01 September 2017

EY Center for Tax Policy: This Week in Tax Reform for August 31

This Week (August 28-September 1)

Trump meeting with 'Big Six,' more plan details may be released: President Trump is scheduled to meet with the "Big Six" group of Administration and congressional Republican tax reform negotiators on Tuesday, September 5 to review their work, which the group wants to share with House and Senate tax writers and, with their support, move through the House Ways and Means Committee, Politico reported August 31. Treasury Secretary Steven Mnuchin, who represents the Administration in the group along with National Economic Council Director Gary Cohn, said on CNBC August 31 that there is a detailed tax plan that the House and Senate are now "socializing" with their members and, "We are going to release a blueprint" that will be drafted into a bill. "You're going to see the details come out later this month, it's going to go through a Committee process, and we expect that the House and the Senate will get this to the President to sign this year and we couldn't be more excited about the progress we've made," he said. The Wall Street Journal reported Mnuchin as saying in a separate interview that the White House and congressional leaders plan to release a more detailed tax plan in the next few weeks — but not a "100-page bill with every single detail" — and while committees will be writing the bill, the Administration will stay actively engaged in the debate. "In no way are we just turning this over to Congress," he said. This suggests a potential process for tax reform legislation in the short term that is different than what Cohn described to the Financial Times last week, which is that the White House does not have a fixed or detailed plan and is expecting tax-writing committees to work out the details.

The Big Six also includes Senate Majority Leader Mitch McConnell (R-KY), Finance Committee Chairman Orrin Hatch (R-UT), House Speaker Paul Ryan (R-WI), and Ways and Means Committee Chairman Kevin Brady (R-TX). The President is also expected to meet separately on Wednesday, September 6 with McConnell, Ryan, Senate Democratic leader Chuck Schumer (D-NY), and House Democratic leader Nancy Pelosi (D-CA) to discuss the legislative agenda generally.

President's speech on tax reform benefits, principles: President Trump began a major push for tax reform in an August 30 speech in Springfield, Missouri, the birthplace of Route 66 or the "Main Street of America," which Trump said would be revitalized by reducing the "crushing tax burden" on businesses and workers. The President highlighted how reducing tax rates for businesses and the middle class will benefit average Americans but provided no new details on a tax plan. President Trump said "ideally" he would like to bring the business tax rate down to 15%, and lamented that the high corporate tax rate has resulted in jobs leaving the country and companies switching their headquarters outside of the United States. He said lower taxes on US businesses would result in higher wages for American workers and more domestic manufacturing. "It's time to give American workers the pay raise that they've been looking for, for many, many years," the President said. He listed four principles for tax reform:

— A tax code that is simple, fair and easy to understand, meaning getting rid of loopholes that primarily benefit special interests and the wealthiest Americans;

— A competitive tax code that provides more jobs and higher wages for Americans;

— Tax relief for middle-class families, including helping parents afford child care; and

— Bringing back trillions of dollars parked overseas by US companies because of the high US tax rate and outdated rules.

"We believe that ordinary Americans know better than Washington how to spend their own money and we want to help them take home as much of their own money as possible and then spend it," President Trump said of his call for middle class tax relief. "So they'll keep their money, they'll spend their money, they'll buy our products, our factories will be moving again, companies are going to move back into our country, jobs are going to prosper … " The President said he wants to work with members of both parties to get tax reform done: "I don't want to be disappointed by Congress." He told voters that Senator Claire McCaskill (D-MO), who serves on the Finance Committee and who is up for re-election in 2018, must help lower their taxes or else "you have to vote her out of office." Other tax reform events may be held in states with Democratic members up for re-election to encourage them to partner with the Administration on the issue.

Reception from Republicans: The speech was warmly received by Republican lawmakers who want the President to use his campaigning skills to help sell a tax reform bill. The Wall Street Journal August 31 reported Ways and Means Tax Policy Subcommittee Chairman Peter Roskam (R-IL) as saying the direct involvement of the President is essential for Congress to advance a bill and, "It's helpful if the president uses the office for that focal point over an extended period of time." Chairman Brady commended Trump for explaining clearly "why Washington must act now on pro-growth tax reform that will create jobs, grow paychecks, and improve the lives of all Americans." Prior to the speech, Senate Finance Committee member Pat Toomey (R-PA) said during an August 28 radio interview that success on issues like tax reform is much easier if the President "makes the case persuasively to the American people for why we need these things, why this particular bill is the right way to go, why we need the votes of their congressman, and I will tell you, I think the President has gotten off message too often, and hasn't been able to be an effective spokesman for his own agenda." The New York Times reported Senator Roy Blunt (R-MO), who attended the President's speech, as saying it is important to get tax reform done this year "and at some point, we'll have to make the decision, 'O.K., how much of the tax-code fight can we get into and still have the kinds of reduction in rates and achievable results that mean more American jobs and better American jobs?'"

