May 18, 2017 Ways & Means holds hearing on growth impact of tax reform During a House Ways and Means Committee hearing on May 18, 2017, Chairman Kevin Brady (R-TX) received assurances from business leaders that full expensing of capital investments would help businesses create jobs and keep jobs in the United States. Chairman Brady has been defending full expensing, which the House Republican Blueprint proposed, along with the denial of deductibility of "net" interest expense. The proposed trade-off has raised concerns, and the Trump Administration and some senators have expressed a preference for retaining interest deductibility even if it means no full expensing. Another controversial element of the Blueprint, border adjustability, was not debated at length but is set to be discussed during a May 23 Ways and Means hearing, along with international tax reform issues. Rep. Sandy Levin (D-MI) expressed opposition to extending bonus depreciation, citing the Congressional Research Service assertion that its temporary nature is critical to its effectiveness, and concerns about the impact on the deficit. Committee Democrats generally expressed concern that a Republican tax reform plan will increase the deficit and do little to help the middle class. Ranking Member Richard Neal (D-MA) said tax reform must be fiscally responsible and, despite talk of dynamic scoring, "tax cuts do not pay for themselves." He did urge consideration of the macroeconomic effects of policy changes like infrastructure investment, and "using the revenue from a deemed repatriation tax to pay for infrastructure or other productive purposes." Witnesses at the hearing were: — John J. Stephens, Senior Executive Vice President and Chief Financial Officer, AT&T Inc. Stephens advocated full expensing of capital investments and reducing the corporate tax rate, and said eliminating interest deductibility in isolation would be extremely problematic but may be necessary as part of a broader plan. If that is pursued, it should be accompanied by transition rules that do not penalize companies' past choices and give companies appropriate time to adjust their capital structures, he said. Farr called for expensing, reducing the corporate tax rate, and switching to a territorial system. Peterson also called for a corporate tax rate cut and a territorial system. Mottl spoke in favor of border adjustability to "neutralize the border tax problems imposed on us by other countries," saying nearly all US trading partners use border adjustable consumption tax systems in the form of value-added taxes (VATs) or other taxes. Rattner said tax reform should: be revenue neutral; be fair, and not diminish progressivity; enhance economic growth; and "improve our international competitive position." Like other Democrats, Rep. Lloyd Doggett (D-TX) said comprehensive tax reform must provide benefits to the middle class and not raise the national debt. He bemoaned the fact that Republicans have not provided a complete picture of what current provisions would be eliminated under tax reform, only "vague talk of trade-offs." Rep. Mike Thompson (D-CA) said big things like tax reform can't happen unless they are bipartisan, and that the effort needs to be paid for and focused on the middle class. Rep. John Larson (D-CT) also said he is concerned about the middle class. But Tax Policy Subcommittee Chairman Peter Roskam (R-IL) argued that a "perfect tax code" should not be the enemy of a good tax code, and said one of the elements that must be litigated is the value of permanence. Farr said a long-term policy is preferable given that he is thinking about corporate investments years ahead of time. Peterson said certainty reduces risk for businesses. Democrats argue for infrastructure Rep. Ron Kind (D-WI) suggested that a tax reform plan have a tie-in to infrastructure and submitted for the record a May 16 letter from the New Democrat Coalition of House members urging President Trump to combine infrastructure investment with tax reform. Rep. Kind argued for a deemed repatriation tax rate with revenue dedicated to infrastructure, saying there is a "ton of money parked overseas." Rattner said he has typically opposed a lower tax rate on repatriation but would support such a proposal if it resulted in infrastructure funding. Rep. Earl Blumenauer (D-OR) also noted that past tax reform proposals incorporated repatriation and infrastructure investment. He advocated his previous proposal to increase the gas tax to raise infrastructure revenue. Farr did not endorse that specific approach but said he supports finding funds to pay for infrastructure investment, which is critical. "You will find very few CEOs of companies in the United States that would not say, 'Find the money to invest in infrastructure,'" he said. Witness testimony is attached. ———————————————
——————————————— Rattner Testimony
Peterson Testimony
Farr Testimony
Mottl Testimony
Stephens Testimony
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