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Tax Reform Framework Leaves Detail to W&M, Brady Says

Posted on September 28, 2017 by Dylan F. Moroses Stephen K. Cooper

Although the “Big Six” tax reform framework was sparse on detail, the House’s top taxwriter told reporters September 27 that the outline is intentionally broad, allowing for the Ways and Means Committee to take the “first step” in drafting legislative language.

The long-awaited tax reform framework establishes new tax rates for individuals and businesses, carves out a special tax rate for small business passthrough entities, and overhauls the system for taxing multinational corporations. The nine-page document leaves out multiple details, including income brackets for the new individual tax rates and revenue offsets to help fund the tax cuts, among others.

“This president believes in the Constitution, where all revenue measures originate in the House, so the framework recognizes that it’s our committee who will take the first step and fill in those details,” House Ways and Means Committee Chair Kevin Brady, R-Texas, said following a bicameral press conference touting the newest consensus document.

Brady acknowledged that the state and local tax deduction would be repealed under the Big Six proposal. “At this point, that is correct; it’s not on the postcard today. We continue to work with those lawmakers [who oppose repeal]. In fact, we’ve gotten some very good suggestions on how to address that issue in a very positive way forward,” Brady said.

Before the unified GOP tax plan can proceed, the House and Senate must pass identical fiscal 2018 budget resolutions, working out any differences in a conference. The budget resolution would allow lawmakers to use a fast track budget reconciliation process that enables Senate passage of tax reform legislation without any input or votes from Democrats.

Senators are expected to vote on their budget resolution — which has yet to be unveiled — some time in October, according to Finance Committee member Pat Roberts, R-Kan. The Senate resolution will reportedly allow a $1.5 trillion deficit increase to accommodate tax rate reductions.

Meanwhile, House Budget Committee Chair Diane Black, R-Tenn., said her committee “has already provided the blueprint needed to start up tax reform,” citing the House resolution, which includes reconciliation instructions for over $200 billion in deficit reductions over 10 years. “The next step we need, and should take for tax reform, is the passage of our budget,” Black said.

After that, the Finance and Ways and Means committees could hold tax reform hearings before marking up legislation; however, that process may short-circuit since lawmakers are striving to get legislation on President Trump’s desk by December 31.

House Ways and Means Tax Policy Subcommittee Chair Peter J. Roskam, R-Ill., predicted that the legislation would go straight to a committee markup, bypassing any additional hearings. “[We’re] trying to work through some of these more meddlesome questions, and then we will, as a committee, have a markup, probably in October, and that’ll be a big, exciting enterprise,” Roskam said on a Baker & Hostetler LLP webinar.

“Most of these issues . . . if you look at the history of the Ways and Means Committee over the past three congresses, there is not a single new subject in any of these tax bills that has not been the subject of really, really broad scrutiny. The exception to that was border adjustability,” Roskam said.

The Ways and Means Committee held a hearing that focused on the controversial border-adjustable tax plan in May, but that proposal was eventually dropped from the consensus tax reform document in July. The committee also held tax reform hearings in July.

Senate Majority Leader Mitch McConnell, R-Ky., and House Speaker Paul D. Ryan, R-Wis., along with Republican members of both the Ways and Means and Finance committees, held a press conference supporting the unified tax reform framework and highlighting the work ahead of them. Members gave statements expressing their excitement and determination to pass a bill, but took no questions following the event.

“This is vital to America’s future, and it is urgent. We want the American people to wake up in the new year with a new system,” Ryan said.

Finance Committee Chair Orrin G. Hatch, R-Utah, said that the document marks the beginning of a “robust legislative process,” and invited Democrats to confer with Republicans on tax reform during his remarks at the press conference. Appearing earlier that morning on Fox Business’s Mornings with Maria Bartiromo, Hatch suggested that Democrats would not be interested in their tax proposal, saying, “I think we can hold the Republicans together on this matter.”

