07 August 2017 EY Center for Tax Policy: This Week in Tax Reform for August 4 Senate confirms Kautter: The Senate August 3 approved by voice vote the nomination of David Kautter, a former Director of National Tax at EY, to serve as the United States Treasury Assistant Secretary for Tax Policy. The nomination was one of a large number approved as the Senate wrapped up its legislative business until September 5. (The chamber will meet in pro forma session between now and then.) Kautter's confirmation is seen as aiding Administration efforts on tax reform and review of Obama-era tax regulations. Tax reform timeframe: The Administration laid out a timetable for consideration of tax reform legislation when Congress returns that is viewed as challenging given the other items that must be addressed by the end of September, which include the debt limit, continuation of government funding, and reauthorization of aviation, flood insurance, and children's health programs. White House Legislative Affairs Director Marc Short said during a July 31 event sponsored by groups affiliated with the Koch brothers, that the expectation is that legislation will be marked up in tax-writing committees in September, passed by the House in October, and passed by the Senate in November. Short acknowledged it "is an aggressive schedule but that is our timetable." Conservative and business groups are planning advertising campaigns on tax reform, and President Trump is expected to highlight the issue in rallies around the country. House Freedom Caucus Chairman Mark Meadows (R-NC) August 2 backed that timeline and said tax reform should be enacted by Thanksgiving, Tax Notes reported. Senate Majority Leader Mitch McConnell (R-KY) said August 1, "What we intend to do is to take up tax reform when we come back after Labor Day. As you know, under the Constitution, we will start in the House. But both the Senate Finance Committee and the House Ways and Means Committee will be going through markup process." Finance Committee Chairman Orrin Hatch (R-UT) August 3 said of the Committee's agenda after the recess and the months that follow: "In the fall, the main priority of the Committee will surely be tax reform. I intend to work with my colleagues to draft and report tax reform legislation through regular order. That will mean that we are going to have to work very assiduously and close together to get things done. That means hearings and a markup here in the Committee." An August 4 report in the Wisconsin State Journal said Speaker Paul Ryan (R-WI) "plans to introduce a tax overhaul bill in September with the goal of passing it through the House by the end of the year." Democratic demands: McConnell said Republicans will need to use the budget reconciliation process for tax reform (which will allow it to pass with 50 votes with the Vice President breaking the tie) because Democrats had signaled in a letter that "most of the principles that would get the country growing again, they are not interested in addressing." The August 1 letter from 45 senators said tax reform should: 1) neither increase the tax burden on the middle class nor benefit the wealthiest; 2) not be considered under the budget reconciliation process; and 3) not be deficit-financed. In an August 3 floor speech, Democratic Leader Chuck Schumer (D-NY) said McConnell previously called for tax reform to be revenue neutral, and that the leader's objection must be to the principle that reform not benefit the wealthiest. The letter was not signed by three Democratic senators — Joe Manchin (D-WV), Joe Donnelly (D-IN), and Heidi Heitkamp (D-ND) — who McConnell suggested "may be open to pro-growth tax reform." He also noted that there is nothing preventing Democrats from supporting tax reform even under reconciliation, "so I don't want to give up on the prospect of having some." In August 3 remarks, Chairman Hatch said "Ideally, the tax reform process would be bipartisan, particularly here in the Senate," but if Democrats won't get on board then Republicans should use reconciliation. He said to get to that point, "a number of things have to happen, not the least of which is the passage of budget resolution." Corporate tax rate: In a July 31 Reuters interview, Hatch said getting the corporate rate to 25% from 35% would bring a sea change to the US economy but will be difficult. "In fact, it would be kind of miraculous if we could get it down to 25% or less. I'd like to get it down to around 20%. I'd love to get it at 15% if we could," Hatch said. "But I think the odds are, we're going to be lucky to get it down at all." The "Big Six" joint statement on tax reform released July 27 by Hatch, McConnell, Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Speaker Ryan, and Ways and Means Committee Chairman Kevin Brady (R-TX) neither set rate targets nor signaled the extent to which the tax reform plan should be paid for, and how, but did rule out using revenue from border