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W&M Republicans Melding Blueprint, White House Tax Plan

Posted on May 2, 2017 by Stephen K. Cooper, David Van Den Berg, Dylan F. Moroses

House Republican taxwriters are still narrowing differences between the Trump administration’s tax reform priorities and the “Better Way” legislative blueprint after wrapping up a two-day policy retreat May 1, the committee chair said.

After the retreat, House Ways and Means Committee Chair Kevin Brady, R-Texas, told reporters the overall goal of the gathering was to develop a singular tax reform proposal that the House, Senate, and administration could support. He added that the second day was centered on “the middle-class tax cuts and how we simplify our broken tax code for hardworking Americans.”

“Our chances for success in this once-in-a-generation opportunity are greatly enhanced if we’re on a single plan,” he said. Referring to the “80 percent shared principles” between the House and Trump administration plans, Brady said, “We’re going to be making sure those are pro-growth, but also get on the same page in the other areas. And of course, we’re going to bring to the table our case for permanence, because that’s where we get the greatest growth for the greatest number of years.” He added that an April 30 evening meeting with National Economic Council Director Gary Cohn reinforced their plan for a unified approach.

House Ways and Means Tax Policy Subcommittee Chair Peter J. Roskam, R-Ill., also cited the Cohn meeting and reiterated his desire for a permanent tax reform package, explaining that the “broad discussions that we’ve been having over the last few months are now beginning to crystallize.” However, neither Brady nor Roskam would provide details on what policy refinements are being made to what they described as “major provisions” like the border-adjustable tax and elimination of net business interest expense deductions.

“We don’t have details to release today, but we continue to make very thoughtful refinements in the very boldest provisions we are proposing, because at the end of the day, we want to jump-start America’s economy in a serious way,” Brady said.

Using the research tax credit as an example, Roskam explained, “We don’t want to have a situation where a tax proposal drops off after a fairly short period of time. . . . That’s feedback that we got for the past several years. The argument behind permanence goes to . . . if we turn the entire tax code into a big tax extender, we’re going to leave a tremendous amount of growth on the table.”

Stepping out briefly during the retreat, House Ways and Means Committee member Carlos Curbelo, R-Fla., told Tax Analysts that the panel is committed to adapting the House tax reform blueprint to fit within President Trump's tax reform outline, rather than explore different legislative options.

Curbelo added that his committee was still trying to reconcile the differences between the two plans, stressing that the controversial border-adjustable tax provision could still be part of the overall package as a result of changes being discussed. What those changes would be remained unclear.

Brady and his GOP colleagues have been working to turn the blueprint into legislative text since the November elections, but their efforts to establish a border-adjustable tax and eliminate the deductibility of net interest expense have faced strong headwinds from some industry groups. The task may have become more challenging for lawmakers, because Trump’s tax reform outline calls for a 15 percent tax rate on corporations and passthroughs — even lower than the blueprint’s proposed 20 percent corporate rate and 25 percent rate for passthroughs.

While Trump didn’t discuss the border-adjustable tax in an April 30 television interview, he said improved trade deals and “reciprocal” taxes would help defray the cost of his tax proposal — estimated to cost as much as $7 trillion over 10 years by the Committee for a Responsible Federal Budget.

“As an example, we have countries where if we make a product and we send it to that country, they charge us 100 percent tax,” Trump said on CBS’s Face the Nation. “If they make the same product and send it to us, we charge them nothing. You think that's smart? It's not.”

Timing and Process

After attempting to merge the two tax reform outlines, lawmakers are looking to move onto public hearings in May, Brady said. The Ways and Means chair noted that the committee would decide on timing for hearings and a markup collectively with the White House and Senate.

Brady also said he expects the GOP tax reform plan to eventually pass the Senate with 51 votes through a budget reconciliation bill that balances within a 10-year budget window.

After the first day of the retreat, Roskam said lawmakers are committed to a revenue-neutral, permanent tax overhaul that is paid for using dynamic scoring estimates. “We’re committed to getting this rate down as low as we can,” he said, noting that lawmakers would be getting feedback on their ideas from the Joint Committee on Taxation as well as interested stakeholders.

Roskam explained that GOP lawmakers were not looking to draft a plan that resulted in a permanent decrease in tax rates for corporations and temporary relief for individuals. “That’s not ideal,” Roskam said, adding that he would not be able to adequately explain the difference in rates for LLCs and subchapter S entities compared to big corporations.

“I’m confident we can achieve tax reform this year,” Brady said, adding that lawmakers are working to narrow the differences with Trump’s tax reform ideas, specifically on lowering rates for businesses. Brady said he is also listening to rank-and-file Republicans about ways to refine the border-adjustable tax as he negotiates with the Trump administration.

Neal Expects Seat at Table

During an April 28 interview with NBC News, Ways and Means Committee ranking minority member Richard E. Neal, D-Mass., said Cohn told him that Democrats may be able to get something out of tax reform.

Cohn “told me that the tax cuts they were proposing were going to be paid for by shutting down exclusions, deductions, and preferences in the code that he said were concentrated at the top of the income scale in America,” Neal said. “He said to me he thought Democrats would be happier than some Republicans when they got done. I want to hear what he's got to say specifically. It's very hard to respond to a vacuous one-page statement.”

Some Democrats are also optimistic about how tax reform efforts will play out, but for a different reason. Neal told NBC News that he was still hopeful that Trump would invite Democrats when Congress and the administration begin tax reform negotiations. “If you start from the supposition that the current tax system is underproductive and inefficient and that the rest of the world is changing tax mechanisms to accommodate changes in the global economy, yeah, I think we have to stay in the room and talk. I want to shape this legislation to my liking,” he said.

Neal said that Democrats would be interested in expanding the child care and earned income tax credits, and he agreed with Republicans that the corporate tax rate is too high. But he reiterated the lack of specifics in the White House's outline. “I think that so much of this at this point is just a wish list. It's hard to wrap your arms around it. One page? I could say a lot of things myself on one page about what I intend to do, the question is do I know how to [do them] and will they get done?” He added that the tax reform legislation that is eventually introduced will likely not look anything like the one-pager released.

Other Democrats have seen enough of the plan to know they don't like it. Appearing on Fox News Sunday April 30, Senate Minority Leader Charles E. Schumer, D-N.Y., said it was designed to benefit the wealthy, citing the proposals to repeal the estate tax and to lower the passthrough tax rate to 15 percent.

Schumer also criticized the call to eliminate the state and local deduction, and maintained that the overall plan would make it more difficult to use the mortgage interest deduction. “When you rush through a plan like he did, and put it on one page, it’s not going to be very good. And this shows it,” he said.

Trump, for his part, challenged Democrats seeking to leverage tax reform in order to force the release of his tax returns. “I mean, I don't care who did that,” he told CBS when askedabout a member of Congress making that case for his returns. “These are the people, you know, the great obstructionists.”

But for Neal, at least, that disclosure effort is futile. “It's apparent to me right now that he is not going to release his tax returns. And, as a result, I think that we should continue the conversation about fundamental tax reform,” he said.

Asha Glover contributed to this article.

Follow Dylan F. Moroses (@DMoroses3244), Stephen K. Cooper (@ScoopOnTaxes), and David van den Berg (@TAtaxDavidVDB) on Twitter for real-time updates.