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This week (July 17-21)

Congress in: The House and Senate are in session. A Congressional Budget Office score for the revised Senate ACA repeal and replace bill draft is expected early in the week. It remains to be seen whether there will be sufficient Republican support on the motion to proceed to consideration of the bill. The House Budget Committee may unveil and mark up an FY 2018 budget resolution.

The House may consider H.R. 2997, legislation sponsored by House Transportation Committee Chairman Bill Shuster (R-PA) to reauthorize the Federal Aviation Administration for six fiscal years (current authority expires September 30). Notably, the bill would transfer the FAA's air traffic control assets and operations to a newly established privately controlled entity beginning in FY 2021. Title VIII of the Committee Print for floor consideration posted by House Rules contains text added by Ways and Means — albeit without committee hearings or markup — to extend all nine current law aviation taxes which fund the Airport and Airway Trust Fund through FY 2023. Beginning in FY 2021, when the FAA air traffic control is privatized and funded by new user fees to be established by the private entity, all nine current aviation taxes would be phased down proportionally by 80% and reduced further to 19.9% in FY 2022 and 19.7% in FY 2023. The residual taxes are retained in order to continue to raise revenue to fund the Airport Improvement Program.

Senate Finance Committee hearings: On Tuesday, July 18 (at 9 a.m.), the Senate Finance Committee will hold a hearing titled "Comprehensive Tax Reform: Prospects and Challenges," with testimony from former top tax officials at the Treasury Department, including current EY Co-Director of National Tax Eric Solomon. It will be followed (at 11 a.m.) by a hearing to consider the nomination of David Kautter, a former Director of National Tax at EY, to be Assistant Secretary of the Treasury for Tax Policy.

Ways and Means hearing: on Wednesday, July 19 (at 2 p.m.), the House Ways and Means Tax Policy Subcommittee will hold a hearing on tax reform ideas to simplify the tax code, reduce the burdens on American families and individuals, and deliver economic growth that creates jobs and improves the quality of life of all Americans.

Last week (July 10-14)

Senate delays recess: Senate Majority Leader Mitch McConnell (R-KY) said July 11 he will delay the start of the summer recess until the third week of August because of a lack of cooperation from Democrats in processing nominees and the need to address the National Defense Authorization Act, the debt limit, the FDA user fee reauthorization, and "other important legislation." Senator McConnell said the Senate would "ideally" address the debt limit before the August recess — the Congressional Budget Office has indicated the Treasury can meet its obligations through early to mid-October — but declined to comment on whether it would be tied to spending cuts. McConnell's announcement followed a news conference by conservative senators urging a delay in the recess, including Senator Mike Lee (R-UT), who cited the heavy workload in arguing "it just doesn't make any sense for us to take the month of August off." The Senate is still deliberating health care legislation and must also process an FY 2018 budget with tax reform reconciliation instructions and extend government funding beyond the current September 30, 2017 expiration date.

House recess to proceed: House leaders have resisted calls from conservative members to delay the recess in that chamber. Politico reported Majority Leader Kevin McCarthy (R-CA) as telling his members he would not keep them in session but would call members back to Washington within 72 hours of the Senate passing a health care bill. The Freedom Caucus issued a release on July 11 pushing back against the Leadership position saying: "There are too many unresolved issues before Congress including tax reform, health care, the debt ceiling, government funding, and more to leave Washington before the people's work is done. It is imperative that the additional weeks are coupled with decisive action."

Negotiations on 'unified' tax reform approach continue: McConnell is part of the "Big Six" group that is having weekly tax reform negotiations. In addition to Senator McConnell the group includes House Speaker Paul Ryan (R-WI), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, and the congressional tax-writing committee chairmen Kevin Brady (R-TX) and Orrin Hatch (R-UT). The Administration is aiming to have the group's unified approach to tax reform ready to be presented to Congress when members return in September, and the White House Director of Legislative Affairs Marc Short signaled this week that they actually want agreement on a framework before the break begins. Ways and Means Committee Chairman Brady, who recently said negotiators were on pace for a September product roll-out but that "a lot of work has to be done between now and then," told reporters that finishing tax reform in 2017 remains the goal and, "We're going to let the discussions and the pace determine, sort of, the public releases on this."

