongoing negotiations with Republican leaders by the time lawmakers return from the August recess.

Trump, Pence promise lower rates: In remarks at a June 21 rally inCedar Rapids, Iowa, President Trump continued to call for the largest tax cut in the history of the United States, which he said is one of the highest taxed nations in the world. "Really on a large-scale basis, we are the highest tax nation in the world. And we're going to get it down really low, OK?" the President said. "Really — I don't say the lowest because there are a couple that are really down there. But that doesn't mean you want to be there."

Vice President Pence preceded Speaker Ryan at the NAM event, and promised that "We're going to pass the largest tax cut since the days of Ronald Reagan — and we're going to do it this year." He said the tax plan being developed by the Administration will put US companies on a path to jobs and economic growth. "You know, our corporate tax rate is one of the highest in the developed world, and our outdated system of worldwide taxation penalizes companies for being headquartered here in America. But not for long," Pence said.

Mnuchin interviews: In a June 20 interview on CNBC's Squawk Box, Secretary Mnuchin said the Administration is focused on "massive tax reform" that "comes along with tax cuts," and the effort is his "number one focus, [and] critical to economic growth." Asked about some members of Congress expressing a preference for pursuing tax cuts over tax reform, Mnuchin said the focus is lower tax rates coupled with tax reform, "which is broadening the base making sure that we take out lots of special interest deductions and simplifying the tax code." He said the Administration has discussed the need to move to a territorial system, and away from the current system that taxes worldwide income with deferral. "We want to make sure companies bring back that money onshore to reinvest in American equipment and American jobs," Mnuchin said. He said the Administration, Speaker Ryan, and the Senate leadership "are all 100% committed to getting it done this year," are meeting weekly, and "couldn't be more focused on getting this done." With regard to the Federal debt limit, Mnuchin said if Congress does not act before the August recess, "we have plans to fund the government and that that shouldn't create concerns through September."

Asked on Bloomberg Surveillance whether there is a date by which the White House will produce a more detailed tax reform proposal, Mnuchin said: "Well, I think we've been pretty consistent in saying, we're working every week, very closely with the House and the Senate to have a joint plan, when we come out. And the idea is to get us all on the same page. So when we release the combined plan, it's going to get passed, and it's going to get passed by the House and the Senate, and the President will sign it. And it's our focus to get that done this year. It's critical to the economy, and we're working every day to get that done."

Senate health care bill: Senate Republican leaders on June 22 unveiled a discussion draft of legislation to repeal and replace the Affordable Care Act (ACA), naming their legislation the Better Care Reconciliation Act of 2017 (BCRA). The legislation was revealed after several weeks of private negotiations among Senate Republicans. The BCRA legislation closely aligns with legislation approved by the House on a 217-213 vote on May 4, known as the American Health Care Act (AHCA), but it makes important changes to the House bill relating to Medicaid spending and the nature of the tax credits provided to lower-income Americans. The Senate bill includes a slower phase-out of the Medicaid expansion than the House but also a slower growth rate in the out years, and reverts to the ACA tax credit model rather than the flat tax credit model of the House bill. Like the AHCA, the BCRA draft would repeal the 3.8% net investment income tax effective beginning in 2017, implementation of the Cadillac tax would be delayed until 2026, and repeal of the .9% Medicare surcharge tax on individuals earning over $200,000 annually would be effective beginning in 2023. Similar to the House-passed bill, the Senate discussion draft repeals the Medicaid expansion, caps Medicaid spending, zeroes out the employer and individual mandate penalties, makes changes to premium tax credits and repeals cost-sharing reduction subsidies, includes provisions designed to stabilize the individual insurance market, allows for flexibility on insurance market rules, and repeals taxes and fees that were established in the ACA. The Congressional Budget Office (CBO) said they plan to release an estimate for the Senate health care plan early next week. The release of a CBO score will initiate further discussions with the Senate parliamentarian to determine what provisions in the legislation may be eliminated through enforcement of the so-called Byrd rule, which prevents the inclusion of extraneous (non-budgetary) matters in a Senate reconciliation bill.

Furthermore, as Republican leaders work to secure 51 votes for the legislation, additional changes are expected. Several conservative Republican Senators are pushing for additional ACA provisions to be repealed. "Currently, for a variety of reasons, we are not ready to vote for this bill, but we are open to negotiation and obtaining more information before it is brought to the floor," Senators Ted Cruz (R-TX), Ron Johnson (R-WI), Mike Lee (R-UT) and Rand Paul (R-KY) said in a joint statement. "There are provisions in this draft that represent an improvement to our current healthcare system but it does not appear this draft as written will accomplish the most important promise that we made to Americans: to repeal Obamacare and lower their healthcare costs." But this statement contrasts with concerns raised by moderate Republicans about the impact of the Medicaid changes in the discussion draft. Senator Rob Portman (R-OH) noted: "There are some promising changes to reduce premiums in the individual insurance market, but I continue to have real concerns about the Medicaid policies in this bill, especially those that impact drug treatment at a time when Ohio is facing an opioid epidemic."

Republicans hold 52 seats, meaning they can only lose the votes of two GOP Senators to pass health care legislation under reconciliation. Republican leaders plan to work over the coming days to make sufficient changes to garner at least 50 votes, potentially relying on Vice President Pence to break a tie vote.

Mobile Workforce bill: The House June 20 approved by voice vote the Mobile Workforce State Income Tax Simplification Act of 2017 (H.R. 1393), which would prohibit the wages or other remuneration earned by an employee who performs employment duties in more than one state from being subject to income tax in any state other than: (1) the state of the employee's residence, and (2) the state within which the employee is present and performing employment duties for more than 30 days during the calendar year in which the wages or other remuneration is earned. Senate Finance Committee member John Thune (R-SD) sponsors a companion bill (S. 540), though the outlook for the proposal in the Senate is unclear.

Quote of the Week

"Now I know that the cynics and naysayers are out in full force. You will hear that tax reform is coming along. You will hear that it is dead. Then you will hear it is back on track. Then you will hear it is on life support. Sometimes you will hear all of this in the same week, the same day, or heck, even the same hour. Do not be surprised by any of it. But I am here to tell you: We are going to get this done in 2017. We need to get this done in 2017. We cannot let this once-in-a-generation moment slip by. Yes, the defenders of the status quo — and there are many — are counting on us to lose our nerve, to fall back, or put this off altogether. But we will not wait for a path free of obstacles, because it does not exist. And we will not cast about for quick fixes and half-measures. Transformational tax reform can be done, and we are moving forward. Full speed ahead." - House Speaker Paul Ryan (R-WI), June 20

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