This week (November 6-10)

Congress: The House and Senate are in session.

Ways and Means markup: The "Tax Cuts and Jobs Act" is scheduled to be marked up by the Ways and Means Committee beginning on Monday, November 6, at 12 p.m. Chairman Brady said, "At the start of our markup on Monday, I will also offer an additional amendment making more substantive improvements to the bill."

Last week (October 30 - November 3)

House tax reform bill set for consideration: House Ways and Means Committee Chairman Kevin Brady (R-TX) November 2 released a comprehensive tax reform bill, the "Tax Cuts and Jobs Act," that will be marked up in the Committee beginning November 6, kicking off formal tax committee action on the first such overhaul of the US tax system in over 30 years. The bill demonstrates the types of trade-offs necessary to lower rates and meet other goals of tax reform within the revenue constraints congressional Republicans have agreed to, namely the FY 2018 budget resolution's reconciliation instructions for a tax bill that can add to the deficit by no more than $1.5 trillion over 10 years. Brady's plan would immediately and permanently reduce the statutory corporate tax rate to 20% while eliminating many current business tax benefits, and move to a territorial system of taxing foreign earnings with anti-base erosion provisions targeting both US-based and foreign-based multinational companies. Significantly, the bill includes a new excise tax on otherwise deductible payments from US companies to related foreign companies that acts similar to the border adjustment in the House Republican Blueprint, but only for outbound payments. The adoption of a territorial tax system includes a one-time transitional tax on accumulated foreign earnings, determined as of November 2, 2017, or December 31, 2017 (whichever is higher), at 12% for cash and cash equivalents and 5% for illiquid assets, and payable over up to eight years. In addition to individual tax rates set at 12%, 25%, 35%, the current 39.6% rate would be retained for couples with income over $1 million. Many current individual tax benefits would be eliminated or limited, and the personal exemption would be repealed. The standard deduction would be roughly doubled to $12,200 for individuals and $24,400 for married couples. The bill does not include major changes to 401(k) plan contributions that had been under discussion, but does impose limitations on the mortgage interest deduction, repeals the deductibility of state and local income and sales tax, and caps the property tax deduction at $10,000. Ways and Means said "a typical middle-income family of four, earning $59,000 (the median household income), will receive a $1,182 tax cut." Many provisions in the bill overlap with those included in former House Ways and Means Committee Chairman Dave Camp's (R-MI) 2014 tax reform bill. (WCEY Tax Alert)

Changes, now and later: On November 3, Brady released a Chairman's Mark of the "Tax Cuts and Jobs Act" making at least two significant changes: striking Section 4502 of the bill, "Limitation on Treaty Benefits for Certain Deductible Payments"; and making chained CPI for the indexing for inflation of income tax brackets and other income thresholds effective for taxable years beginning after December 31, 2017, rather than delayed until 2023. Chairman Brady released a statement suggesting that the treaty benefits provision would have possibly jeopardized privilege of the bill in the Senate. The Byrd Rule applicable to the reconciliation process raises a point of order against provisions outside the jurisdiction of the committee that submitted it, and treaty benefits are under the jurisdiction of the Senate Foreign Relations Committee, unlike the other tax provisions of the bill. The Joint Committee on Taxation issued an updated conventional "static" revenue estimate showing the bill as adding $1.4135 trillion to the deficit over 10 years, down from $1.487 trillion for the original version. A "dynamic" estimate that reflects the macroeconomic effects of the bill is not expected until later, possibly after Ways and Means completes its consideration of the bill. With regard to further changes, Chairman Brady said, "At the start of our markup on Monday, I will also offer an additional amendment making more substantive improvements to the bill." During a Politico event November 3, Brady said he hoped to conclude the markup on Thursday, November 9. He added that the bill will not be subject to further amendments on the House floor.

Other issues under consideration: Also during the Politico event, Brady said there has been no decision with regard to adding repeal of the Affordable Care Act individual mandate to the tax reform bill, but that he has requested an updated revenue estimate for doing so. The Congressional Budget Office has said repeal of the mandate would cut the deficit by $416 billion between 2018 and 2036. President Trump tweeted November 1: "Wouldn't it be great to Repeal the very unfair and unpopular Individual Mandate in ObamaCare and use those savings for further Tax Cuts …" On other matters, the Wall Street Journal reported on Republicans pressing for changes with respect to the application of the 25% rate for pass-through businesses and limitations on the state and local tax deduction, and said Ways and Means held a meeting November 3 to discuss options. Some Republicans representing New York and New Jersey have said they are pushing for a more generous application of the state and local tax deduction under the bill, and some are threatening to vote against the bill. Rep. Tom MacArthur (R-NJ), however, has said he is content with how the state and local tax deduction is treated under the bill.

Senate plans: Senate Finance Committee Chairman Orrin Hatch (R-UT) announced November 2 that he plans to release a Senate Republican version of a tax reform bill after the Ways and Means Committee completes its work. "While I will study this legislation carefully, I am working with my Senate colleagues to finalize the policy details of the Senate's tax reform proposal to produce a mark for consideration in the Finance Committee once the House Ways & Means Committee completes its work, hopefully toward the end of next week," Chairman Hatch said. It is possible the Senate Finance Committee could consider Hatch's plan at the same time the Ways and Means Committee product is on the House floor, in an effort to make as much progress as possible on the legislation prior to Thanksgiving. The goal is for both the House and Senate to pass their respective tax reform bills by Thanksgiving and to resolve their differences and agree to a single bill before the end of the year. The Finance Committee also released a collection of statements from Republican members praising the House bill.

Separately, a document said to have been circulated by the Senate Finance Committee this week lists potential corporate offsets the Committee could be looking at as it develops a tax reform plan. It covers proposals affecting insurance companies; tax-exempt organizations; deductions for business meals, entertainment and transportation expenses; nonqualified deferred compensation; charity executive compensation; and other issues. Many of the proposals are derived from the 2014 Camp tax reform bill.

Quote of the Week

"I really believe we'll have it done before Christmas. I consider that to be one of the great Christmas presents." — President Trump, upon release of the House tax reform bill, November 2

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