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Tax Tuesday


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August 15, 2017

Chairman Brady will host Republican Members of the House Ways and Means Committee this Wednesday at the Reagan Ranch in Santa Barbara.  They will discuss tax reform and Brady will make remarks late tomorrow afternoon EST.  Expectations are that few details will be decided or released.  However, it is reported that the Big Six may release a three- to five-page outline of tax principles by mid-September.

Despite the calls, especially in the Senate for a bipartisan effort at tax reform, Leader McConnell has stated that he does not believe that the bipartisan atmosphere exists today that helped enact the 1986 TRA.

And Senator Hatch announced recently that the Senate Finance Committee will hold hearings followed by a markup of tax reform legislation “this fall.”  Hatch still intends that the Finance process be bipartisan.

NEC Cohn suggested earlier this month that the new U.S. corporate rate would need to be cut by one-third (23%) to be in line with the average OECD rate.  That is higher than the Trump proposed 15% corporate rate.

Looking for revenue raisers for tax reform could include the tax-preferred treatment of contributions to qualified retirement plans, according to Marc Short at the White House.  Also in the spotlight lately are the mortgage interest deduction and the business interest deductions.

Tasks for Congress upon their return in September is long.  With the House scheduled to be in only 12 days in September, this will leave little time for tax reform.  In addition to the FY-2018 budget, the Treasury says that the debt limit must be raised by September 29th in order to avoid default on federal obligations.  Meanwhile, House leaders will be focused on securing a budget resolution with instructions for tax reform.  And there is a question about how long Chairwoman Black will remain as Budget Chair since she announced her plans to run for Governor of Tennessee.  Republican Conference rules require candidates for statewide office relinquish their gavels although this rule can be waived.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some press highlights focusing on specific tax provisions:


August 1, 2017

NOTE: Tax Tuesday will publish on August 15th and 29th this month.

As we reported last Thursday, the “Big Six” leaders on tax reform, Senate Majority Leader Mitch McConnell (R-KY), House Speaker Paul Ryan (R-WI), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX) released a statement on their progress so far on tax reform.  We also noted the death of the BAT in tax reform.  Speaker Ryan said this weekend that the Big Six were working to achieve a “common template” for tax reform and “details to see if there’s a viable alternative to a border adjustment tax” as a revenue raiser.

On Monday, in a coordinated set of press conferences/releases, Big Six members proclaimed the virtues of tax cuts for the middle class and businesses.  While short on details, the group reaffirmed their commitment to comprehensive reform that “reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.”

Meanwhile, Chairwoman Black was unable to get her FY-2018 Budget Resolution to the floor of the full House before they broke for recess last week. This effort will now wait until Congress’ return in September.  On that note, Senate Democrats said in a letter that they would not support a tax bill formed under reconciliation rules.  And they said that they want not tax increases on the middle class, no tax breaks for the top 1% and no increase in the deficit.

Below are some highlights from the press about recent developments in tax policy and tax reform:


July 27, 2017- Special BAT is Dead Thursday Edition

Today, the “Big Six” leaders on tax reform, Senate Majority Leader Mitch McConnell (R-KY), House Speaker Paul Ryan (R-WI), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX) released a statement on their work so far on tax reform, which we have included below.

While short on details, the release stated that the border adjustment tax would be set aside in order to move on to tax reform.

The group reaffirmed their commitment to comprehensive reform that “reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.”

Additionally, they said that it was their plan to move a tax package through the Senate Finance and House Ways and Means Committees by regular order, calling into question whether reform would be tied to a reconciliation bill.


July 25, 2017

We’ll see if the House can pass its FY-2018 Budget Resolution this week. This vehicle will carry instructions – broad as they may be – for tax reform. The budget resolution passed the House Budget committee last week and it should be considered by the full House this week. We noted that the “instructions” on tax reform are short on details. It calls for deficit-neutral tax reform that simplifies the tax code; lowers tax rates for corporations and individuals; repeals the AMT; and transitions to a territorial system. The policy statement on tax reform can be found in section 526 in the legislative language of the budget resolution. The complete budget information, including legislative language and the blueprint can be found here.

The Senate Finance Committee held its nomination hearing for David Kautter to be the Assistant Secretary for Tax Policy at the Treasury Department last Tuesday. The unanimous 26-0 vote of the Finance Committee was conducted last Thursday. His nomination now moves to the full Senate.  The Senate is now working on a replacement bill for the Affordable Care Act. Resources given to this effort will continue to be “over-taxed” this week and beyond.

Below are some highlights from the press about recent developments in tax policy and tax reform:

 

Below are some highlights from other BAT-specific press highlights:


July 18, 2017 (Part 2)

The House will begin its work on the FY 2018 budget with reconciliation instructions for tax reform on Wednesday.  The House Budget Committee markup is tomorrow.  While the “instructions” are short on details, it calls for deficit-neutral tax reform that simplifies the tax code; lowers tax rates for corporations and individuals; repeals the AMT; and transitions to a territorial system. The policy statement on tax reform can be found in section 526 in the legislative language of the budget resolution. The complete budget information, including legislative language and the House Blueprint can be found here.

Meanwhile, the Senate held a tax reform hearing this morning focused on general approaches and goals.  A number of topics were covered in the hearing including parity for passthrough and corporate entities; the elimination of state and local income tax deduction; competitiveness; interest deductibility; and simplification. Many of the Democratic committee members also asked about the importance of doing tax reform in a bipartisan manner. Most notably however, was the frequency with which a consumption tax was spoken about as a way to increase revenue in conjunction with lower income tax rates and a broader base. Prime’s report by Casie Daugherty is here.

