Tax Reform Update

October 4, 2017

Later this week, the House is set to vote on a fiscal year 2018 budget resolution, which will be the first legislative step to advance tax reform by a simple majority and avoid a Democratic filibuster.

The House Budget Committee advanced the budget resolution in July, but—at that time—it lacked the votes to pass on the floor due to reluctance from conservative Freedom Caucus members to move forward without a tax reform blueprint. Last week, House and Senate Republican leaders unveiled their tax reform framework crafted with the White House, which received widespread support from Freedom Caucus members.

“Our Republican budget balances within 10 years, provides for a strong national defense, eliminates burdensome regulations, and cracks down on waste, fraud, and abuse. Passing this budget will also enable tax reform, which is the key to economic growth and seeing that Americans take home more of their hard-earned dollars,” House Majority Leader Kevin McCarthy (R-Calif.) said while announcing the vote.

Sen. Mike Enzi (R-Wyo.), the chairman of the Senate Budget Committee, released his version of the fiscal year 2018 budget resolution on Sept. 30. The panel is expected to mark it up on Oct. 4 and 5, with a full Senate vote expected in mid-October. The Senate budget paves the way for $1.15 trillion in tax cuts. However, some major differences between the House and Senate budgets will have to be reconciled before tax reform can move forward.

For now, House Republicans agree on the need to get started on tax reform. Faced with a dearth of major legislative accomplishments after nine months with across-the-board control of government, Republican leaders are aiming for an ambitious timeline of finishing tax reform by the end of the year.

Last week, the Trump Administration and Congressional Republican leaders released a nine-page “unified framework for fixing our broken tax code” that includes specific goals for lower business and individual tax rates. The Framework calls for a 20-percent corporate tax rate, a new 25-percent rate for certain passthrough business income, and international reforms that include a territorial tax system and a one-time mandatory repatriation tax. The Framework also would replace the current seven individual tax brackets with three brackets with rates set at 12 percent, 25 percent, and 35 percent, while leaving open the possibility of providing a fourth higher tax bracket for upper-income individuals to meet President Trump’s goal of ensuring that tax reform benefits the middle class and not “the wealthy.”

Once the fiscal year 2018 budget resolution–which will carry reconciliation instructions and revenue targets for the tax reform process–is passed, then the Ways and Means Committee is expected to act first on tax reform. While Chairman Kevin Brady (R-Texas) has not set an official timeline, he reportedly has said he hopes to release a legislative product sometime in October and complete a mark-up and vote in the committee before Thanksgiving.

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