This week (October 23-27)

Congress: The House and Senate are in session. The House may vote on the Senate-passed FY 2018 budget resolution or go to conference with the Senate on the budget. If the House votes on the Senate-passed FY 2018 budget, that may be followed by an announcement of when a House tax bill will be released and marked up in the Ways and Means Committee.

Ways and Means Republican meetings: On Tuesday, October 24 and Wednesday, October 25,House Ways and Means Committee Republicans will hold lengthy meetings on tax reform, Politico reported, quoting a Committee spokesperson who said, "Members will continue to discuss important tax policy decisions in the lead up to the release of the bill text."

Last week (October 16-20)

Outlook: Senate passage of its version of a FY 2018 budget resolution last night, including an amendment that apparently makes the Senate resolution more acceptable to House Republicans, enhances prospects for a relatively quick House-Senate agreement on a final resolution as early as next week, and facilitates the formal start of House consideration of a tax reform bill as soon as the week of October 30. House Ways and Means Committee Chairman Kevin Brady (R-TX) could release his "chairman's mark," or actual legislative language of the bill, that week. This timetable aligns with the strong desire of the White House and Congressional Republican leaders to have the House and Senate tax-writing committees formally begin moving actual tax reform legislation in the coming weeks. Such action is necessary if Congress is to pass a final tax bill and send it to the President prior to the end of the year, which is the goal of Republican lawmakers but is still an aggressive one; any number of issues could slow the pace of the tax legislative action and toss deliberations on the tax bill into early 2018. Brady has stated he will not release his chairman's mark for formal Ways and Means Committee consideration until after Congress passes a final budget resolution. Passage of a final budget resolution requires that either the House accepts the Senate-passed budget resolution, which provides instructions to the tax-writing committees to write the tax bill under the guise of budget reconciliation procedures, or creation of a House-Senate conference committee that would negotiate a final resolution that would then have to be passed by both the House and the Senate. The Senate-passed resolution allows for a tax bill that could add to the deficit by no more than $1.5 trillion over 10 years, while the House resolution requires a deficit-neutral bill.

Whether the House simply accepts the Senate resolution, or requires a conference negotiation first, Brady is expected to be poised to release his bill within days of a final budget resolution. Next week, Brady plans to spend at least several days in closed-door sessions with Committee Republicans developing an agreement on the final details of that bill. The goal is to release a bill, have it marked up and passed in the Committee, and considered and passed on the House floor by Thanksgiving. Senate action on the tax bill will likely follow House action, but Finance Committee Chairman Orrin Hatch (R-UT) has repeatedly stated that he will produce his own bill for Senate consideration. That bill might be released before completion of House action on its bill, in order to speed Senate deliberations and move different House and Senate bills to a conference committee in time to produce a final bill prior to year-end. However, developing and forging agreement among Republicans on the details of comprehensive tax reform legislation will not be easy, and likely will complicate deliberations. Moreover, the scheduled expiration on December 8 of a government funding measure could further delay movement of the tax bill, particularly if Democrats and Republicans engage in protracted negotiations over the variety of issues that could be on the table as part of that funding bill.

Fourth bracket: Speaker Paul Ryan (R-WI) said on CBS This Morning October 20 that the tax plan, which has not been further detailed since the release of a "unified" framework September 27, would include a fourth income tax bracket "so that high-income earners don't see a big rate cut and that those resources go to the middle class." The framework set three individual income tax rates of 12%, 25%, and 35%, but held open the possibility of an additional top rate. Ryan said President Trump has been very insistent that the fourth bracket be included. Republican leaders have faced criticism that the tax plan as outlined would significantly benefit high-income individuals. Treasury Secretary Steven Mnuchin told Politico in an interview published October 18 that it is difficult not to give tax cuts to the wealthy in the course of cutting taxes because of the proportion of taxes paid by those with high incomes. "The top 20% of the people pay 95% of the taxes. The top 10% of the people pay 81% of the taxes … " he said. "The math, given how much you are collecting, is just hard to do." Speaker Ryan also said changes to the framework's proposal to eliminate the state and local tax deduction are "what we're working on right now," with the goal of ensuring middle-income taxpayers in states like New York and New Jersey receive a net benefit from the tax plan. There has been discussion of alternatives to full repeal, including capping the deduction based on income or limiting it to property taxes. In lieu of an itemized deduction, the National Association of Home Builders is proposing a homeownership tax credit that would reflect mortgage interest and property taxes.