Also this morning, the Senate Finance Committee held a nomination hearing for David Kautter to be the Assistant Secretary for Tax Policy at the Treasury Department.  The committee did not vote on the nomination and has scheduled a markup on Thursday to vote.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:


July 18, 2017 (Part 1)

Today, the Senate Finance Committee held a hearing entitled, “Comprehensive Tax Reform: Prospects and Challenges.” Twitter’s favorite tax reform hashtag, #TRIH, even got a shout out. A number of topics were covered in the hearing including parity for passthrough and corporate entities; the elimination of state and local income tax deduction; competitiveness; interest deductibility; and simplification. Many of the Democratic committee members also asked about the importance of doing tax reform in a bipartisan manner. Most notably however, was the frequency with which a consumption tax was spoken about as a way to increase revenue in conjunction with lower income tax rates and a broader base. Opening statements from this hearing are below.

 

Committee Members’ Opening Statements

Chairman Orrin Hatch (R-UT)

Ranking Member Ron Wyden (D-OR)

Witnesses’ Opening Statements

The Honorable Jonathan Talisman, Former Assistant Secretary For Tax Policy, 2000- 2001

The Honorable Pamela F. Olson, Former Assistant Secretary For Tax Policy, 2002- 2004

The Honorable Eric Solomon, Former Assistant Secretary For Tax Policy, 2006- 2009

The Honorable Mark J. Mazur, Former Assistant Secretary For Tax Policy, 2012- 2017

 

The Committee followed this hearing immediately with another hearing on the nomination of David Kautter to be an Assistant Secretary at the Department of Treasury in charge of tax reform.

Opening statements from this hearing are below.

Committee Members’ Opening Statements

Chairman Orrin Hatch (R-UT)

Ranking Member Ron Wyden (D-OR)

Witnesses’ Opening Statements

David J. Kautter, To Be An Assistant Secretary of the Treasury

Complete Coverage of this hearing can be found here.


July 11, 2017

We had the opportunity to discuss tax reform with Chairman Hatch recently.  Hatch noted that negotiations were continuing with the “Big Six” (McConnell, Hatch, Ryan, Brady, Treasury Secretary Mnuchin and White House National Economic Council Director Gary Cohn) to define the broad goals of tax reform. He said that the Senate would likely wait to see if the House is able to pass at tax bill first.  He also suggested that he did not see support for the BAT in any final tax reform legislation.

Chairwoman Black (R-TN) at the House Budget Committee is still very motivated to write and pass an FY-2018 budget resolution that will include instructions for tax reform probably with a 10-year window.  There has been some general retrenchment on the issue of extending the budget window beyond the normal 10 years.  We heard in June from a few stakeholders that going longer than 10 years would help pay for tax reform.  That thread has largely disappeared from public discussion in recent weeks. And the White House continues to pressure for a result by the end of July. Yesterday, White House legislative affairs chief Marc Short seemed to speed up the Administration’s timeline for tax reform, suggesting that a draft would be “locked in place” before the August recess. And we are still waiting on a health care vote in the Senate to clear the FY-2017 reconciliation instructions.

Earlier today, Mitch McConnell announced that the Senate would stay in for the first two weeks of its August recess to address legislative issues, so this may also effect tax reform efforts.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:


June 20, 2017

Today, Speaker Ryan gave what was billed as his “first major speech on tax reform” to the National Association of Manufacturers’ 2017 Manufacturing Summit. The full text of his speech can be found here.

Much like all of the activity surrounding tax reform efforts, the speech was short on details. Among the things that were mentioned was an elimination of the AMT and the so-called death tax; doubling the standard deduction; consolidating the seven brackets into three; and moving to a territorial system.  Additionally, the Speaker said the House plan would focus on “keeping deductions that make the most sense,” specifically home ownership, retirement savings, and charitable giving. Ryan also stated that tax reform needed to be permanent.

Most notably, however was what wasn’t included in the Speaker’s remarks: any mention of the border adjustment tax. Other than a wink and a nod toward his chamber having its “own idea” about getting to reform that they “are discussing with the administration,” Ryan never once breached the subject in either his speech of the question-and-answer session that was held after the speech’s conclusion. Of course, if the BAT is off the table, Congress must find a way to pay for this tax reform, and businesses that depend on certain tax credits or deductions should pay close attention.

During the question-and-answer session Ryan spoke briefly about the timeline for the tax overhaul. After mentioning in his speech that he was “here to tell you: we are going to get this done in 2017,” Ryan offered a more clear timeline. While pointing to the end of the calendar year as the ultimate goal, he stated that it was his personal goal to have be finished by the beginning of “deer gun season” in Wisconsin, which begins the Saturday before Thanksgiving on November 18.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:


June 13, 2017

Jim Jordan (R-OH), for himself and by association the House Freedom Caucus, noted in a recent editorial that the BAT was not the right policy approach for tax reform.  Chairman Hatch even entered the fray again by noting he didn’t see much support for the BAT in the Senate.  Both Chairman Brady and Speaker Ryan then re-asserted their support for the BAT.

Today, Chairman Brady suggested to the Wall Street Journal that he would consider a five-year phase in for the BAT and some exemptions for the no net-interest deduction proposal in last year’s House tax reform proposal.

One of the items that must be managed by Congress soon, in addition to health care reform, is the debt limit.  Secretary Mnuchin this week again asked Congress to consider legislation extending the debt limit before the August recess.  He noted that there was sufficient funding to begin September before extraordinary measures would be needed to manage the federal government accounts.  All this to note that, tax reform is still considered a 2017 goal by the President and Congress.

During Secretary Mnuchin’s budget hearing in the Senate, Senator Wyden (D-OR) ask the Secretary if he would honor the “Mnuchin Pledge” to not lower taxes on the wealthiest Americans.  Wyden suggested that this guidepost would be necessary if bipartisan tax reform were to be achieved.  The Secretary did not give Wyden the full commitment Wyden was seeking.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:


June 6, 2017

As we noted last week in our Bloomberg article on tax reform, the legislative agenda for the summer and fall is quite full.  The President and his economic team met today with Capitol Hill Republicans to scope out legislative priorities.  We are sure that tax reform, infrastructure and health care – not in that order – were discussed.  Separately, Secretary Mnuchin had a separate listening session on tax reform.

