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June 13, 2017
2017-0951

Brady suggests five-year phase-in of border adjustability, potential exceptions to denial of 'net' interest

House Ways and Means Committee Chairman Kevin Brady (R-TX) on June 13, 2017, suggested a five-year phase-in to respond to concerns about the border adjustability proposal that is a pillar of the House Republican Blueprint on comprehensive tax reform.

"This reflects really the input we've gotten, the feedback we've gotten," Chairman Brady said at The Wall Street Journal CFO Network annual meeting, according to the paper's coverage of the event. "A very gradual five-year phase-in really resolves the major challenges."

He also said the plan would include targeted rules for the financial services, insurance, communications and digital-services industries. The newspaper's coverage said only 20% of import costs would be nondeductible in the first year of the proposal and increased until reaching 100% in the fifth year, and the tax exemption for exports would also be phased in.

The House Republican Blueprint also proposed 100% expensing and eliminating the deductibility of net interest expense. Politico reported Brady as saying that he would not eliminate the interest deduction for small businesses, real estate purchases or utilities. He said small businesses should also be able to take advantage of full expensing of business investments along with interest deductibility. "I foresee an exemption for small businesses so they can take advantage of both. They often don't have access to capital markets," Brady said.

Chairman Brady has said for months that he expected the border adjustability proposal would be phased in and that "design changes" were under consideration. Last week, he expressed confidence that, in the course of developing a "unified tax plan," he could work with the White House and Senate to design and transition the proposal in a way that addresses concerns that have been raised.

Treasury Secretary Steven Mnuchin has raised specific concerns about the proposal recently, and House Speaker Paul Ryan (R-WI) said changes, including possibly dropping it, were being considered.

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