Blog Posts Tagged With Budget Neutrality

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(Re)Setting the Stage for Comprehensive Tax Reform: Big Six Send First Signals

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). Continue Reading

Prospects for Tax Reform in 2017?

House Speaker Paul Ryan (R-WI) addressed the National Association of Manufacturers on Tuesday in an effort to build support for tax reform, emphasizing the unique, and diminishing, window of opportunity that exists to enact permanent tax reform ahead of next year’s primaries and midterm elections. According to his press office, this speech marks the beginning of his “sales pitch” for tax reform in 2017. Speaker Ryan’s prepared remarks are available here. You can also watch his speech here (starting at 1:41:34).

Here are the key takeaways:

  • Republicans Are Aiming for End of 2017:  Speaker Ryan said that lawmakers would “begin to turn” their plan into legislation to put in front of Congress, and promised to “get this done in 2017.” We have heard this line before, both from Speaker Ryan and from Treasury Secretary Steve Mnuchin during the press conference unveiling Trump’s tax principles.
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An Update on the DBCFT: A Hearing in the House and Trump’s Budget

In advance of yesterday’s House Ways and Means Committee hearing on tax reform, the Joint Committee on Taxation released its own comprehensive report on destination-based taxation and border adjustments. The report gives an overview of the current state of U.S. international taxation and then delves into the economics of border adjustments, including a summary of the academic literature on associated exchange rate (or other wage or price) adjustments such that exporters would not be advantaged and importers would not be disadvantaged (defined as “trade neutrality,” which we’ve previously explored here and here). Although the JCT ultimately does not take a view on whether the proposed destination-based cash flow tax would achieve this “trade neutrality,” the report does suggest that any currency adjustments would not happen quickly or, perhaps, evenly among importers and exporters, citing empirical studies that conclude that changes in consumer prices affected by exchange rate adjustments happen asymmetrically. Continue Reading

Reactions to the Trump Tax Plan

As noted in yesterday’s summary, the basic outline of the Trump Administration’s tax plan is largely similar to the Trump campaign proposals, with fewer details and with one notable shift toward the House Blueprint’s approach – the move toward territoriality. The table below shows how this latest plan compares to the House Blueprint and the Trump 2016 campaign plan.

In the press conference to announce the “broad-strokes” plan, both Treasury Secretary Mnuchin and National Economic Council Director Cohn said that they were in agreement with members of Congress over the four driving goals of tax reform – grow the economy and create millions of jobs, simplify the tax code, provide tax relief to American families, especially middle-income families and lower the business tax rate from one of the highest in the world to one of the lowest. Continue Reading

Tax Reform and Revenue Raisers

One of the biggest challenges facing lawmakers in the current tax reform process is finding a way to reduce headline tax rates in a revenue neutral way. Some revenue raisers (like eliminating itemized deductions) would raise significant revenue and simplify the tax code. Other revenue raisers come at the cost of increased complexity, at least in the short term (e.g., implementing a federal VAT or a new carbon tax). Closer inspection of ideas on the table reveals that politically popular reforms are not necessarily the largest revenue raisers. For example, there seems to be bipartisan support for taxing carried interest as ordinary income (more on that here), a relatively small revenue raiser. Continue Reading

DBCFT Not Dead Yet

As expected, President Trump’s first speech before a joint session of Congress last night did not include any new details on the Administration’s plans for tax reform, but his remarks did include some references to tax reform, including a reference to a border adjustment tax for imported goods. Does that signal an upcoming endorsement of the House Republican’s destination based cash flow tax (DBCFT)? That remains to be seen, but it is fair to say that the DBCFT is not dead yet, and could still turn out to be the least worst alternative, given its revenue raising potential.

Some lawmakers, including Republicans in the Senate, have recently been distancing themselves from the DBCFT and momentum for the proposal seems to have stalled. Continue Reading

Tax Rates and Horse Trading

The House Blueprint and the President’s plan currently represent the primary visions for tax reform. Both would reduce tax rates for individuals and corporations (the House Blueprint caps the top individual rate at 33% and the corporate rate at 20%, while the President’s plan maxes out at 33% for individuals and 15% for corporations). Click here for a full comparison of the two plans. Although the administration’s position on revenue neutrality has not been entirely clear, the President’s nominee to head the Treasury Department, Steve Mnuchin, stated that the President’s tax plan would not increase the deficit after taking into account macroeconomic feedback and both House Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) have recently reiterated their commitment to pass a revenue neutral tax reform bill by the August recess. Continue Reading

Setting the Stage for Comprehensive Tax Reform

Tax reform will be one of the top priorities for the 115th Congress. Hopes for pursuing tax reform to a successful conclusion are high, given one-party control of the government (and exuberant campaign promises). Following the 2016 election, Davis Polk laid out the background and context in which tax reform measures will be considered, with links to summaries of the leading proposals and details on the politics of tax reform. Although life in Washington has moved forward since this memo was published, the key points and players remain the same. Read on for things to watch.

Setting the Stage for Comprehensive Tax Reform, December 2, 2016

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