We know that hundreds of business interests filed comments to the Ways and Means Committee,  which were due today.  Many of those comments focused on the negative effects of the proposed BAT. We should know more when that record is opened for review. While there has been serious concerns expressed about the BAT by House and Senate Republicans, we still believe that it remains a component of the basic House plan.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:


May 23, 2017

The House Ways and Means Committee held its second tax reform hearing in a week, “Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas,” which specifically focused on the controversial border adjustment tax (BAT), as well as international tax issues in general. Prior to the hearing, the Joint Committee on Taxation released its report for destination-based taxation and border adjustments.

The witnesses were: Juan Luciano, President and Chief Executive Officer, Archer Daniels Midland Company; Brian Cornell, Board Chairman and Chief Executive Officer, Target Corporation; William Simon, Former President and Chief Executive Officer, Walmart U.S.; Lawrence B. Lindsey, President and CEO, The Lindsey Group; and Kimberly Clausing, Thormund A. Miller and Walter Mintz Professor of Economics, Reed College.

During his opening statement, Mr. Luciano spoke in favor of reducing the corporate rate to 20% so that businesses could operate more competitively. Additionally, he said moving to a territorial system would remove the burdens of higher tax rates and capital restrictions and help to stop the decline in agricultural market share. Mr. Cornell said he strongly support tax reform, as Target currently pays an effective tax rate of 35%. However, he said that the proposed BAT would undermine the pro-growth principles of the Better Way Blueprint and would cause consumers to pay more on necessities like groceries and gas, so multinationals could pay less, making it a middle-class budget breaker. Mr. Simon said that the current system wasn’t serving anyone well.  If a BAT was properly implemented, it would be in the best interest of the country. However, he cautioned that it must allow for adjustments and applying a 20% tax would not be good for industry or consumers.  He urged the committee to adopt a long transition so as to phase-in the impact. Mr. Lindsey stated that the U.S. needed to move to territorial system and emphasized that a BAT will lead to a currency adjustment, while agreeing that the focus of discussions should be on transition plans. In her opening statement, Dr. Clausing stated that the BAT would cause large economic shocks, and there was a good possibility that the BAT would not be WTO compliant and allow other countries to retaliate.

Most noteworthy were the three Republican Ways and Means Members that expresses extreme skepticism, to put it mildly, with the BAT. Reps. Mike Kelly (R-PA) and James Renacci (R-OH) reiterated their concerns, while Rep. Erik Paulsen (R-MN), for the first time, said he would not support the BAT as introduced. Much of the panel’s discussion focused on whether it was accurate (or wise) to rely on currency adjustments to relieve the burden a BAT would place on consumers. Additionally, there was discussion about whether a BAT would be WTO compliant. For the complete hearing report, including the member by member question and answer, click here.

President Trump also released his 2018 budget today, though it contained no new details on his tax reform plan. For more information, see Prime’s 5 key Takeaways From President Trump’s Proposed Budget.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:


May 16, 2017

Tax reform hearings in the House start on Thursday with a session on the general growth and benefit to the U.S. economy that can be gained if we do tax reform.  We understand that representatives from AT&T, Standard and Poor’s, Emerson, and Steven Rattner who served as the car czar for the Obama Administration are possible witnesses.

This afternoon, the Ways and Means Committee announced a May 23 hearing on “Increasing U.S. Competitiveness and Preventing American Jobs from Moving Overseas” that will examine how the BAT “will boost jobs, investment, and growth in the U.S.” The hearing is also slated to cover international tax modernization.

Senate Republican Leader Mitch McConnell said in an interview with Bloomberg Television that any tax reform plan that includes a border adjustment tax would likely not pass the U.S. Senate.  He also noted that any tax plan would have to be revenue neutral.

This is interesting timing because we know that the Big Six (Sec. Mnuchin, NEC Director Cohn, Leader McConnell, Speaker Ryan, Chairmen Brady and Hatch) are meeting weekly to reach a consensus on a tax reform proposal or outline.  We believe that the Leader is just stating a fact, that in the current environment, a BAT would likely not pass the Senate.

Also important is the statement that any plan be revenue neutral.  This will of course require payfors.  If we do not have the BAT in the plan then what else can be used to pay for tax reform?

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:

May 9, 2017

Even though the House is out of session this week, plans are afoot for tax reform hearings to begin in the Ways and Means Committee the last two weeks of May.  One of these hearings is tentatively scheduled to be on the BAT.  We note that Ways and Means tried to schedule that subject matter hearing before its break this week and was unable to do so.
While some House Republicans are using the week of recess to hold town halls in their districts, tomorrow Speaker Ryan heads to Ohio to begin selling the House GOP’s next big agenda item: tax reform. Axios is reporting that he’ll be speaking with manufacturing companies around Columbus, as well as holding roundtable discussions with local business leaders.
Also in the Senate last week, Chairman Hatch of the Senate Finance Committee gave a floor statement that re-emphasized his desire for a bipartisan effort at tax reform in the Senate.  His statement can be viewed here.
Below are some highlights from the press about recent developments in tax policy and tax reform:
Below are some highlights from other BAT-specific press highlights:

May 2, 2017

The President’s tax plan – one page, 250 words – is a broad, bold and expensive proposal.  Early estimates peg the cost of the proposal at between $5.5 and $7 trillion.  Secretary Mnuchin and NEC Advisor Cohn noted that this was an opening offer to further negotiate tax reform with Congress.

