House Ways and Means Committee Chair Kevin Brady, R-Texas, told reporters May 16 that an upcoming tax reform hearing will focus on a broad discussion about job creation, and that his committee will hold another hearing the following week on the controversial border-adjustable tax provision.
Brady announced the hearing on the border-adjustable tax proposal, included in the House Republican tax reform blueprint, and scheduled it for May 23 — five days after the general tax reform hearing. “One key element of [the second] hearing will be border adjustment and the role that it plays as a crucial element in tax reform to level the playing field for ‘Made in America’ products here and abroad, how it prevents U.S. jobs from moving overseas, and more importantly, [how it] reverses that flow in bringing jobs, manufacturing, and research back to the United States,” Brady said.
But speaking on Bloomberg TV earlier that day, Senate Majority Leader Mitch McConnell, R-Ky., expressed doubt about the viability of the controversial border-adjustable tax provision. “It probably wouldn’t pass the Senate," he said, "but the way we’re trying to go forward” is by having himself, House Speaker Paul D. Ryan, R-Wis., and Treasury Secretary Steven Mnuchin reach agreement on a proposal “we can all agree to start with — and of course it will start in the House. We haven’t reached that agreement yet, but we will at some point.”
Also questioning the proposal May 16 was Senate Finance Committee Chair Orrin G. Hatch, R-Utah, who said, “There’s some merit in it, but not much.” He added that it would need significant changes before it “had the slightest chance in the Senate.”
The Joint Committee on Taxation released a report (JCX-19-17) in advance of the more general reform hearing, to be held May 18, providing an overview of the relationship between economic growth and tax policy in the areas of labor supply, capital investment, human capital, and technological progress.
The report also provides general data on economic output, including on GDP growth, which was below 2 percent for 2016. The Trump administration has set a goal of 3 percent growthas part of its effort to pay for cuts to the corporate rate, along with other reform provisions.
Commenting on the two hearings, one Republican tax lobbyist said he expects the border-adjustable tax hearing to be contentious and the general reform one to be “all candy.” A House GOP tax aide identified a witness for the second hearing as Target CEO Brian Cornell.
The May 18 hearing may not be devoid of disagreement, though. Several Ways and Means members have said they have concerns about aspects of the blueprint, like the elimination of net business interest expenses as a trade-off for full and immediate business expensing — an issue the GOP aide said the first hearing will touch on.
Brady in his May 16 comments promoted the blueprint’s full expensing provision as perhaps “the single most pro-growth provision in tax reform,” because it “drives productivity and investment.” However, for those industries that may not benefit from the trade-off, Brady suggested there would be accommodations.
“Today, as you know, there are dozens of ways to finance [business] operations: There are acquisitions, there are expansions," he said. "The tax code prefers one of them versus all others, so we’re proposing to take the tax preference for one source of funds, and switch it to the use of funds [using] business investment," Brady said. He also mentioned consideration of "solutions on how to grandfather existing debt."
Ways and Means members have been considering a carveout for small businesses from the full elimination of net interest expenses.
Witnesses for the May 18 hearing will include top executives from Standard and Poor's, AT&T, and Emerson Electric, as well as a small business owner invited by Ways and Means Tax Policy Subcommittee Chair Peter J. Roskam, R-Ill., the GOP tax aide said. An economist who advised the Obama administration’s task force on the 2009 auto industry collapse, Steven Rattner, will testify as the minority witness, the aide added.