Blog Posts Tagged With Politics of Reform

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The Latest from the JCT

The Joint Committee on Taxation (“JCT”) released two documents over the weekend comparing the House and Senate Bills – one describing the differences and similarities between the two bills, and a second focusing on the effect that those differences have on the revenue generated by each bill on a static basis.  The JCT’s revenue comparison finds that both bills cost roughly the same amount before factoring in economic growth – with the House Bill clocking in at $1.4455 trillion over ten years with the Senate Bill at $1.4468 trillion.

The JCT also released its dynamic score of the final House Bill yesterday, estimating that the House Bill would increase the level of real GDP relative to the baseline forecast by 0.7% on average throughout the 10-year budget window.
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Senate Appoints Conferees

The Republican leadership in the Senate appointed the GOP members of the Conference Committee Wednesday afternoon after the Senate voted to proceed to conference with the House to work out the differences between the House and Senate tax bills.

Senate Finance Committee Chairman Orrin Hatch (R-UT) will lead the GOP delegation, joined members John Cornyn (R-TX) (also the Senate Majority Whip), Mike Enzi (R-WY) (also the Budget Committee Chairman), John Thune (R-SD), Rob Portman (R-OH) (also on the Energy and Natural Resources Committee) and Pat Toomey (R-PA) (also on the Budget Committee) as well as Energy and Natural Resources Chairwoman Lisa Murkowski (R-AL) and member Tim Scott (R-SC).
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House Appoints Conferees

After a surprisingly contentious debate (that had much more to do with the upcoming spending negotiations than the tax reform bill), the House voted to proceed to Conference Committee to resolve differences between the House and Senate Bills.

The House named 9 Republican members to the Conference Committee, who will be joined by 5 Democratic members.

Ways and Means Chairman Kevin Brady (R-TX) will chair the House’s delegation, joined by fellow Ways and Means members Devin Nunes (R-CA), Peter Roskam (R-IL), Kristi Noem (R-SD) and Diane Black (R-TN) (also the Chairwoman of the Budget Committee).  Energy and Commerce members Fred Upton (R-MI.)
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Senate Debate Begins

It has begun. The Senate voted last night to begin formal debate of the Senate Bill (52-48).  The official legislative text under consideration – S.1 – is identical to the legislative text released last Tuesday, except that it also includes a package of oil drilling provisions added by the Senate Budget Committee earlier this week (view the bill here – we also ran a PDF comparison against last Tuesday’s text, which is available here).

The Senate is scheduled to reconvene at 10:30 this morning to continue debate, and a number of Senators filed amendments over night (a total of 72, as of midnight).
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House Passes Tax Cuts and Jobs Act

Today the House of Representatives passed the Tax Cuts and Jobs Act by a vote of 227 to 205, with only 13 GOP House members voting no.  As expected, the bill did not receive a single vote from the Democratic caucus. All attention now turns to the Senate, which is still in the process of marking up the Senate Mark and is expected to report a bill out of Committee by the end of the weekend.
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Evening Update – What’s on Deck for Tomorrow

Tomorrow is set to be an exciting day in Congress for tax reform. The House of Representatives is expected to vote tomorrow afternoon on their tax bill, after clearing an important procedural hurdle earlier today.

On the Senate side, the debate over amendments began this afternoon, with the Senate Finance Committee voting down a number of amendments put forth by Democratic Senators (largely on party lines). The debate will continue tomorrow, and may extend into Friday or Saturday before the Committee votes on the Senate Mark, Senate Finance Committee Chairman Orrin Hatch said this evening. Consideration of amendments proposed by Democratic Senators is expected to take up much of the Markup time, but the Committee will also consider amendments proposed by Chairman Hatch last night (read a summary here), and may consider others.
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JCT Releases Updated Distributional Effects of House Bill

This morning the Joint Committee on Taxation released its updated estimates of the distributional effects of the House tax bill reported out of the Ways and Means Committee.