A retreat was held by Ways and Means Republicans this weekend.  We know that they discussed the Trump tax plan and some JCT scores.  Chairman Brady commented, “We are 24 very strong, informed individuals, but I’ll tell you we are absolutely committed to the boldest tax reform in a generation that vaults America into the lead and moves us toward a balanced budget as we do that.”  The upshot is Ways and Means Republicans remain focused on permanent and revenue neutral tax reform.

If not the BAT, what?  Not to get too far ahead of the debate, it is worth noting that Chairman Brady and Speaker Ryan are still committed to the BAT.   It is has been widely reported that they will entertain modifications but that as of now it is still a central feature of the House proposal. Additionally, we are hearing that the House will hold listening sessions with Members and stakeholders, so these groups can give input on the path forward.

Last night, Chairman Hatch addressed tax reform on the Senate floor.  He still desires a bipartisan permanent tax reform effort, but articulated frustration at comparable petty obstacles from his colleagues.  Watch it here (beginning at the 9:45 mark).

 

Reactions to the President’s Tax Reform Proposal:

Below are some highlights from other BAT-specific press highlights:


April 25, 2017

The Big Four will meet this evening with Administration Officials on the Hill to talk tax reform in advance of the Administration’s announcement of its tax plan on Wednesday.  Leader McConnell, Speaker Ryan, Chairmen Hatch and Brady will meet with National Economic Council Director Gary Cohn and Treasury Secretary Steven Mnuchin.  We expect that this will be a cheerleading session about what the President wants and an offer to help the Congress achieve major tax reform as soon as possible.

We expect that the President will offer an outline of what he is seeking starting with the largest middle-class tax cut in history and a 15 percent corporate rate and a 15 percent for pass-through taxpayers.  It may include features like an improved child care credit and all of this paid for by economic growth stimulated by the new tax plan.  As there was some controversy about when the Administration’s plan would be released (OMB Director Mick Mulvaney said details wouldn’t be ready until June), we believe that the plan will be short on finer details, like whether the Administration supports the BAT.

Additionally, we are hearing that the Ways and Means Committee may hold its BAT hearing next week, perhaps Thursday. There would possibly be two CEOs testifying in favor of the BAT and a tax policy academic.

Below are some highlights from the press about recent developments in tax policy and tax reform:

Below are some highlights from other BAT-specific press highlights:

April 18, 2017

Welcome to your Tax Day edition, a fortuitous coincidence caused by D.C.’s official recognition of Emancipation Day (04/16/1862 – celebrated this year on 04/17/2017).

It has become popular in D.C. to evoke memories of Kremlinology or the Kremlin-watching feature of the Cold War. One of the troubles of the practice applied to Washington and tax reform in 2017 is that it causes the watchers to chase and overanalyze every rumor and quote well beyond its meaning or intent. Let’s take a quick tour through a couple of the popular concepts floated with respect to tax reform –

  • Reform is too hard; go for a tax cut. The idea is that the constituencies and votes in Congress cannot be managed to achieve the result. So, the next best thing is a tax cut like the early days of George W. Bush’s administration – unpaid for and sunset. We are not there yet. Key leaders in the House, Senate and the Administration are still committed to tax reform. The rank and file also have the expectation of reform. It is early.
  • Make the package bigger. Whether adding healthcare, infrastructure or both; the concept is that you can build a vote coalition with a bigger bill. While there are precedents, none are recent. The legislative tactic is well developed but has not been used successfully since Republicans retook the House in 2010. Doing so almost certainly means a bipartisan vote coalition and that means very different substance than we might expect under reconciliation terms.

As you have no doubt noticed, we have yet to see anything substantive from the Trump Administration on tax reform. Since our last edition, Treasury Secretary Mnuchin conceded the obvious, that tax reform would not be complete by August. OMB Director Mulvaney noted that he was not concerned about the deficit impact of tax reform; a lead buried under his declaration that the Administration would produce its own tax reform plan irrespective of his former colleagues in the House. Finally, was a Politico report last week of an administration trial balloon designed to attract Democratic support by proposing to “cut the payroll tax almost entirely, apart from the Medicare taxes, and pay for that reduction by eliminating labor deductibility.” Particularly given our warning about Kremlinology, we are hesitant to overreact to such incomplete information, but on that description, alone it would appear to be a proposal that could lose more votes than it gained for a package. The few tax writers we connected with have yet to seen anything beyond the article and there is not enough detail at this point on the concept. It is another indicator that the Administration like the Senate is working its own process to develop a plan for tax reform.

As Tax Day approached, polls focusing on taxes have been released this week:

  • CBS Polling: Do Americans think their tax system is fair? (April 14)
    Topline results: 56 percent think the income tax system is “somewhat” or “quite” unfair; 56 percent of respondents, including 53 percent of Independents think it is “necessary” that President Trump release his tax returns.
  • NPR and Ipsos Polling: What do Americans know about the tax code and what they believe is wrong with it. (April 17)
    Topline results: 67 percent of Americans think lower-income pay too much income tax; almost 90 percent believe the tax code is too complicated; and 77 percent say they personally pay too much in federal income taxes. Additionally, Americans overestimate how important income taxes are to government revenue and changing what something is called (i.e. the “death tax” versus the “estate tax”) changes how many people support/oppose it.
  • Pew Research Center Polling: The Top Frustrations with U.S. Tax System (April 14)
    Topline results: 62 percent of Americans are bothered “a lot” that some corporations don’t pay their fair share; 60 percent are bothered “a lot” that some wealthy people don’t pay their fair share; 56 percent of Americans view the tax system as unfair (compared to 50 percent in 2010); and 54 percent say they pay “about the right amount” in taxes.
  • Gallup Polling: Most Americans in 15 Years Say Their Tax Bill is Too High (April 14)
    Topline results: 57 percent of Americans say they pay too much in federal income tax and 47 percent say the percentage they pay in income tax is unfair (50 percent say it is fair).