Finance Committee member Tim Scott, R-S.C., told reporters that the tax reform exercise is about “#keepyomoney.”

Brady added that House Republicans not on Ways and Means would also be involved in “finalizing” the tax reform legislation, but provided no further details about when a bill would be released, whether hearings on the proposal would be scheduled, or when a markup would occur. “[It’s] all keyed off the budget being completed. We’re continuing to write portions of the comprehensive tax reform bill as we have for a number of months, but as we fill in those final details, we’ll continue to write that text and be ready for introduction [once] the budget’s done,” he said.

Responding to a question about Democrats bashing the GOP proposal for raising the minimum tax rate from 10 percent to 12 percent, Brady said their argument is “nonsense.”

“In this tax reform, we are lowering taxes for the poor and middle class. We flatten out the tax code, lowering the rates at every level so people can keep more of what they earn. That means the 15 percent rate today will be lowered to 12. The 10 percent rate today will go to zero. The tax elevator goes down at every level,” Brady said.

Brady reiterated his preference to pass permanent tax policy, which would require provisions to be revenue-neutral outside of the 10-year budget window, but could not confirm whether any provisions in the consensus document would be permanent.

Democrats Blast Tax Plan

Congressional Democrats criticized the Republican tax effort as a thinly veiled attempt to give tax breaks to the wealthy at the expense of middle-income, working-class Americans.

“The GOP tax framework today shows Republicans are still mired in the tired, trickle-down agenda that ballooned our deficit and weakened middle-class America,” House Minority Leader Nancy Pelosi, D-Calif., said in a statement. “Behind Republicans’ vague framework and deceitful math, the American people find a billionaires-first tax plan that treats the middle class as an afterthought.”

Senate Minority Leader Charles E. Schumer, D-N.Y., said the unified tax reform plan fails to live up to Trump’s rhetoric about not helping the wealthy. He said the plan is a reward to tax lobbyists who have succeeded in persuading Republicans to lower corporate tax rates, but their efforts will not result in hiring more workers. “There is no indication — none at all — that under this framework, the corporate tax cut will be offset by corporate loophole closures,” Schumer said during a briefing with Senate Finance Committee ranking minority member Ron Wyden, D-Ore.

On the individual side of the ledger, Wyden complained that GOP plans for lower taxes on passthrough businesses such as law firms and hedge funds would create a “new lunar-crater-sized” loophole for those seeking to shelter their incomes from taxation. He charged that wealthy Americans will “disguise wages as business income to avoid higher income tax rates and paying their fair share of payroll taxes.”

Wyden predicted that a typical family of four would gain an extra $12,000 from the increased standard deduction, but they simultaneously lose more than $16,000 in forgone personal and dependent exemptions. “Folks, that is a net tax increase,” Wyden said. That loss would be on top of the elimination of the deduction for state and local taxes, thereby putting even more pressure on lower-income families, Schumer added.

Ways and Means member Bill Pascrell Jr., D-N.J., called on Republicans from states with high property taxes to join his protest against eliminating the state and local tax deduction. Eliminating the state and local tax deduction would double-tax “what New Jerseyans already pay in property and sales taxes in their local communities,” he said in a statement.   

House Ways and Means ranking Democrat Richard E. Neal of Massachusetts said September 27 that Ryan and McConnell broke Trump’s promise, made a day earlier at the White House, that the rich would not benefit from the GOP tax reform proposal.

Democrats support “pro-growth, pro-worker” tax reform, Neal said, noting that his party’s top priority is helping the middle class, so any reform bill should focus on raising their living standards. Any tax bill must also be “at least revenue neutral” under a conventional estimate by the Joint Committee on Taxation, he said.

David van den Berg and Asha Glover contributed to this article.

Follow Stephen K. Cooper (@ScoopOnTaxes) and Dylan F. Moroses (@DMoroses3244) on Twitter for real-time updates.