As with prior estimates of the House bill, the JCT predicts that in the later years of the 10-year budget window, taxpayers in certain income brackets will experience an increase in taxes.
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Senate Mark at a Glance

The Senate Finance Committee Chairman’s Mark (Senate Mark) released last night diverges sharply in many respects from the House Bill.  Although in summary form, the Senate Mark describes a comprehensive tax reform proposal that will take some time to analyze. In the meantime, the table below summarizes key features of the Senate Mark, together with a comparison to the final House Bill.

We have also released an initial version of our Senate Bill Navigator, a hyperlinked version of the Senate Mark built to ease your navigation of its text, which you can find here.

Corporates.  As expected, the Senate Mark calls for a permanent reduction in the corporate tax rate to 20%, with implementation delayed until 2019.
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Weekly Roundup: Key Posts and What’s on Deck This Week

Last week was a busy week at Tax Reform And Transition. House Republicans released text of a tax reform bill on Thursday (view the full bill through our Tax Bill Navigator), followed by an official Chairman’s Mark on Friday. Late Friday night, the Joint Committee on Taxation released an official summary of the Chairman’s Mark, together with their assessment of the revenue effects and distributional effects of the Chairman’s Mark.

You can read our grid summarizing the key provisions of the bill here. Here’s a round up of the tax reform topics covered in our more detailed posts so far:

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Awaiting the Chairman’s Mark (and the Senate Mark Too?)

It’s an exciting week here on the Davis Polk tax floor as we gear up for coverage of the House GOP tax bill release. Although scheduled for November 1st, widely circulated rumors indicate that we may be waiting longer to see full bill text. Tomorrow’s delivery (if it happens) may be in the form of a more detailed summary of the bill’s more salient provisions, with actual text to follow towards the end of the week (or maybe even over the weekend).

If House Republicans still want to pass a bill before the Thanksgiving recess (which starts Friday, November 17th), some form of text must be sent to the House Ways and Means Committee by early next week.
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Bill Text Expected November 1st

The moment we’ve all been waiting for is fast approaching. Politico reported this morning that House Republicans will introduce a tax bill on November 1st, with markup in the Ways and Means Committee scheduled for the week of November 6th.  The Senate Finance Committee will begin its markup during the week of November 13. This schedule assumes that the House passes the Senate’s budget without modification. That vote is scheduled for Thursday.
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Senate Jumps Over Procedural Hurdle; Passes Budget with Tax Reform Instructions

Tax Reform cleared a major procedural hurdle last night when the Senate passed a budget 51-49. Perhaps more important, Senate and House Republicans also reached an agreement on how to reconcile the differing House and Senate budget bills, which may eliminate the need for a conference committee. As expected, the Senate’s version of the budget contains instructions for tax reform, opening the door for Republicans to pursue tax reform with a bare majority through the budget reconciliation process.

The Senate budget resolution does provide some interesting (although not unexpected) clues as to the content of tax reform legislation.

For example, the Senate’s budget resolution allows the tax reform bill to add up to $1.5 trillion to the deficit over 10 years, which House Republicans confirmed would carry through to the final negotiated resolution.
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The Big Six Framework “Arrives”

The Big Six tax reform framework has arrived, sort of. The Big Six officially released “The Unified Framework for Fixing our Broken Tax Code” this morning, in a format (and in many ways content) that resembles the House Republican blueprint from 2016. Although more detailed than the proposal put forward by the Trump administration in April, the Framework leaves a number of key decisions up to the House and Senate tax writing committees. Without further ado, here is a summary of what the Framework contains:

A few initial observations:

Not a Lot of Detail.  While the framework sets forth a rough outline of a tax reform bill, the level of detail contained in the framework and the number of instances where the framework specifically leaves discretion to the tax writing committees indicates that the plan is very fluid at this stage.
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Foreign Minimum Tax: A Primer

