August 14, 2017 EY Center for Tax Policy: This Week in Tax Reform for August 11 This week (August 14-18) Congress out: The Senate and House are out of session for the August recess, returning September 5. Reagan Ranch: House Ways and Means Committee Chairman Brady is holding a tax reform event at the Reagan Ranch in California on August 16. On August 10, Brady said it has been 31 years since the Tax Reform Act of 1986 and, "We're going to make the case directly to the American public that it's time to do it again, and we're on the timetable to deliver it." This Week in Tax Reform will not be published next week, though Tax Alerts will be issued as events warrant. Last week (August 7-11) White House said to be planning September release: The White House is planning to release a three to five-page document in September outlining a framework for tax reform, Reuters reported August 10, citing unnamed sources. The document would come from the "Big Six" group of negotiators who released a joint statement on tax reform July 27: National Economic Council Director Gary Cohn, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell (R-KY), Senate Finance Committee Chairman Orrin Hatch (R-UT), House Speaker Paul Ryan (R-WI), and House Ways and Means Committee Chairman Kevin Brady (R-TX). The document will not be accompanied by legislative language but may describe areas of agreement, Reuters reported. The report followed an August 4 Bloomberg TV interview in which NEC Director Cohn said the US statutory corporate tax rate "cannot be substantially higher than the OECD average tax rate" of 23%. He said the "Big Six" continues to meet and is working with tax-writing committees to "get some muscle structure on the skeleton" of the tax plan described in the statement. "We're going to again continuously meet over August and then, hopefully, they have to deliver a comprehensive tax bill early in the fall," he said. Hatch on rates: Senate Finance Committee Chairman Hatch said August 7, he thinks it is more likely the corporate tax rate will be reduced to between 20% and 25%, rather than to 15%, and continued to acknowledge the difficulty in doing so. Hatch said bringing the corporate rate down would grow businesses, make the US competitive in the worldwide marketplace, and stop the erosion of the tax base caused by companies moving elsewhere. "But I suspect we'd be lucky if we can get the corporate tax rate down to 20%, even 25%," he said. Chairman Hatch said Democratic help may be necessary but has not materialized. He said everything will be looked at in the effort to broaden the tax base, but expressed certainty that the deductions for charitable contributions and home mortgage interest would be retained under tax reform. Brady on timing: Asked during a Fox News interview August 10 whether Administration pronouncements that tax reform will be completed in 2017 amount to "excessive expectations," Ways and Means Committee Chairman Brady said the White House and House and Senate tax leaders "are working every day to make sure we're ready to hit that timetable." Asked about the difficulty of paying for tax reform, Brady said: "Tax reform is the biggest legislative challenge of every generation. And, as the president often said, here, you have got to put middle-class taxpayers ahead of Washington special interests. We believe we can do that." McConnell, Trump on ACA repeal: The debate over repeal of the Affordable Care Act (ACA) stoked tensions between the President and Senator McConnell, a Trump ally, who said August 8 in Kentucky that "artificial deadlines, unrelated to the reality of the complexity of legislating, may not have been fully understood." Senator McConnell said the President had not been in this line of work before and "had excessive expectations about how quickly things happen in the democratic process." President Trump responded in a series of tweets, saying August 9: "Senator Mitch McConnell said I had 'excessive expectations,' but I don't think so. After 7 years of hearing Repeal & Replace, why not done?" He followed on August 10, saying, "Can you believe that Mitch McConnell, who has screamed Repeal & Replace for 7 years, couldn't get it done. Must Repeal & Replace ObamaCare!" In another tweet later August 10, the President said, "Mitch, get back to work and put Repeal & Replace, Tax Reform & Cuts and a great Infrastructure Bill on my desk for signing. You can do it!" In appearances in Kentucky, McConnell declined to say when a tax reform bill could be wrapped up, and his initial remarks may have signaled a desire to keep tax reform deadline-free. Responding to a question during a media availability in New Jersey August 10, President Trump said, in part: "I'm very disappointed in Mitch. But if he gets these bills passed, I'll be very happy with him. I'll be the first to admit it. But honestly, repeal and replace of Obamacare should have taken place. And it should have been on my desk virtually the first week that I was there or the first day that I was there. I've been hearing about it for seven years. So repeal and replace should have taken place. The tax bill, tax cuts, tax reform — hopefully, they get that done. I hope they get it done. And the other thing would be the infrastructure bill." While Republican senators have signaled a desire to move on following the defeat of a "skinny" ACA repeal bill early July 28, the Wall Street Journal reported August 6 that members are facing pressure from constituents on health care legislation during the recess that could distract from the tax reform effort. "Back home, people aren't mad at the president. They're mad at the Republican Party for not working with the president to try and get things done," said Rep. Mike Kelly (R-PA), a Ways and Means Committee member. Association letter on repatriating overseas earnings: A letter signed by 54 organizations and sent August 10 to Secretary Mnuchin asked that the transition to a territorial system include a two-rate approach in taxing foreign earnings that distinguishes between short-term cash reserves and income reinvested in other assets. "Imposing a significant tax on their overseas assets will reduce the ability of these U.S. global companies to remain competitive," the letter stated. "Consequently, we support a bifurcated approach that would apply one tax rate to accumulated foreign earnings held passively in cash and cash equivalents and a separate tax rate to accumulated foreign earnings invested in other assets, recognizing that we represent a broad range of industries and the bifurcated rate should be applied fairly to all." Signatories include Business Roundtable and the National Association of Manufacturers. Courting Democrats: Politico August 7 reported on White House efforts to court centrist House Democrats on tax reform, in recognition of the struggle involved in the Republican-only approach to health care legislation. Some House Republicans have also spoken in favor of a bipartisan approach. "I think there are a lot of practical folks in the House, Senate and the administration who are looking at health care and saying, 'That didn't work. Maybe we should have a backup Plan B — a coalition of Democrats and Republicans,'" said Rep. Tom Reed (R-NY), who is member of the Ways and Means Committee and who recently suggested a bipartisan approach to health care legislation. The Wall Street Journal reported Reed as acknowledging the risks of a one-party approach. "Going down the path of a partisan bill, if they chose to do that, good luck," he said. Meanwhile, an August 8 New York Times editorial said, "Real reform would honestly confront the fact that in the next decade we will need roughly $4.5 trillion more revenue than currently projected to meet our existing commitments without increasing the federal debt as a share of the economy." The editorial suggested taxing wages and investments at the same rates and, to offset the cost of lowering the statutory corporate tax rate, ending deferral, ending or reducing the corporate deduction for interest paid, addressing like-kind exchanges, and scaling back accelerated depreciation allowances. The editorial also called for Democrats and Republicans to find a compromise on a mandatory repatriation of foreign earnings at a modestly discounted tax rate. Quote of the Week "America has the highest corporate income tax rate in the industrialized world. Now at 35%, it's at least 10 to 15 points higher than the majority of our international competitors — making it that much harder for American businesses to compete globally and create good-paying jobs here at home." — House Ways and Means Committee Republicans' 31 Reasons for Tax Reform: August 10 ———————————————
| |||||