Reaction from Democrats: Ahead of the speech, Senator Schumer said during a teleconference, "If the president wants to use populism to sell his tax plan, he ought to consider actually putting his money where his mouth is and putting forward a plan that puts the middle class, not the top 1%, first." That is one of the three principles Democrats have set for tax reform, in addition to not adding to the deficit and not being considered under the budget reconciliation process. On August 26, Senator McCaskill released a statement on tax reform, saying: "This is an area on which I'm optimistic President Trump and I will find common ground. I've talked in a lot of my town halls about my support for simplifying the tax code by cleaning out loopholes and goodies for special interests, and lowering the corporate tax rate — as long as we're doing it all through the lens of strengthening Missouri's working families. So I welcome President Trump to Missouri, and I'm looking forward to working with him to make bipartisan tax reform a reality."

Business community support: In an August 30 USA Today op-ed, Jamie Dimon, CEO and chairman of JPMorgan Chase & Co. and the chairman of the Business Roundtable, said tax reform will help American companies become more competitive, "but the real reason to do it is to increase jobs and increase wages." He cited the high US corporate tax rate as leading to American businesses being acquired by foreigners or struggling to keep pace with their foreign competitors, and headquarters jobs going overseas. "Reforming the tax code is the single most important thing that Congress could do to jump-start our economy, create jobs, and raise wages for American workers," Dimon said in the op-ed. "Our current code is uncompetitive, overly complex and loaded with special interest provisions that unfairly create winners and losers. This drives down capital investment, reduces productivity and causes wages to remain stagnant."

Hurricane relief adds to congressional agenda: President Trump and congressional leaders have pledged to provide relief funding in response to Hurricane Harvey, which adds to a legislative agenda that requires action by the end of the month on the debt limit, continuation of government funding into FY 2018, and reauthorization of aviation, flood insurance, and children's health programs. The storm may make some of those items less prone to controversy. Rep. Mark Meadows (R-NC), chairman of the Freedom Caucus group of House conservatives, was reported by ABC News August 29 as supporting swiftly extending government funding at current levels without addressing the border wall issue to keep the government functional in the wake of the hurricane. A government funding continuing resolution (CR) into December had already been expected by Speaker Ryan and the White House. Politico reported August 31 that Administration and Republican congressional leaders want to consider hurricane relief, a CR, and the debt limit as a single package, but may have to pass an initial storm assistance bill if the larger package cannot come together quickly. However, the Washington Post reported Meadows as saying August 31 that the debt limit should not be combined with the government funding bill or disaster relief. Rep. Sheila Jackson Lee (D-TX) put the potential amount of Harvey aid at $150 billion and said on CNN August 29 that congressional leaders have signaled to her "there will be no politics in this" and they will accommodate whatever needs are identified. "We are writing an aid package right now and hopefully we'll get all that we need," she said. Tax Notes August 29 reported Ways and Means member Kenny Marchant (R-TX) as saying it was too early to comment on the potential for tax relief legislation in response to the storm, on which Brady would take the lead. Reps. Tom Reed (R-NY) and Bill Pascrell (D-NJ) indicated they would reintroduce their National Disaster Tax Relief Act, which included provisions for disasters covering multiple years that include an election to expense qualified disaster expenses and increasing the tax deduction for charitable contributions for disaster relief.

Next Week (September 4-8)

Congress in: The House and Senate return to session from the August recess on September 5. Congress will be focused generally on Hurricane Harvey relief funding and action by the end of the month on the debt limit, continuation of government funding, and reauthorization of aviation, flood insurance, and children's health programs. The Senate will vote on a judicial nomination to start the week and then is expected to turn to consideration of the Department of Defense Authorization bill.

Finance Committee: The Senate Finance Committee has scheduled a September 7 hearing on, "The Children's Health Insurance Program: The Path Forward."

Quote of the Week

"We have gone from a tax rate that is lower than our economic competitors, to one that is more than 60% higher. We have totally surrendered our competitive edge to other countries … In other words, foreign companies have more than a 60% tax advantage over American companies. They can pay their workers more, sell their products and services at lower cost, and still make more money than their U.S. competitors. We cannot restore our wealth if we continue to put our businesses at such a tremendous disadvantage. We must reduce the tax rate on American businesses so they keep jobs in America, create jobs in America, and compete for workers right here in America — the America we love." — President Trump, August 30

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Contact Information
For additional information concerning this Alert, please contact:
 
Washington Council Ernst & Young
   • Any member of the group, at (202) 293-7474.

Document ID: 2017-1406