The Legislative Calendar: Six Months In.  With yesterday’s late night last ditch failed effort by the Senate to pass a so-called “skinny” repeal of the Affordable Care Act, the Republican controlled chamber has nearly run the clock on its strategy for passing major legislation by majority vote, which relied on reconciliation instructions under the FY 2017 budget resolution (a process we highlighted back in December). Congress will soon need to adopt budget resolutions for the 2018 fiscal year if regular order is to be readopted and any progress is to be made on the President’s budget proposals (which are traditionally only a starting point for negotiations). And the traditional August recess approaches without Congress having passed any appropriations for the 2018 fiscal year, which leaves the government funded only through September 30—around the same time the Treasury expects to reach the limits of its borrowing authority. These issues will demand attention in the immediate term and could further delay developments on tax reform, but if the Senate intends to use reconciliation under the FY 2018 budget, the House and Senate Budget Committees will include instructions to that effect in the near term, which will serve as an early indicator of the Republican leadership’s procedural approach. No matter the path, the implosion of a signature campaign issue for the GOP Congress and White House makes passing tax reform of even greater importance to their electoral futures.

Enter the “Big Six.”  There are signs that the GOP leadership is adapting its approach to governing. Over the last several months, a group of six key tax reform policymakers known as the “Big Six” have been meeting in private to reach an agreement ahead of time on a tax overhaul amenable to the White House as well as majorities in the House and Senate.

Yesterday the Big Six released a joint statement broadly outlining a unified framework for tax reform and which notably publicly abandoned the DBCFT. The statement also noted that lowering tax rates for small businesses, lowering the corporate tax rate and increasing capital expensing will be key areas of focus in the coming months. A priority on permanence may also indicate willingness to reach bipartisan consensus and avoid the need to satisfy the reconciliation procedures.

(Re)Assessing Prospects for Reform.  The House Blueprint’s inclusion of the DBCFT may have been the single biggest departure from approaches to reform that have been introduced by other leading Republicans, and its elimination from the debate is a hopeful indication that tax reform is achievable. But there are reasons to hedge your bets.

Meaningful Reform?

Hope

Nope

  • Congressional majority and White House incentives for reform are aligned
  • Lack of universal consensus on distributional effects and top marginal rates
  • Politically feasible approach by GOP Congress members to repeal or limit state and local tax deduction to offset lower rates across the board
  • Few non-controversial revenue raisers to offset reforms that would lower revenue
  • Bipartisan consensus on the need for corporate tax reform, including the need for international tax reform and a lower corporate rate
  • Competing legislative and administrative priorities
  • Focus on tax reform by interest groups and stakeholders
  • Competing lobbying by interest groups and stakeholders with adverse interests
  • Reconciliation procedures, if followed, require deficit neutral reform outside budget window
  • Likely unwillingness by Democrats to participate in bipartisan reform efforts

Stay tuned as we continue to follow developments from Congress and the White House.