Although light on details, the recent statement on tax reform from the “Big 6” group of Republican Congressional and White House policymakers provided two important hints on the direction that tax reform may be heading. First, the Big 6 remain dedicated to imposing a “system that encourages American companies to bring back jobs and profits trapped overseas.” Whether this means true international tax reform or merely lower tax rates at home is up for debate. However, if international tax reform remains a goal, the joint statement made clear that it will not be accomplished by way of a destination-based cash flow tax (a “DBCFT”).
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Senate Democrats Announce Their Terms

45 out of 48 Senate Democrats signed a letter to President Trump, Mitch McConnell (R-KY) and Orrin Hatch (R-UT) today, urging Republicans to work with them on tax reform. The olive branch, of course, came with terms:

  • No increase in the tax burden on the middle class
  • No tax cuts for the top 1%
  • Tax Reform is accomplished through regular order, not the budget reconciliation process
  • Tax Reform is deficit neutral

The full letter is available here. Aside from the request to pursue tax reform through regular order, the Democrat’s terms look remarkably similar to positions publicly supported by the Big 6 (check out our infographic).
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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).
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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.”

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DBCFT Still Not Dead (to Brady)

At a WSJ conference yesterday, House Ways and Means Committee Chairman Kevin Brady (R-TX) gave a few tantalizing hints as to the content of the much anticipated house tax reform bill. Most notably, Brady suggested that the bill would include a DBCFT that is phased in over a five-year transition period. This is intended to respond to a number of concerns, including the fear that currencies may not adjust immediately (click here for the Tax Foundation’s summary of the concerns alleviated by, and new concerns raised by, a five-year transition).

Brady also reaffirmed that certain industries (financial services, communications, insurance and digitally-focused businesses) would be subject to “special treatment” under the DBCFT.
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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.
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Updates on Tax Reform and the Tax-Exempt Sector

President Trump and Congress have recently undertaken measures to preserve the ability of tax-exempt organizations to engage in limited forms of political speech, and efforts in Congress may signal a willingness to provide further relief to tax-exempt organizations.

The Presidential Executive Order.  On May 4, 2017, President Trump signed an executive order entitled “Promoting Free Speech and Religious Liberty” that directs the executive branch “to vigorously enforce Federal law’s robust protections for religious freedom.”  The executive order further instructs the Treasury Department, to the extent permitted by law, not to “take any adverse action against any individual, house of worship, or other religious organization” that discusses moral or political issues from a religious perspective, but only where such speech has not ordinarily been treated by the Treasury Department as the endorsement of or opposition to political candidates. 
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Update: House Passes Obamacare Repeal Bill

Yesterday, Republican members in the House of Representatives passed the American Health Care Act, H.R. 1628, by a 217-213 vote, with 20 Republicans and all Democrats voting against. Although the House made various health-policy and spending amendments to the bill since our March 21st post, the tax provisions described in that post survived with only one change – the repeal of the 0.9% Medicare surtax on wages above certain amounts was delayed to taxable years after December 31, 2022.  Notably, the tax provisions included in the AHCA passed by the House includes the retroactive repeal (starting on January 1 of this year) of the 3.8% tax on certain net investment income under Section 1411 of the Code.
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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.
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President Trump To Announce Tax Reform Principles

The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15%
  • Repeal the corporate AMT
  • Deemed repatriation of accumulated offshore earnings taxed at 10%
  • No destination-based cash flow tax
  • Shift toward territoriality?

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Mnuchin: Tax Reform Timing Likely to Slip and Other Hints at the Administration’s Thinking

Treasury Secretary Steven Mnuchin told the Financial Times yesterday to expect tax reform to slip past the August recess, stating that the previously announced timeline was “highly aggressive to not realistic at this point.” Mr. Mnuchin’s interview touched on other areas of tax reform as well, confirming that the Administration has not ruled out the DBCFT (and the ~$1 trillion of revenue it would purportedly raise) while implying that the Administration is also considering alternative revenue raisers.  When asked how the Administration would ensure tax reforms were deficit-neutral, Mr. Mnuchin also stressed the importance of economic growth in generating revenue, implying that the Administration may lean on dynamic scoring to meet the reconciliation process’s budget neutrality requirements.
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