03 July 2017 EY Center for Tax Policy: This Week in Tax Reform for June 30 Health bill delay may push back tax reform timeline: The decision to postpone a Senate vote this week on an Affordable Care Act (ACA) repeal and replace bill that had not generated sufficient support among Republicans was seen as possibly pushing back the timeline for action on tax reform legislation. Majority Leader Mitch McConnell (R-KY) said June 27 that his members would continue "working toward getting at least 50 people in a comfortable place" on the health care bill, and announced following a White House meeting on the issue, "We'll not be turning to the bill on the floor of the Senate until a couple weeks after this week." Republicans hold 52 seats and McConnell, who must navigate the interests of both conservatives and moderates, can only lose the votes of two of his members to pass the bill under the budget reconciliation process. Congress is slated to be in session for just three weeks in July before leaving for the August recess, and continued negotiations over the health bill could distract from work on other issues. The Wall Street Journal reported Senate Finance Committee Chairman Orrin Hatch (R-UT) as saying the longer the health debate, "the more difficult it is going to be to do true tax reform." The potential for the health measure to be cast by opponents as a massive tax cut for the wealthy was said to be raised during the White House meeting. Senator Bob Corker (R-TN) June 29 suggested the proposed repeal of the 3.8% net investment income tax could be dropped in a revision of the Senate discussion draft and the resulting revenue applied toward health coverage subsidies for low-income Americans. Other Republican members, however, downplayed that possibility under the premise that taxes that were enacted under the ACA should be repealed in a bill that intends to dismantle it. The Republican legislative effort to repeal and replace the ACA, utilizing the FY 2017 budget reconciliation process, must be dispensed with in order for tax reform to be considered under reconciliation instructions that are expected to be included in the FY 2018 budget resolution. House Budget Committee Republicans will not begin consideration of a FY 2018 budget until sometime after the July 4 recess, with the markup reportedly delayed because leaders must still decide how $200 billion in mandatory spending cuts, to programs like food stamps, will be allocated across committees under the reconciliation instructions, among other issues. In addition to processing the health bill and the budget, Congress must soon address the Federal debt limit. The Congressional Budget Office (CBO) June 29 said that if the debt limit remains unchanged, extraordinary measures currently being used to allow continued borrowing will be exhausted and the Treasury will run out of cash in early to mid-October. Congress must also act by the end of September to extend government funding beyond the current September 30, 2017 expiration date. Freedom Caucus demands: The $200 billion mandatory spending reduction target in the draft House budget was set to try to appease the Freedom Caucus, whose members are seeking even deeper cuts and who continue to want to tie cuts in welfare programs to tax reform. "It has to be linked to tax reform, because we believe tax reform is going to happen," Rep. Jim Jordan (R-OH) said in a Reuters interview reported on June 27. They also want to take the border adjustability proposal under the House Republican Blueprint out of the tax and budget discussion. "Before we move forward on a budget, we need to know the answers to some pretty important questions, like is the border adjustment tax really dead and are we going to have real savings over time to offset big increases in discretionary spending?" Jordan said, as reported by Bloomberg BNA. Rep. Mark Meadows (R-NC), the group's leader, said decisions on tax reform should be made prior to settling on reconciliation instructions. "Going to a new budget reconciliation without understanding in principle where we are going on a border adjustment tax would be very difficult to do," he said. Business community letter: The heads of four business groups — the U.S. Chamber of Commerce, Business Roundtable, National Association of Manufacturers, and the National Federation of Independent Business — wrote to House and Senate Republican leaders of both parties June 28, urging them to "reach common agreement on a tax reform plan" and to move quickly to enact it. "In the short-term, we urge you to press forward with the adoption of a Fiscal Year 2018 concurrent budget resolution including reconciliation instructions that would aid the swift passage of comprehensive, pro-growth tax reform," the letter stated, adding that it is important that the House begin the budget process now so that reconciliation instructions are available. "The federal tax code has weighed America down for far too long. You now have a once-in-a-generation opportunity to substantially improve America's economy, but accomplishing this task may well require the special legislative procedures attendant to a budget resolution's reconciliation instructions," the letter stated. The groups