October 16, 2017 EY Center for Tax Policy: This Week in Tax Reform for October 13 This week (October 16-20) Congress: The Senate is in session but the House is out until the week of October 23. FY 2018 budget: The Senate will consider the FY 2018 budget resolution, likely culminating in the "vote-a-rama" series of consecutive roll call votes on amendments offered after debate time has expired. Once the Senate completes action on the FY 2018 budget resolution, the House and Senate must then resolve differences between their respective resolutions in order to use the reconciliation process that will allow a tax bill to pass the Senate with the votes of as few as 50 senators (with the Vice President breaking the tie). Last week (October 9-13) Tax reform timing: Administration officials and Republican leaders continued to say that tax reform legislation will be released after Congress approves an FY 2018 budget resolution, which is necessary to authorize the reconciliation process. Treasury Secretary Steven Mnuchin told the Institute of International Finance's annual meeting October 13 that after a budget is passed the House will introduce its tax reform bill and the Senate will do so shortly after, and it's likely "there will be some differences," Politico reported. On Bloomberg TV October 11, House Ways and Means Committee Chairman Kevin Brady (R-TX) said the Committee is going to bring forward a comprehensive tax reform bill with income brackets and details after the budget is delivered. "It all pivots off the budget. Once that is signed, sealed, and delivered, then Ways and Means will have the baseline, the number to write to, we are going to move very quickly after that … " he said. "If you're serious about tax reform, whether you are in the House or the Senate, you have to be serious about giving us the right budget." The Senate is expected to consider its FY 2018 budget resolution the week of October 16 and the House and Senate will try to agree to the same resolution after that. Speaking at the Heritage Foundation October 12, House Speaker Paul Ryan (R-WI) said, "the tax writers on the Ways and Means and Senate Finance committees are currently filling in the details" of the "unified framework" released on September 27, and threatened to keep the House in through Christmas if tax reform is not enacted by then. Benefits for average workers: The President and other Republicans took greater efforts to explain the benefits of corporate tax changes and the framework overall for average workers. President Trump October 11 said imposing "a one-time low tax" on accumulated foreign earnings of US companies "would likely give the typical American household a $4,000 pay raise." He was referring to Council of Economic Advisers Chairman Kevin Hassett's point that if US firms had not kept 71% of foreign-earned profits abroad in 2016, workers would have received a raise of nearly 1%, and if they didn't do that for 8 years the median US household would see their real income rise $4,000. In a speech at the Harrisburg International Airport in Pennsylvania to an audience filled with truckers, President Trump called for cutting taxes for businesses to provide them a level playing field and to restore their competitive edge, which he said will result in more jobs and higher wages for Americans. "The biggest winners from this transformation will be everyday families, from all backgrounds, from all walks of life, and our great companies, which will produce the jobs. They are going to produce jobs like you've never seen before," the President said. "When companies leave our shores, it's the American workers who get hurt. And when companies stay in America, and move to America, it's our wonderful workers who reap the rewards, including our great truckers who will have more products to deliver and more contracts to fill." The President said the focus of the tax bill will be the middle class and cited audience members who would benefit under proposals included in the tax reform framework released on September 27. He called Democrats obstructionists and said they want to raise taxes. The speech follows three others in states — Missouri, North Dakota, and Indiana — President Trump won in 2016 and that have a Democratic senator up for re-election in 2018, in this case Senator Bob Casey (D-PA). In his October 12 speech, Speaker Ryan said: "fixing the business side of our tax code is really all about helping families and workers. Cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers. Higher wages means bigger paychecks. Bigger paychecks and lower tax rates means more money in your pocket. And more money in your pocket means a better standard of living." Ways and Means Republicans October 11 issued a release on "How Tax Reform Will Help Main Street Job Creators Nationwide," which cited elements of the framework including immediate expensing that will help "unleash the growth of jobs, productivity, and paychecks by allowing small businesses to deduct more of the cost of new equipment that improves operations and enhances the skills of their workers." State and local tax deduction: House Republicans signaled that they were closing in on an agreement to dial back the elimination of the state and local tax deduction proposed in the framework, but a specific approach has not been revealed. Republicans representing states that would be significantly affected by eliminating the deduction, including New York and New Jersey, met with Chairman Brady and other House leaders October 12, and Rep. Tom MacArthur (R-NJ) said discussions are "like a daily thing now" and that more than 21 Republican members have problems with eliminating the deduction, Politico reported. The October 13 Wall Street Journal said options for keeping the deduction for middle-income households while repealing it for higher-income households include cutting the deduction off for those above a certain income level and allowing the deduction for state and local property taxes, but not income taxes. Elimination of the state and local tax deduction is seen as contributing more than $1 trillion toward the tax plan. The Tax Foundation estimated October 12 that subjecting the state and local tax deduction to a $400,000 AGI cap ($800,000 AGI for married couples) as some lawmakers have proposed, meaning taxpayers can only take the deduction if their incomes are under the threshold, would raise $481 billion over 10 years. President Trump was said to be referring to the state and local tax deduction proposal when he said of the tax plan October 10, "We'll be adjusting a little bit over the next few weeks to make it even stronger." Size of tax bill: The size of the eventual tax proposal and how much of it will be paid for is unclear. Senator Bob Corker (R-TN) has said the plan Republican leaders want will cost $4 trillion, and the Senate FY 2018 budget resolution provides reconciliation instructions for a $1.5 trillion net tax cut over the 10-year budget period. Asked during an October 11 event sponsored by The Hill newspaper about Corker's comments, Ways and Means Tax Policy Subcommittee Chairman Peter Roskam (R-IL) said the impacts of dynamic scoring and a current policy versus current law baseline remain to be seen, along with the tolerance for debt, and that the tax number in the final budget resolution is what the Committee will key in on. Also during the event, House Ways and Means Committee Ranking Member Richard Neal (D-MA) said that Republicans tormented Presidents Obama and Clinton over deficits, "but apparently if you are a Republican president, deficits really don't count." Corker-Trump feud: President Trump said October 10 that he didn't think his Twitter spat with Senator Corker would hamper progress on tax reform and that the American people want tax cuts. Corker cut the deal for a $1.5 trillion net tax cut to be provided for under reconciliation instructions in the budget resolution agreed to by the Senate Budget Committee, and has said he won't support a tax bill unless it "does not add to deficits with reasonable and responsible growth models." As a deficit-conscious Republican who is not running for re-election in 2018, his vote is seen as crucial given that Republicans hold 52 Senate seats and can lose the votes of only two of their members to pass a tax bill under reconciliation. Several news reports have raised the prospect that some of the Republicans who opposed various health care bills brought before the Senate could potentially keep a tax reform bill from advancing. Economic development bill: In a Forbes interview October 10, President Trump said he has an economic development bill that "nobody knows about," under which companies that keep jobs in America are rewarded and those that send operations offshore are penalized. "It's both a carrot and a stick," the President said. "It is an incentive to stay. But it is perhaps even more so — if you leave, it's going to be very tough for you to think that you're going to be able to sell your product back into our country." Quote of the Week "We're going to keep people here until Christmas if we have to. I mean, I don't care. We've got to get this done. I mean, it's just that important." — House Speaker Paul Ryan (R-WI), October 12 ———————————————
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