Below are some highlights from the press about recent developments in tax policy:

Below are some highlights from other BAT-specific press highlights:


April 11, 2017

Welcome to a blessedly calmer week by recent standards in D.C. Hopefully, you are enjoying the fantastic weather. The White House continues to insist it will drive the train on tax reform. Chairman Brady and Speaker Ryan still plan to lay the track setting that train’s direction. Chairman Hatch is still planning a bipartisan product. All of that combined with an administration team still working out their priorities leaves a lot of uncertainty about any end product, but it is still very early.

As you know, the storm after this calm will be funding the government through the end of the fiscal year. The political imperative to address health care and the ACA will keep Republicans returning to the issue until it is addressed. The special elections in KS-4 (today), GA-6 (4/18) and Montana (5/25) each could alter members’ calculus and approach to the agenda, but keep in mind the lessons drawn from each result will be their own and not the pundits.

The biggest news in tax reform last week was Chairman Brady’s meeting with Ways and Means Democrats. The closed-door meeting is well described in multiple press outlets at the time, if you’d like to compare notes on that meeting, give us a call.

Less well covered was a Tax Reform hearing!  The House Committee on Agriculture held a hearing entitled Agriculture and Tax Reform: Opportunities for Rural America on Wednesday, April 5. Reps. Noem (R-SD) and Jenkins (R-KS) testified on the first panel at the hearing. A key theme of the hearing was the debt financing feature of modern American farming. The whole hearing is available online, as is the testimony of the five witnesses on the second panel.

Below are some highlights from the press about recent developments in tax policy:

Below are some highlights from other BAT-specific press highlights:


April 4, 2017

Health Care lives… maybe. There has been much talk recently about another attempt to pass health care reform. There is no deal yet but we are standing by. This would impact tax reform in a couple of ways.  First, it might delay the consideration of legislation in Congress. Second, is that it might improve the baseline for tax reform. We’ll see. Congress completes a six-week work session this week before a two-week break.

It appears that the President and his team have an outline for tax reform, though details are scarce. The House continues to work on its legislation behind the scenes. Let’s look at what we are hearing about the Senate effort.

From senior Republican sources we understand that the effort in the Senate will be bipartisan (for now), comprehensive; probably with a shift to territorial; it may contain Chairman Hatch’s integration plan; and it could include child care and infrastructure as “sweeteners” for the Democrats. Timing is uncertain but a 2017 result is hoped for. A 2017 result seems aggressive to us, especially if there actually is a successful bipartisan effort in the Senate.

Below are some highlights from the press about recent developments in tax policy:

Below are some highlights from other BAT-specific press highlights:

March 21, 2017

Tax Reform Cometh. With the demise of health care reform, many have declared that tax reform is the major next work product for the House.  Next week a bipartisan group of House tax writers will meet to discuss tax reform.  According to Chairman Brady, legislation will come “this Spring.”

Three points to consider. First, is whether the Republicans will use FY-2018 Reconciliation to usher tax reform through Congress on a partisan basis. House tax writers would prefer a bipartisan bill.  Certainly, the White House is looking for a bipartisan governing coalition on tax and infrastructure.  However, the mutually exclusive goals of tax reform between Republicans and Democrats in Congress (neutral or net tax cuts v. increased revenue) have not fundamentally changed.
Second, using reconciliation instructions also requires no net deficit in the 10-year window.  One reason for sequencing healthcare before tax was the expectation that doing so would improve the baseline for tax reform.  Re-ordering the pieces changes the targets. We believe this motivates House tax writers to keep the BAT in the House proposal. Going without it requires a replacement or substantial changes in the targets for successful tax reform.
Third, the White House and Treasury are determined to ‘drive the train’ on tax reform. What does that look like? When might we see a proposal from the President? How much detail will be offered to the public; how much detail to the tax writers? Will the President engage in enough detail to negotiate the finer points or delegate and trust? Truth is, no one yet knows because the administration is still working out what it wants from this process, besides the repeal of carried interest.
In the Senate, we believe that Chairman Hatch still wants to make a bipartisan effort in the Senate. Our conversations with senior tax writers for Hatch and Ranking Member Wyden and Ranking Member Neal last week reflect that there is still hope for a bipartisan effort. Senior aides in the White House are still split on the BAT. The politicians are for it and the market economy folks are against it.
Below are some highlights from the press about other recent developments in tax policy:

March 21, 2017

Healthcare, healthcare, healthcare. The House reconciliation bill to accomplish phase 1 of repeal and replace of the healthcare agenda is the biggest tax news of the week. As we’ve noted in previous Tax Tuesday editions, the measure contains some major tax pieces.
Stay tuned for the vote on Thursday. My bet is on the President and the House champions to win the vote narrowly. Outlook in the Senate is murky, but Majority Leader McConnell is saying he expects the Senate to act on the healthcare measure next week. For more on healthcare subscribe or tune in to Prime’s Healthcare Today.
On March 17th, Chairman Brady said on Fox Business that he expects a tax reform package to be ready for markup this spring. There is increasing pressure for hearings on the blueprint proposal from members on both sides of the aisle, even if that comes to pass, we do not expect to see text of the whole proposal more than a few days before the mark-up.
Tax reform in a second reconciliation vehicle still awaits completion of the first (FY17) vehicle and passage of a conferenced FY18 budget. President Trump has yet to release his most excellent tax plan. That is still the pending event with the greatest potential to reset the battle lines over tax reform.
Healthcare and the SCOTUS nominee will take us into the April recess at a minimum. Once Congress returns after two weeks, they must deal with the appropriations supplemental and the expiration of the Continuing Resolution (4/28/2017) before likely turning in earnest to the FY2018 budget. Needing to clear such hurdles leads some hill watchers to suggest tax reform will look beyond August.
Below are some BAT-specific press developments:
  • Pro-border adjusted tax group begins airing ads backing reformWashington Examiner (March 19) “A group of major companies backing House Republicans’ plan to adjust taxes at the border is launching its first television ads Sunday. The American Made Coalition, comprised of Boeing, Caterpillar, Pfizer and other major importers, will begin “saturating” cable news channels in Washington, D.C., and in targeted states through early April with ads that back the Paul Ryan-led tax reform plan.”
  • Senate Combs Past Proposals for Border Tax AlternativeBloomberg BNA (March 15) “Senate Republicans are still looking at options for a replacement tax plan if a House blueprint collapses over opposition to a controversial import tax proposal. Republican tax counsels are examining a variety of ways to expand the tax base to enable a lowering of rates in anticipation of future legislative activity, those familiar with the conversations said. The activity comes as Republican lawmakers and the U.S. business community remain divided on the impact of a 20 percent border-adjusted tax, a cornerstone of a House tax reform blueprint that could raise as much as $1 trillion over a decade and lower the top corporate tax rate to 20 percent.”
  • Kenneth Rogoff Op-Ed (former Chief Economist, IMF) Trump’s damaging border taxBoston Globe (March 20) “IN MANY WAYS, the Republican Party’s plan to implement a “border adjustment tax” in the United States is the virtual complement of the physical wall President Donald Trump plans to erect on the US-Mexican border. But it could end up affecting the average American a lot more – and not necessarily in a good way.”
  • American Made Coalition Launches First TV SpotAmerican Made Coalition (March 20)
    “The American Made Coalition launched its first television ad yesterday during Meet the Press. The ad will saturate cable news channels including CNBC, FOX Business, FOX News, and MSNBC, running through April 9 in the D.C. metro area. It will also reach online audiences in targeted states.”

Below are some highlights from the press about other recent developments in tax policy:

  • Failure to Repeal Obamacare Would Endanger Tax-Cut Goals, Some in GOP WarnBloomberg (March 21)
    “Top Republicans are warning their fellow party members that failing to repeal Obamacare could imperil the goal of a massive tax cut — and perhaps more of President Donald Trump’s legislative agenda.”
  • Chamber of Commerce Chief’s Advice to Companies: Stay Engaged in Tax DebateWall Street Journal(March 16)
    “Tom Donohue has a message for companies wary about major tax-policy changes: Stay aboard. As Congress embarks on the biggest tax code changes in 31 years, companies should be prepared for a long ride, said Mr. Donohue, the president and chief executive officer of the U.S. Chamber of Commerce. And, he said, when lawmakers cutting that final deal are looking around for money to make the bill add up, they might just hit the critics.”
  • Small Firms seek level playing field in tax reformUSA Today(March 16)
    “There’s been much talk from President Trump about lowering corporate tax rates. But where does that leave the smaller companies that employ nearly half of non-public sector American workers?”
  • Wall Street drifts lower; investors worry about tax-cut delayReuters (March 20)
    “Wall Street drifted lower on Monday as investors worried that President Donald Trump’s plan to cut taxes and boost the economy could take longer than previously expected.”

 


March 14, 2017

As we have noted in past columns, the volume is increasing against the House BAT revenue raiser in tax reform.  Senator Tom Cotton (R-AR) gave the clearest warning last week to House Republican Members who will likely face a vote on the BAT.

Most all interest groups and trade associations support the overall goals of tax reform.  More interest groups are beginning to fear, however, that they could become payfors in tax reform, especially if the BAT falls out of the package.

Some of the targets include the elimination of the state and local income tax deduction, a reduction or cap on mortgage interest deduction, deferral for active income for multinational corporations, and advertising expensing.

New last week was an effort by the financial services industry to oppose using a change in the treatment of carried interest.  This is the income derived from investment earnings that brokers and dealers currently only pay up to 23.8 percent tax on.  Most proposals in the past have suggested that this income be treated as ordinary income and taxed up to the maximum individual tax rate of 39.6 percent.

This proposal could raise some approximately $17 Billion over ten years.  Some 30 groups signed a letter last week asking that tax writers not change the current tax treatment of carried interest.

We thought it would be useful if we review the top 10 largest individual and corporate tax expenditures.  Here is the list on one page.  And here is the last CRS report on Tax Expenditures if you really cannot sleep at night.

Below are some BAT-specific press developments:

Below are some highlights from the press about other recent developments in tax policy:


March 7, 2017

As we dive into repeal and replace of the Affordable Care Act for the next few weeks, we have observed that some of the fault lines in tax reform have become sharper.

The Americans for Affordable Products, the coalition of retailers and other opponents of the House BAT proposal, produced some new messaging that challenges Chairman Brady’s campaign that the BAT repeals the “Made in America Tax.”  Basically, they argue that the “tax” does not really exist.

The last week, affirmed the lack of clarity from the White House on tax reform. The President’s advisors are still split on the proposal so the work that Chairman Brady and Speaker Ryan for support of the BAT must continue.

In regard to the House repeal/replace legislation of the Affordable Care Act, here are some features that we know about: the proposed legislation would repeal the 3.8% net investment tax; delay the “Cadillac tax” for higher priced health plans for five years; and it does not cap the employee exclusion. The House Ways and Means Committee released a section-by-section analysis of their portion of the bill. Additionally, the Joint Committee on Taxation released their report on the estimated revenue effects of the legislation. Our Prime Policy Group Healthcare team delves into the legislation further in today’s special edition of Healthcare Today.

Below are some BAT-specific press developments:

“An e-mail from the special-interest coalition called “The American Made Coalition” is circulating through Congress right now and is illustrating the incredible dishonesty of those who are pushing for the Border-Adjustment Tax (BAT) included in the House Republican plan.”