Mnuchin on 'This Week:' Treasury Secretary Steven Mnuchin affirmed July 9 that the Administration's plan on tax reform is "to have a full-blown release of the plan in the beginning of September, with being able to vote and getting this passed before the end of the year." On ABC's "This Week," Mnuchin pushed back against media reports that some in the White House want a top individual tax rate of 40% or higher, and he cited the Administration plan for a top rate of 35% "where we reduce and eliminate almost every single deduction." Mnuchin referred to the weekly meetings with the leadership of the House and the Senate and said while they are finalizing the details of the plan and certain issues are still on the table, "This will be tax reform and tax cuts, and we expect that the plan will be fully paid for."

FY 2018 Budget Resolution: The Freedom Caucus is seen as partly responsible for the delay in the House Budget Committee unveiling an FY 2018 budget resolution with budget reconciliation instructions for tax reform legislation. Caucus members are demanding that the budget cut mandatory spending by at least $200 billion, tie welfare cuts to tax reform, and explicitly rule out the border adjustability proposal in the House GOP Blueprint on tax reform. Members this week increased pressure for tax reform details as a condition for supporting a budget resolution. During a July 12 news conference, Freedom Caucus Chairman Mark Meadows (R-NC) said if a budget resolution were put forward with $200 billion in mandatory spending cuts but "without decisions on tax reform, there would not be enough votes to pass it in the House because of the conservative concerns." Meadows also signaled the group wants structural reforms or other concessions related to the debt limit. At an event the next day, Meadows said Congress should stay in Washington until arriving at a tax reform plan, which he said should reduce the statutory corporate income tax rate to 16%. "We will not get tax reform, guys, if we're waiting until September. … If we wait until September that means that we get legislative text maybe in October; that means that we maybe get it out of here, if it's fast-tracked, by the end of October; which means that it goes over to the Senate and it sits there," he said. Passing a budget is essential for moving tax reform legislation under the reconciliation process that requires 51 votes in the Senate rather than the 60 necessary to overcome a filibuster. Bloomberg BNA reported Chairman Brady as saying he wanted the recess to be preserved because "August is an important month to connect with voters."

Revised Senate health care bill: The Republican legislative effort to repeal and replace the Affordable Care Act (ACA), utilizing the FY 2017 budget reconciliation process, must be dispensed with in order for tax reform to be considered under reconciliation instructions to be included in the FY 2018 budget resolution. Senate Republican leaders July 13 released an updated discussion draft of their health care bill, the Better Care Reconciliation Act (BCRA). Among other things, this version retains several key taxes funding the ACA, including the net investment income tax (NIIT), the additional Medicare Health Insurance (HI) Tax, and the limitation on the deductibility of remuneration over $500,000 for certain health insurance executives. Like the House-passed bill, the previous BCRA draft from June 22 would have repealed the 3.8% NIIT effective beginning in 2017 and the .9% Medicare HI Tax effective beginning in 2023. Asked on CNN whether keeping the taxes means the Senate draft is less of a repeal bill, third-ranking Senate Republican John Thune (R-SD) said he believes the new draft repeals "the core of Obamacare" and most of the taxes, at least those that affect consumers — "those taxes that get passed on, that drive to higher insurance costs and higher health care costs." Senator Thune said many members were concerned about keeping "the high-end taxes" and using the revenue for particular elements they want in the bill. "None of these things are ultimately final until we get up on the floor and open to an amendment process," he said. Speaker Ryan suggested there would be an effort to repeal the NIIT under tax reform if efforts to do so in a health bill fail. "One of the taxes that affects tax and capital income is something that is a critical part of tax reform itself," he said July 13.

Ways & Means small business hearing: House Ways and Means Tax Policy Subcommittee Chairman Peter Roskam (R-IL) said during a July 13 hearing on how tax reform can help small businesses that the Committee is "developing rules to allow small businesses to continue to deduct their interest payments on business related debt." The House Republican Blueprint on tax reform proposed eliminating the deductibility of net interest expense. Chairman Brady also previously said he would not eliminate the interest deduction for small businesses. Roskam said members are also mindful of "some of the concerns in terms of anti-abuse rules on the pass-through treatment," so that it cannot be manipulated. Witness Chye-Ching Huang of the Center on Budget and Policy Priorities testified that a tax rate cut for pass-through businesses "would mostly help wealthy filers — such as hedge fund managers, investment bankers, and real estate investors — as well as high-earners who engage in tax avoidance by converting their salaries to pass-through income." Rep. Kristi Noem (R-SD) continued to advocate preserving the deductibility of interest expense for agriculture producers, along with Rep. Suzan DelBene (D-WA), who also mentioned the importance of like-kind exchanges.

Quote of the Week

"I think after health care, taxes are gonna be so easy." — President Trump, July 13

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