adjustability. Several press reports and op-eds since have taken on the subject, including an August 1 New York Times article citing Columbia Law School professor Michael Graetz as quizzical about how the effort will be paid for. "The revenue loss from the corporate rate reduction is about $100 billion per point over 10 years, so going from 35% to 20% will cost $1.5 trillion," he said. "Where are you going to find the money?" The Wall Street Journal cited House Freedom Caucus Chairman Meadows, who has previously dismissed the need for revenue neutrality, as saying August 2 that he wants a corporate tax rate below 20% but that some members have discussed rates as high as 27%. Meadows said he still wants more tax reform details before voting on an FY2018 budget. A House vote didn't occur before the recess, though a new or modified budget resolution is necessary to consider tax legislation under reconciliation. Politico August 4 reported that GOP senators expect a budget markup in September, and cited Senator Ron Johnson (R-WI) as saying there is debate over whether to use a current policy or current law baseline. Small business tax priorities: Senate Small Business & Entrepreneurship Chairman James Risch (R-ID) and Ranking Member Jeanne Shaheen (D-NH) wrote to the leaders of the Senate Finance Committee August 2 urging consideration of small business interests under tax reform. "As you consider reforming the tax code, we urge you to keep in mind that small businesses do not stand to benefit significantly from corporate-only changes," they said. "At the same time, any reforms to the individual side of the code should focus on benefitting truly small businesses, and any potential preference for pass-through business income must include appropriate safeguards in order to prevent abuse and mischaracterization of income." Debt limit: Leader McConnell said he and Senator Schumer had a good meeting August 1 to discuss raising the debt ceiling, "which we all know will need to be done sometime in the next month or so. And we are going to be looking for a way forward to do that together to make sure America continues to never, ever default." The statement followed a letter from Treasury Secretary Mnuchin to Congress July 28 saying, "Based upon our available information, I believe that it is critical that Congress act to increase the nation's borrowing authority by September 29, 2017." OMB Director Mick Mulvaney, who had previously called for attaching spending reforms to a debt limit increase, told reporters August 3 he and the entire Administration support a "clean" increase free of such changes, CNBC reported. Moving on from health bill: Following the defeat of the "skinny" Affordable Care Act (ACA) repeal bill in the Senate, President Trump tweeted, "Don't give up Republican Senators, the World is watching: Repeal & Replace," and Mulvaney implored the Senate not to turn to other legislation until a health bill is done. Senate HELP Committee Chairman Lamar Alexander (R-TN) August 1 announced his intention to hold bipartisan hearings in September "on the actions Congress should take to stabilize and strengthen the individual health insurance market," which was taken as a sign that the Senate is moving on from the repeal effort despite entreaties from the Administration. Chairman Hatch said August 3 that he intends to hold a health care hearing "at some point shortly after the recess," responding to demands from Committee members. Politico reported Hatch as saying August 2, "We're not going back to health care. We're in tax now." Senate Republican Whip John Cornyn (R-TX) responded to Mulvaney's demand by saying, "I don't think he's got much experience in the Senate, as I recall," and he should "let us do our jobs." In an August 2 interview on CNN, Mulvaney said he hopes the Senate continues to work on health care legislation, which doesn't preclude them from working on tax reform at the same time. McConnell said on August 1, "The reconciliation vehicle for health care is not yet expired, so there is still an opportunity to do that." "It's been 30 years, over 30 years now since the tax code has been reformed and there are American families and American businesses in this country who are struggling under the burden of taxation that limits their opportunity, makes it more difficult for them to expand their businesses, to create jobs for people in this country, to build a better future. And so we think that tax reform really needs to be built around the idea of economic growth. We get greater growth in our economy. It creates better paying jobs, higher wages, provide tax relief for middle-class families in this country, simplify the code, make our businesses more competitive in the global workplace, which they are not today because of our outdated tax code and because of our rates, which are the highest literally in the industrialized world." — Senator John Thune (R-SD), August 1
Document ID: 2017-1276 | |||||