  • The Case for a Border-Adjusted Tax- The New York Times (March 6)
    “The American corporate tax system is broken. Faced with one of the highest tax rates in the world, many multinational corporations in the United States move their operations and reported profits offshore or undertake “inversions” to relinquish their American tax nationality. Elaborate regulatory and enforcement measures have been unable to stop this. Vilifying companies for their behavior hasn’t worked, either.”
  • Retailers Had a Dismal Christmas and Now Comes Ryan’s Import Tax- Bloomberg (March 3)
    “U.S. retailers are coming off one of the worst Christmas-shopping seasons in recent memory, and now they have to deal with Paul Ryan.”

Below are some highlights from the press about other recent developments in tax policy:

Why Obamacare and Russia are undermining US tax changes (March 6)
“Tax reform was always going to be a tough sell in 2017. But now, thanks to the seemingly bottomless controversy over the Trump campaign’s Russia connection and an increasingly nasty internal Republican battle over how to replace the Affordable Care Act, Congress and the White House are losing valuable time and political capital that they otherwise could be using to rewriting the tax code.”


March 1, 2017

We held your Tax Tuesday update for a few hours so as to include some reflections on President Trump’s address to Congress and the nation.  President Trump exceeded expectations in a positive and optimistic speech that was big on promises and small on details.

Those of us following tax reform closely were certainly looking at whether the President would layout specifics on tax reform or embrace any specific proposals for tax reform. We got neither. No doubt advocates of particular proposals (like the BAT) will attempt to spin the President’s words as positive to their cause. To that I offer only the thought that President Trump has never had trouble being declarative when he wants to be.

The tax section lacked specificity and was interwoven with sections of the speech on fair trade and protecting workers, which led into his section on immigration.  In other words, President Trump continued to tease out his ‘historic’ tax reform that will reduce rates and improve competition. A goal, almost anyone in the chamber and across the country could agree with, but which belies the difficult details to be worked out in getting there – a theme that could describe the whole speech.

The last week, affirmed the lack of clarity from the White House on tax reform. His advisors are still split on the proposal so the work that Chairman Brady and Speaker Ryan for support of the BAT continues at a full clip. Brady will brief Republican Members of the Senate Finance Committee tomorrow, Thursday.  He is hopeful that this effort produces better results than when the Speaker briefed the Senate Republican conference a few weeks ago.

Additionally, in the last week, two powerful groups have released anti-BAT advertisements:

  • Club for Growth Launches TV Ad urging Rep. Kristi Noem to Oppose Border Adjustment Tax (Feb 22)
    “Club for Growth president David McIntosh released the following statement about a new Club for Growth TV and digital ad campaign that urges Congresswoman Kristi Noem (SD-AL) to oppose the Border Adjustment provision in the tax reform proposal put forth by House Republicans. ‘The Border Adjustment Tax will drive up prices on everyday consumer goods like groceries, gas, clothes and shoes,’ said Club for Growth president David McIntosh.”
  • National Retail Federation Launches Campaign Highlighting Consumer Cost of Border Adjustment Tax (Feb 28)
    “The National Retail Federation today launched a television, print and digital ad campaign to educate Americans on the high consumer cost of the border adjustment tax. The BAT is included in the House Republican leadership’s “Better Way” plan for tax reform. While NRF strongly supports tax reform, the BAT is bad tax policy that would increase costs on everyday necessities like food, gas, clothing and prescription medicines for the average family by as much as $1,700 in the first year alone.”

Below are some BAT-specific press developments:

Below are some highlights from the press about other recent developments in tax policy:


February 21, 2017

This week Congress is off and democracy is safe.  Again this week the debate over the Border Adjustable Tax (BAT) feature of the House Blueprint continues to dominate the tax reform conversation. 16 CEOs have penned a letter to Congressional leaders praising the BAT.  Chairman Brady praised it on the Ways and Means Committee website.

The fault lines on this issue continue to separate U.S. industries.  Realtors and homebuilders, refiners, importers of all persuasions including accounting services have written or spoken against the proposal.  And we do not yet have exact language to measure its effects accurately.  Also, Chairman Brady continues to offer transition rules or phase-ins to soften the presumed effects.

The count of Senate Republicans opposed to the BAT now numbers nine, at least.  Leader McConnell offered that he did not see much hope for bipartisan work on tax reform. This despite the known preference for the Senate Finance Committee to develop legislation in a bipartisan manner.  And Federal Reserve Chair Janet Yellen told lawmakers “there’s great uncertainty” over how quickly the dollar would react to the imposition of a BAT.   We are all awaiting the President’s announcement on tax reform in the next few weeks.  We may get a glimpse of the plan in is appearance to a joint session of Congress next Tuesday.

Below are additional highlights from the press about recent developments in tax policy:

February 14, 2017

The debate over the Border Adjustable Tax feature of the House Blueprint continues to dominate the tax reform conversation.It is increasingly a point of focus around the country and in economic centers of American trading partners.  The Financial Times reported yesterday that the EU is already exploring options for legal challenge.
The only parlor game surpassing that debate in terms of oxygen consumption in D.C. is speculation about the forthcoming ‘phenomenal tax plan’ from the White House.  How much detail will be released?  Guessing ranges from a section in President Trump’s upcoming joint address to Congress February 28th to principles to defined policies.  Speaker Ryan and Chairman Brady will continue their full court press to have it align substantially with their proposal.  There is still debate on the subject among senior White House staff.  Newly confirmed Secretary of the Treasury, Steven Mnuchin, is sure to enter the discussion more forcefully as he settles in and builds out his team.
Tax reform remains more likely this Congress than any in recent memory and coalitions with varied interests are building around town.  With each passing week, the Senate makes stronger moves toward fulfilling their promise of pursuing their own path.  The count of Senate Republicans opposed to the BAT now numbers five.  Senators Cornyn and Hatch are promising a hard look and tough questions.  Good intel says members of the Finance Committee are exploring several options and asking Joint Tax for scores.
Bonus note for tax geeks: the Republican Steering Committee met today and selected Rep. Mike Bishop (R-MI) to replace HHS Secretary Tom Price on the elite committee. Other contenders (likely to earn a seat before long) include: Barbara Comstock (R-VA); and Darrin LaHood (R-IL). Three other members of the tax writing committee have announced this is their last term in Congress (Sam Johnson, Lynn Jenkins, Kristi Noem).
Below are additional highlights from the press about recent developments in tax policy:

February 7, 2017

While many are tracking the latest tweet from POTUS or color beyond 140 characters offered by the Trump Administration, it is important to remember that healthcare reform will move first.  In other words, there is more than enough time on the clock for fortunes to change multiple times.

