Progress Continues on Tax Reform Plan

September 20, 2017

Since returning from summer recess, Congressional leaders and the Trump Administration have been focused on their tax reform agenda. According to House Ways and Means Committee Chairman Kevin Brady (R-Texas), the “Big-Six” tax reform negotiators will share an outline of their plan with tax-writers later this month. Meanwhile, President Donald Trump has stepped up his efforts to garner the support from some key Democrats.

The Big Six – Chairman Brady, Senate Finance Committee Chairman Orrin Hatch (R-Utah), Senate Majority Leader Mitch McConnell (R-Ky.), House Speaker Paul Ryan (R-Wis.), Treasury Secretary Steven Mnuchin, and Economic Council Director Gary Cohn – have been working all summer to develop a single consensus blueprint for tax reform, hoping to avoid the intra-party disagreements that arose during the health care debate earlier this year. The goal of the group is for the House, the Senate and the White House to all start on the same page and same outline, enabling tax-writers to handle the specifics and finalize the legislation.

While details remain scarce, some of the key elements likely to be included are an attainable corporate tax rate. While the administration’s goal remains a 15 percent tax rate for businesses, others have stated that percentage may not be possible. Significant for small businesses is ensuring lawmakers remain committed to bringing the rate for pass-through entities—those currently taxed on the individual side of the tax code—on par with the corporate rate.

In recent weeks, comments suggest that the tax reform negotiators intend to scale back a proposal in the 2016 House Republican tax reform blueprint that called for 100 percent expensing in year one of most tangible and intangible assets. Negotiators have begun referring to “unprecedented expensing” instead, signaling something more generous than current policy known as bonus depreciation but short of immediate full expensing.

Further, Secretary Mnuchin has stated that negotiators are considering making the tax package retroactive to the beginning of 2017. This could have a significant impact on individual taxpayers – a fact not lost on members of Congress facing re-election in 2018 – but some analysts argue that retroactive policy, especially if enacted in the last quarter of the year, is not beneficial for the economy because businesses won’t suddenly make new hiring or investment decisions this year that would spur growth.

Most believe tax reform will have to be done using the fast-track budget reconciliation process that allows for passage in the Senate by a simple majority rather than the three-fifths majority typically required to overcome procedural hurdles in that chamber. In order for that to happen, the House and Senate must first agree to an FY 2018 budget resolution that includes reconciliation instructions authorizing a tax reform package. The House Budget Committee passed its version of a budget resolution in late July; but a vote by the full House has been held up by members of the conservative House Freedom Caucus who are demanding to see details of the tax reform proposal first.

Meanwhile, President Trump has been doing outreach to several key Senate Democrats. Most recently, inviting Sens. Joe Donnelly (Ind.), Joe Manchin (W.Va.) and Heidi Heitkamp (N.D.) (along with Republican Sens. Hatch, John Cornyn (Texas), Ron Johnson (Wis.) and Pat Toomey (Pa.) to discuss tax reform at a White House dinner on Sept. 12. In the coming weeks, the president also plans to hold as many as 13 rallies to continue making the case for reform – once again focusing on states that he carried last year and are represented by a Democratic senator facing a competitive re-election race in 2018.

NSBA supports a broad bipartisan overhaul of the tax system by dramatically broadening the base—cutting the breaks that litter the tax code—and lowering rates while maintaining revenue neutrality. As Congress debates what tax system should replace the current one, NSBA believes it is imperative that the U.S. moves towards a simpler, fairer tax system that does not attempt to only tweak one piece of the puzzle but instead is a permanent solution.

Please click here to view NSBA’s Tax Reform Recommendation letter to the Senate Finance Committee.