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Brady: State and Local Deduction Deal Will be Part of Tax Bill

Posted on October 26, 2017 by Dylan F. Moroses

The House’s top taxwriter said October 25 that an agreement to limit the state and local tax deduction will be included in House Republicans’ tax reform bill next week, but the specifics of that compromise remain unclear.

“I expect the solution to be in the tax bill. That’s my game plan,” House Ways and Means Committee Chair Kevin Brady, R-Texas, told reporters. He emphasized that point earlier in the day at an event hosted by The Christian Science Monitor in Washington, saying, “I expect before the bill is laid out next week that a solution will be announced.”

When asked about limiting the provision to only local and state property taxes, Brady said that is one of the options being considered, though he didn’t say whether it was agreed to. “I want it done in my committee before the process begins. That’s my goal,” he told reporters.

The unified GOP tax reform framework operated under the assumption that the state and local tax deduction would be eliminated. Since the framework’s unveiling in September, however, several Republicans have spoken in favor of preserving the deduction.

Brady revealed another detail on the House GOP tax plan during the event, saying that the head-of-household filing status would remain in the code. Republicans had suggested that this provision be eliminated as a way to lower statutory tax rates.

Speaking the same day at a Thomson Reuters event in Washington, House Speaker Paul D. Ryan, R-Wis., said, without revealing any details, that House Republicans have “three or four different” options to curtail the state and local tax deduction. Ryan did not elaborate.

Ways and Means Committee member Tom Reed, R-N.Y., who proposed a tax credit that would help pay state and local taxes in place of the deduction, said he is “open to a compromise that helps 99 percent” of taxpayers.

“I think we’re going to resolve [the state and local deduction issue],” Reed said. “It’s a big enough issue that we’ve got to resolve it now, and I think that’s why we’re spending so much time on it.”

Marking the last obstacle Brady has cited to introducing tax reform legislation, the House is scheduled to vote on the Senate’s fiscal 2018 budget resolution October 26. The day before, the lower chamber successfully voted 233 to 188 on the parameters of the debate. Several Democratic amendments to shape how the reconciliation tax bill will be structured failed on party-line votes in the House Rules Committee on October 24.

Desperate for Dynamic Scoring?

While the pieces are still being finalized, Ryan explained why Republicans included reconciliation instructions that allow $1.5 trillion in deficit increases over a decade in the fiscal 2018 budget. He said the number represents a “mid-range” estimate for what revenues Republicans believe will be raised under dynamic scoring while also using a current policy baseline. Those estimation methods cannot be considered in the Senate using the reconciliation process, he said.

Brady couldn’t confirm whether a Joint Committee on Taxation dynamic cost estimate will be available when the Ways and Means Committee goes to mark up its tax bill.

Trump, Brady Clash on 401(k)s

Regarding another component of the still-secret tax plan, Brady told reporters the committee is still evaluating whether to change the tax treatment of retirement savings, but added that they may move past the issue if it becomes an obstacle. “I want us to be more of a nation of savers, and so we’re considering ideas on how best to do that — both building on retirement vehicles today, and examining new ideas on how we can get more people to save sooner in their lives,” he said.

Brady pointed out at the event that nearly half of outstanding retirement savings accounts have an average contribution of $200 per month or less. “We think we can do more,” he said. Addressing President Trump’s apparent displeasure with a proposed change to 401(k) retirement plans, Brady only said that they are working close together and both “share the goal of saving more, saving sooner.”

Even as Brady affirmed that changes to the tax treatment of 401(k) plans remain on the table, Trump took the opportunity, at an impromptu White House press gaggle October 25, to emphasize that the plans should remain untouched.

Trump defended his October 23 tweet aimed at forestalling efforts to reduce 401(k) contribution caps, explaining to reporters that he thinks the plans are “one of the great benefits to the middle class” and that he “wanted to end [talk of reducing the caps] quickly.”

Upon being told that Brady had recently reiterated that changes to 401(k)s remain in play, Trump suggested he may use the retirement incentives as a negotiating tool, but then quickly followed that by saying there are “certain elements of deals you don’t want to negotiate with.”

“Kevin knows it, and I think Kevin Brady is fantastic, but he knows how important 401(k)s are,” Trump added.

Trump also downplayed the impact his feuds with some Republican senators might have on his tax reform agenda, saying there is “great unity in the Republican party” and hailing his lunch with GOP senators the previous day as a “love fest.” Regarding recent spats with Sens. Bob Corker, R-Tenn., and Jeff Flake, R-Ariz., the president said he believes they will ultimately “do the right thing for the country” and vote for the tax cuts despite their public quarrels with him.

Hassett Rejects Criticism of CEA

The same day, members of the Joint Economic Committee, including Chair Patrick J. Tiberi, R-Ohio, a House taxwriter, discussed tax reform in a hearing with Council of Economic Advisers (CEA) Chair Kevin Hassett. Echoing a recent CEA white paper, Hassett argued that the relatively high statutory federal corporate tax rate is causing U.S. multinationals to hold their profits offshore, eroding the historic link between corporate profits, capital investment, and wage growth.

“Wage growth is low; profit growth is high. The profits are over there. We’ve got the highest rate. And then we see that countries around the world that are run by governments that don’t have the limits of the American system . . . have cut their corporate rates,” Hassett told the committee’s vice chair, Sen. Mike Lee, R-Utah. “This is not about right-wing parties throwing money at rich corporations.”

A release prepared by the committee’s minority compiled criticisms by policy economists of the CEA under Hassett, including that its estimations of tax reform's effects on household income are not credible and rest on highly selective use of economic literature, at odds with the agency’s reputation (One of the detractors quoted was Tax Analysts’ Chief Economist Martin A. Sullivan). Hassett rejected the criticism, attributing some to basic economic errors. "You should ask the people if they feel they have a grasp of the literature and then check that against the facts," Hassett told reporters after the hearing.

Luca Gattoni-Celli, Jonathan Curry, and David van den Berg contributed to this article.

Follow Dylan F. Moroses (@DMoroses3244) on Twitter for real-time updates.