Of note – among the 460 Senate confirmed Administration appointments, the Assistant Secretary for Tax Policy has yet to be named. However, Shahira Knight was named to the National Economic Council with the tax policy portfolio.

Last week, Chairman Hatch (R-UT) at his speech before the U.S. Chamber of Commerce to reiterate his intention that the Senate will produce its own tax reform plan.  Senator Cornyn (R-TX) has asked for hearings at Senate Finance to review the House BAT proposal and Senator Cotton (R-AR) is airing his concerns over the BAT with colleagues.

Chairman Hatch noted in his speech that he’s asked about the BAT everyday he’s in the Capitol.  It is consuming all the oxygen on tax reform at the moment.  So we give you more depth on the BAT:

Finally, since healthcare reform will go first; readers should not lose sight of all the taxes wrapped in heathcare reform that will be dealt with through that repeal/replace/repair/reform process as opposed to in Tax Reform.

Below are additional highlights from the press about recent developments in tax policy:


January 31, 2017

The Prime Tax Team will be offering a regular update on the tax reform debate for you on Tuesdays.  We will highlight the key developments and insights you need to know to cut through the noise.  If you want more details, give us a call or drop us an email.

Speaker Ryan said last week from the Republican retreat in Philadelphia that the ACA repeal/replace bill, the wall at the border and tax reform would all be done (in the House) by the August recess.  My colleague responded – “When pigs fly.” White House spokesman Sean Spicer yesterday would not commit to finishing tax reform this year.  Which begs the question about how fast tax reform can move?  With the tax writers focused on replacing the Affordable Care Act in February and the debt limit authority expiring in mid-March; it seems that the band width is narrow.  However, we believe that Ways and Means staff are indeed at work crafting a bill that we may not see until April or May.  Then it is a question of whether the President will support the House Blueprint for Tax Reform .

The President has been a bit all over the board on the subject and Speaker Ryan has suggested that school is still “in” as far as informing/convincing the President that he should be on board. There is huge demand among hill staff for explanations and context for the tax reform proposals.

Politico’s Morning Tax noted that President Trump and his folk have suggested that tax reform be completed without having to pay for all of it you can read it here.  Republicans on the House Ways and Means Committee are thinking of calling retail chief executives up to the Hill in a “pre-emptive strike” meant to “mute business opposition to their tax overhaul proposal (specifically the border adjustable tax),” the Washington Examiner’s David Drucker reports here. The race is on from interests seeking exemptions from the BAT feature of the Blueprint.

Below are additional highlights from the press about recent developments in tax policy:

  • This GOP tax plan really will help the middle class- Denver Post  (Jan 25)
    “Sen. Mike Lee, R-Utah, has already established that he is willing to break from the pack on tax policy. Now he is proposing another change in GOP tax policy. Instead of seeking to cut taxes on capital gains and dividends, as Republicans have been trying to do for decades, he would raise them. But at the same time he would be bolder than his colleagues about corporate taxes. Where most Republicans want to cut corporate rates – President Donald Trump ran on cutting them to 15 percent – Lee wants to abolish the tax altogether.”
  • Trump-era tax reform could be coming for your toys- Washington Post  (Jan 27)
    “President Trump has talked often of overhauling America’s tax code with an eye toward encouraging U.S. companies to make things stateside. And under a tax reform plan being touted by Republican congressional leaders, Woldenberg estimates that his company’s tax bill would jump to an eye-popping 165 percent of its earnings. He expects that would push him to raise his prices 10 to 15 percent, and given those higher prices, he believes his sales volume will plummet around 40 percent.”
  • Howls Over Import Tax Complicate Plans to Overhaul Code- New York Times (Jan 29)

“But there is a broader lesson in that single dispute: Any rewrite of the tax code – especially if it seeks to raise roughly the same amount of revenue that the current code brings in – will leave winners and losers. And the losers tend to make far more noise than the winners. If the president is spooked by those howls, a major tax measure that both the president and Congress have promised may never happen.


January 24, 2017

The Prime Tax Team will be offering a regular update on the tax reform debate for you on Tuesdays. We will highlight the key developments and insights you need to know to cut through the noise. If you want more details, give us a call or drop us an email.

RSC Chairman Mark Walker announced a unanimous decision by the RSC Steering Committee this morning that they expect the FY2018 Budget to balance within ten years. One of the most fascinating stories to unfold across the policy spectrum during the next four years will be how President Trump’s Administration reconciles its agenda with fiscal conservatives.

Chairman Brady continued his full court press to promote his Blueprint for Tax Reform at the U.S. Chamber of Commerce this morning. You can access his complete remarks here.

Politico’s Morning Tax has an interesting update on the politics around the Border Adjustable Tax feature of the House Blueprint you can read it here. For those of you tracking the Estate Tax Valuation Rules announced last year – the morning tax team also reports that President Trump’s hold on new regulations has ended this change.  You can read Chief of Staff Reince Priebus’ memo to the agencies here.