Revenue neutrality: With the budget's passage, the tax reform focus turns back to the House, though the Senate will write its own bill and Republicans continue to make their demands known. The party holds 52 Senate seats and can lose the votes of only two members to pass a tax bill under reconciliation. Senator Rand Paul (R-KY) said on Fox Business News October 17 that he will not support a tax bill that increases taxes on middle-income earners. Paul said he wants a big tax cut but, "There are three or four people who don't want this to be a tax cut at all. They want it to be exactly revenue neutral, meaning we will cut taxes on half of the people and we will raise taxes on the other half to make it neutral. I've always been a believer that you make it deficit neutral by not raising other people's taxes but by cutting spending." Senator Bob Corker (R-TN) released a statement following Senate passage saying "the sole purpose of this budget resolution was to kick-start the legislative process on tax reform" and give the Finance Committee the "headroom they need to move beyond parliamentary hurdles." The $1.5 trillion net tax cut figure reflects the fact that dynamic scoring and a current policy baseline that Republicans say will reduce the cost of the tax bill may not count for parliamentary purposes. Corker said he hopes that Finance "will produce a bill that — while allowing for current policy assumptions and reasonable dynamic scoring — does not add to the deficit, sets rates that are permanent in nature, and closes a minimum of $4 trillion in loopholes and special interest deductions."

Trump-McConnell meeting: Asked during a joint press conference with Senate Majority Leader Mitch McConnell (R-KY) October 16 if he would be OK with enactment of tax reform legislation slipping into 2018, President Trump said, "I would like to see it be done this year." McConnell said, "The goal is to get it done this calendar year," but both he and the President noted how long it took for legislative achievements under previous administrations. The news conference and one-on-one meeting was a show of unity following Trump's public spats with McConnell and other GOP senators including Corker. McConnell said contrary to press reports, "We are together totally on this agenda to move America forward." National Economic Council Director Gary Cohn told a meeting of the American Bankers Association the same day that tax reform must get done in 2017 and Trump will push harder for Congress to understand the urgency and cancel recesses, CNBC reported. "They need to stay and get taxes done," he said.

Democratic participation: President Trump this week both excoriated Democrats for refusing to support Republican proposals and continued courting them on tax reform. During his news conference with Senator McConnell, Trump said Republicans are "very, very unified" but "have to go through hell" to pass legislation without Democratic support. "As an example: massive tax cuts — we may not get any Democrat votes. Now, we also may get three of four … " he said. "We're the highest-taxed country in the world, and yet we may get no Democrat support. And that's because they're obstructionists and they just basically want us to do badly, but that's not going to happen." The President met with a bipartisan group of Senate Finance Committee members at the White House October 18 that included Chairman Hatch and most other Republicans, along with Democrats that included Ranking Member Ron Wyden (D-OR) and Senators Claire McCaskill (D-MO), Debbie Stabenow (D-MI), Bob Casey (D-PA), and Sherrod Brown (D-OH). Politico reported that President Trump suggested a bipartisan Senate tax reform working group. Senate Republican Whip John Cornyn (R-TX) said that work would take place within the Finance Committee. Senator Wyden released a statement following the meeting saying that as it stands currently, "the Trump plan would increase taxes on hardworking families while giving away trillions of dollars in tax cuts to the biggest corporations and the ultra-wealthy. You're not going to reach bipartisanship by plowing forward with this con job on the middle class." Additionally, Jared Kushner and Ivanka Trump hosted Senators McCaskill, Heidi Heitkamp (D-ND), and Joe Manchin (D-WV) for a dinner to discuss tax reform October 17.

Tiberi leaving Congress: House Ways and Means Committee member Pat Tiberi (R-OH) October 19 announced he will be leaving Congress to lead the Ohio Business Roundtable. He said a final resignation date has not been determined, but will be no later than January 31, 2018. Ways and Means Republican Reps. Sam Johnson (R-TX), Dave Reichert (R-WA), and Lynn Jenkins (R-KS) are retiring. Reps. Kristi Noem (R-SD), Diane Black (R-TN), and Jim Renacci (R-OH) are running for governor.

Wage growth studies: The President's Council of Economic Advisers October 16 released a report, "Corporate Tax Reform and Wages: Theory and Evidence," that said reducing the statutory federal corporate tax rate from 35% to 20% would increase average household income in the United States by, "very conservatively," $4,000 annually. An additional potential benefit is the effect of corporate tax reform on the behavior of US firms holding profits overseas, the report said. "The volume of profits held by U.S. firms abroad has risen sharply in recent years. A lower rate would provide incentive for firms to move their income and activity back to the U.S.," the CEA said. "These additional considerations magnify the potential impact of corporate tax reform for workers' wages." Mihir Desai, a Harvard professor, tweeted October 17 that the CEA report misinterpreted the results of a paper he co-authored on corporate tax incidence. The paper found other critics. Former Treasury Secretary Larry Summers said "there is no peer-reviewed support for his central claim that cutting]the corporate tax rate from 35 to 20% would raise wages by $4000 per worker. The claim is absurd on its face." Speaker Ryan's office October 17 highlighted a study led by Boston University Professor Lawrence Kotlikoff, arguing that "the new Republican tax plan raises GDP by 3 and 5% and real wages by between 4 and 7%. This translates into roughly $3,500 annually, on average, per working American household."

Quote of the Week

"We're going to succeed together or we're going to fail together. If we don't cut taxes after all these years of promising then I think the party comes unraveled." — Senator Lindsey Graham (R-SC) October 17, as reported by The Hill newspaper

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