David J. Kautter, reportedly President Trump's leading candidate for Treasury assistant secretary for tax policy, would bring the calm, pragmatism, and leadership skills needed to help shepherd the administration's tax reform efforts, according to three people who held the position previously.
“Beyond deep technical knowledge, which is essential, Dave would bring great leadership abilities, and perhaps most importantly, he would bring a calm, measured, thoughtful approach to controversial issues,” Michael Mundaca of EY told Tax Analysts. Mundaca, an assistant secretary for tax policy under President Obama, noted that he has known Kautter for more than 15 years and had worked with him at EY. “He would be a great mentor to the Treasury tax policy team, a great colleague to the other senior leaders at Treasury, and great advocate for the administration’s tax policies.”
Although no official announcement has come from the White House about Kautter’s candidacy, it appears that he is the likely nominee for the crucial post. Kautter, now with RSM US LLP, was also previously affiliated with American University’s Kogod Tax Center and, before that, spent more than 30 years at EY. He also served as legislative counsel to Sen. John C. Danforth from 1979 to 1982. Kautter is a member of Tax Analysts’ board of directors.
Eric Solomon of EY, former assistant secretary for tax policy under President George W. Bush, said that Kautter has the necessary skill set to lead the Treasury Office of Tax Policy. He noted that tax reform is now the primary focus of the office and that its “deep resources and experience” would contribute significantly to the Trump administration’s tax reform efforts.
“Treasury needs an assistant secretary to lead the office in this initiative. Dave has the intelligence, good judgment, and legislative experience to do so,” Solomon said. “In addition, he has the people skills to interact successfully with the various stakeholders in the tax reform process, including dealing with others at Treasury, the White House, Republicans and Democrats on the Hill, and the public.”
Pamela F. Olson of PwC, another assistant secretary for tax policy under Bush, praised Kautter for his thoughtfulness and his calm, soft-spoken, and sensible demeanor. These characteristics would serve Kautter well if he were nominated to the post, added Olson, who has known Kautter for more than 20 years.
Olson said that filling the position would “help enormously” with tax reform efforts. She noted that the staff at the Office of Tax Policy had incredible capabilities and institutional knowledge to deal with the challenges of reform.
“That said, it is really important to get somebody into the role that has the president’s imprimatur because it helps to direct the office and to be the connective tissue between that institutional memory . . . and the policymakers who need the information that [the office] has in order to make good policy decisions,” said Olson, also a member of the board at Tax Analysts.
It is unclear how long Kautter, if nominated, may have to wait before being confirmed or whether tax reform will wait for his confirmation. Before Mundaca, nominees took an average of 70.25 days to be confirmed. That, however, changed recently with Mundaca being appointed from acting to the full position in a temporary recess appointment in March 2010 and Mark Mazur spending approximately 10 months awaiting confirmation in August 2012.
Donald Williamson, executive director of the Kogod Tax Center at American University, said, “Dave, when he was with Ernst & Young for 30 years, was representing the largest corporations in America. With [Kogod] he was concerned with the needs and problems of small businesses,” adding that Kautter "can offer the technical expertise that the policymakers need.”
Kautter's wealth of experience addressing a wide range of tax issues would make him “a terrific choice,” Olson agreed. “He’s very practical, pragmatic, [and] understands the role of the tax system . . . and the importance of sound tax policy and sound tax administration,” she said, adding that Kautter would immediately understand practical implementation challenges of any policy directives, given his years of experience.
Williamson recalled the success he and Kautter had in advocating a carveout from the so-called repair regs (T.D. 9636) for small taxpayers to allow them to elect not to apply the improvement rules for repairs, maintenance, or improvements of less than $10,000 on buildings with an initial cost of less than $1 million.
Kautter has been a longtime proponent of simplification of the tax code. And while no one would ever characterize Trump as soft-spoken, when it comes to an affinity for a unified business tax rate, the president may have found in Kautter a kindred spirit.
Olson argued that Kautter's 2014 testimony at a House Small Business Committee hearing served to underscore Kautter’s sense of practicality as well as the kind of advice he might offer to the White House. However, she cautioned against using that testimony as a harbinger of particular positions the administration might take.
At the 2014 hearing, Kautter argued that “it makes little sense” to subject unincorporated business income to a higher rate than the corporate rate, especially when deductions were nearly identical. Although Trump has yet to release a detailed tax plan since his election, during the presidential campaign he called for a lowered 15 percent rate to be applicable to all businesses along with unnamed antiabuse rules to prevent the conversion of personal income to business income.
In his testimony, Kautter also proposed having businesses move toward a simplified cash method for tax, under which taxable income would be cash receipts less cash expenses (including inventory, prepayments, materials and supplies, and depreciable property), although he confined his recommendation to businesses with gross receipts less than $10 million. By comparison, the House Republicans' "A Better Way" tax reform blueprint proposes a destination-based cash flow tax for all businesses.
Kautter, along with Williamson, his coauthor, argued in a 2012 article in Tax Notes that “while one may question whether changing the rules for a tax accounting method can create jobs, it cannot be denied that the time-consuming, expensive tax compliance burden currently borne by small businesses fosters neither economic growth nor efficient tax administration.”
When asked at the 2014 hearing about the tax reform proposal offered by former House Ways and Means Committee Chair Dave Camp, Kautter responded that it was a starting point but emphasized its lack of simplicity. Some experts have predicted that if lawmakers retreat from the House blueprint, one potential option would be to revisit Camp's proposal to broaden the base and lower the rates.
Not Only Tax Reform
Solomon noted that the Office of Tax Policy also requires a leader to deal with the regulatory guidance process and international tax policy such as the U.S. relationship with the OECD and foreign countries whose policy actions have an “increasingly important effect” on U.S. companies.
How Kautter’s pragmatism would come to bear on interpreting Trump’s executive orders that potentially undercut the regulatory system generally remains to be seen. Practitioners and officials have been left scratching their heads regarding the extent to which tax is swept up in broadly written orders directing agencies to eliminate two regs for every significant one created, which may serve to propagate confusion in the code.
Another executive order calls for an examination of agency functions for purposes of streamlining executive operations. Former IRS Chief Counsel Donald L. Korb previously hypothesized that the streamlining executive order might give the IRS the opportunity to step back from some of its nontax functions, including some of its responsibilities under the Affordable Care Act. Ultimately, though, any decision on the scope of those orders will likely be made at the Office of Management and Budget.
Olson praised Kautter’s understanding of tax administration and the role of the IRS, predicting that he would be a good spokesperson for the agency while “being cognizant of the adverse effect that too much responsibility being placed on the IRS can make it difficult to accomplish” its mission of revenue collection.
Williamson recalled a time just before Kautter was brought into the Kogod Tax Center, a nonpartisan organization focused on policy and compliance issues affecting small and midsize businesses.
“I’ll always remember, when he interviewed for the job and it was all over . . . he says to me, and I’ve never heard this before, ‘Listen, if I don’t get the job, I still want to help you guys,’” Williamson said. “That’s Dave Kautter. He embodies the term ‘gentleman and a scholar.’”
Kautter and Olson are members of Tax Analysts' board of directors. Board members have no role in the editorial process and were not involved in the writing or editing of this piece.