said they understand there are competing priorities inherent in the FY 2018 budget resolution process, but they asked leaders to ensure that timely passage of the budget resolution with tax reform reconciliation instructions is not threatened. Cohn says tax reform agenda in September: No matter what the outcome of the health care bill, the focus will be on tax reform beginning in September, National Economic Council Director Gary Cohn said on MSNBC June 29. "We're going to get to tax reform if this passes or it doesn't pass," Cohn said. "We are on a tax reform agenda when we come back in September, when the August recess is over, we will be 100% engaged in tax reform." Asked about the prospect of some ACA taxes being retained under a Senate health care bill, Cohn said, "we'd love to cut some of the taxes that are in the Obamacare bill," but if they can't, "we're still actively involved in tax and tax legislation." Cohn and Treasury Secretary Steven Mnuchin have been holding regular meetings with Senator McConnell, Finance Committee Chairman Hatch, Speaker Paul Ryan (R-WI), and Ways and Means Committee Chairman Kevin Brady (R-TX) in an effort to develop a unified approach on tax reform that the Administration wants to present to Congress in September. That approach presumably would provide the framework for Congressional tax committee action on tax reform legislation later this year. Hatch gives members assignments: Senate Finance Committee Chairman Hatch June 27 asserted that there will be "a robust process in the Senate for developing, considering, and passing any tax reform package" and announced that he has tasked Committee members with focusing on particular areas under tax reform. In a Senate floor speech, the Chairman said his goal was to "rebut the growing narrative in the media and elsewhere that tax reform is going to be a secretive exercise, involving the input of only a few key players." He said the meetings between the Administration and House and Senate leaders and tax writers in recent weeks to discuss tax reform at a high level may result in an agreed-upon framework, but "this will not be the be-all, end-all" of tax reform. Chairman Hatch said he has asked: — Senators Mike Enzi (R-WY) and Rob Portman (R-OH) to focus on the international tax system; Hatch said "there are other issues out there as well," and over time he will enlist the help of other Committee members "to focus on particular tax issues and provide advice and assistance on crafting suitable reforms." He said the notion that tax reform will be "a closed-door exercise is absurd," and that every Republican member of the Committee is involved in the effort. Chairman Hatch said he has asked for participation from Democrats on the Finance Committee, who he said have accused Republicans of seeking tax breaks for the wealthy and have set process demands as pre-conditions for bipartisan tax reform discussions. "In other words, we've heard our colleagues cite a number of reasons as to why they don't want to work with us on tax reform," he said. On June 16, Chairman Hatch asked for stakeholder input on tax reform to be submitted to the Committee by July 17. Ways & Means hearings expected in July: Ways and Means Committee Chairman Brady expects to hold two tax reform hearings in July, Politico reported June 26. One will focus on the benefits of tax reform for small businesses, and the other will examine how individuals and families will benefit from tax simplification. Harmonizing tax treatment of financial derivatives: On June 28, Politico also reported Ways and Means member Tom Reed (R-NY) as saying that a package of changes in the way financial products, including derivatives, are taxed will be addressed in tax reform legislation. "There's a much-needed effort to harmonize what has been a very complicated, hodgepodge-type of regulatory and [Internal Revenue Service] ruling-type of treatment of it," Reed said. "So what we're trying to do is harmonize it, bring it up, take those standards and put them in statutory text to a large degree." Updated CBO projections: The June 29 CBO report, "An Update to the Budget and Economic Outlook: 2017 to 2027," projected the FY 2017 deficit to be $693 billion. The amount is $134 billion more than the amount CBO estimated in January, due in part to smaller-than-anticipated tax receipts, the report said. The cumulative deficit for the 2018-2027 period, at $10.1 trillion, exceeds CBO's previous projection by $686 billion. "A big concern for me is the disparity between the U.S. corporate income tax rate and the rest of the world. We need to lower rates to jumpstart our nation's stagnant economy. Worldwide corporate income tax rates have fallen from 30% in 2003 to 22.5% in 2016. Meanwhile the U.S. has remained at 35%. It's hard for U.S. companies to compete against companies based in Canada where the federal corporate income tax rate is 15%, or Ireland with 12.5%, and even the UK will be at 17% by 2020. Who bears the burden of the high corporate rate? Ultimately, the burden gets passed along to you in the form of lower wages and benefits to the work force, and higher prices to consumers." — Rep. Jim Renacci (R-OH), June 27
Document ID: 2017-1044 | |||||
