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Budget Release Set for May 23 as White House Hints at Tax Plan

Posted on May 18, 2017 by Luca Gattoni-Celli Jonathan Curry

The president's budget proposal is on track for release May 23, even as deepening scandal engulfs the administration.

Addressing a Federalist Society conference in Washington May 17, Office of Management and Budget Director Mick Mulvaney discussed timing for the budget release while also explaining that the administration's "two in, one out" restriction on new regulations is based on both the number of regs and the budget needed to implement them.

The budget release is expected to contain new details about the White House’s tax reform priorities, building on the one-page outline it unveiled April 26. The so-called skinny budget the Trump administration released in March did not mention tax reform.

“Things are progressing as planned on the budget release,” a White House aide told Tax Analysts.

David Brown of Third Way predicted the anticipated release of the president’s budget could be overshadowed by the controversy over Trump's decision to fire James Comey as FBI director, and the subsequent reports that he may have attempted to influence the investigation into national security adviser Michael Flynn. An open hearing with Comey is scheduled for May 24.

Brown told Tax Analysts that while it’s “hard to predict” what national conversation will be next week, “at this pace, if the headlines are anything like they are now, a budget release will not change the conversation.”

But Brown also noted that unlike tax or healthcare reform, Congress is required to pass a spending bill before the end of the fiscal year. Even in the most extreme scenario — impeachment proceedings — Congress still has to fund the government, he said. “In that sense, this is not something can be kicked to the side and ignored,” he added. Congressional Democrats have begun openly discussing impeachment proceedings, with some Republicans, including House Ways and Means Committee member Carlos Curbelo of Florida, not ruling it out.

The Ways and Means Committee has scheduled a hearing on the budget May 24.

Reform Reveille?

Speaking May 17 at a U.S. Coast Guard Academy commencement ceremony, President Trump defiantly brushed off mounting scrutiny of his possible ties to Russia, saying that his administration is “working on major tax cuts for all.”

Trump again promised the largest tax cut in U.S. history “if we get it the way we want it, and we’re going to give you major tax reform.”

However, Brown cautioned that if the scandal continues to progress, it would have “devastating effect” on tax and healthcare reform.

“When the word ‘impeachment’ gets thrown around more and more, when there’s talk of removing the president from office, that has the potential to take up so much oxygen in Congress that passing a major legislative reform will become extremely difficult,” Brown said. He acknowledged that tax staffers in the Trump administration and Congress will continue to “pound away” on their issues and may even be able to put together agreements that can pass through a committee.

But Brown said that the difficulty in getting the American Health Care Act passed in the House made it clear that it takes “an immense amount of effort” from White House and Republican congressional leadership to advance a major bill. “So if the leadership is consumed with either defending the president or perhaps pursuing the investigation, then it’s going to be extremely difficult for them to devote that kind of resource to a major bill,” he said.

Brown also said that Democrats could continue to use the situation to logjam the legislative process, such as by demanding more information from the administration or seeking independent investigations. On the other hand, Republican leaders who may be worried about their party’s prospects in the 2018 midterm elections may move more quickly and opt for a simpler tax cut, “as opposed to the heavier lift of tax reform,” he said.

However, a tax lobbyist who spoke to Tax Analysts was more optimistic that reform would press on in spite of the distractions, saying that while getting tax reform done even under “perfect political conditions” is hard, the amount of effort and “political will” being exerted by House Speaker Paul D. Ryan, R-Wis., and House Ways and Means Committee Chair Kevin Brady, R-Texas, has “set the initial conditions to provide momentum” toward getting it done.

The lobbyist also noted that the White House and Treasury have been very involved behind the scenes on tax reform discussions, so “at the end of the day there certainly is a scenario where major changes to the Internal Revenue Code can occur this year.”

Not Included: Reciprocal

The White House aide declined to comment about tax reform specifics, including the administration’s preferred approach to business cost recovery and any anti-base erosion features it may be evaluating.

However, the aide said May 15 that the administration views the tit-for-tat import levy it calls a reciprocal tax as separate from tax reform, but has not yet decided whether the provision would be implemented through the tax code or as a tariff.

“We don’t expect it to be part of the upcoming tax reform package but instead will be addressed separately,” the aide said of the reciprocal tax in an email. “The president generally references the reciprocal tax in the context of trade, not of tax reform.”

“This should not be a surprise for those who have been paying close attention to the issue,” said Rohit Kumar of PwC’s Washington national tax service. “The president and the administration have made it clear that reciprocal taxes are another way of saying tariffs.”

The aide later clarified that whether the reciprocal tax would be implemented as an actual tax, through U.S. Code Title 26, has yet to be determined. “Decisions on that level have not been made yet,” the aide said before reiterating that Trump “generally discusses a reciprocal tax in the trade context.”

Trump appeared to make that distinction during an interview with The Economist published May 11, saying that a reciprocal tax “very much has to do with trade.”

Trump also dismissed House GOP leaders’ favored border-adjustable tax in that interview, telling the magazine May 4, “It’s not really what I’m considering,” then shifting his comments to healthcare reform. The provision was proposed in the House GOP’s “Better Way” tax reform blueprint, but the White House has for weeks called it unworkable in its current form.

The House Ways and Means Committee will hold a hearing about the border-adjustable tax on May 23, Brady said May 16, the same day Senate Majority Leader Mitch McConnell, R-Ky., said the provision “probably wouldn’t pass the Senate.”

According to Kumar, the reciprocal tax would not have the border-adjustable tax’s “corresponding relief for exports, only a tariff on imports expressly for the purpose of altering the balance of trade.”

Alan D. Viard of the American Enterprise Institute had a similar take on the White House statement on the reciprocal tax, saying in an email that he assumed it “would instead be an import tariff (with no accompanying export subsidy) and would be calibrated in some manner to match other countries’ tariffs and (probably) their value added taxes.”

“Of course, we can only conjecture at this point,” Viard noted, adding that “import tariffs would be quite harmful.”

A former McConnell aide, Kumar argued that the border-adjustable tax will not survive politically unless Congress places more limits on the broad tariff authority it has granted to the executive branch. The Peterson Institute for International Economics summarized those powers in a September 2016 white paper.

A Treasury spokeswoman referred questions about tax reform to the administration's recent proposal outline. She added that Treasury Secretary Steven Mnuchin will likely discuss reform as he appears before the Senate Banking Committee May 18.

Mnuchin and National Economic Council Director Gary Cohn met with lawmakers May 17 to discuss tax reform, in the morning with Senate Finance Committee members of both parties, and in the afternoon with the moderate House GOP Tuesday Group.

Follow Luca Gattoni-Celli (@TheGattoniCelli) and Jonathan Curry (@jtcurry005) on Twitter for real-time updates.