House Republicans Hold Key to Possible 2017 Tax Overhaul

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By Kaustuv Basu

Nov. 4 — Long-time Capitol Hill watchers are advising caution about the idea of funding infrastructure with repatriated income from U.S. multinationals despite increasing talk about such a possibility.

That’s because of the politics in the House, where the Republicans could have a slimmer, more conservative majority in the next Congress. In that scenario, Speaker Paul D. Ryan (R-Wis.), or any other Republican who becomes speaker, will have to counter the influence of the ultra-conservative House Freedom Caucus, a possible impediment to deal-making with Democrats on infrastructure and international tax issues.

Still, a deal opportunity exists, with contours expected to become clearer in early 2017. It’s possible a tax bill could deal with cross-border taxation issues and fund infrastructure needs while meeting some core conservative and liberal demands.

The idea of such a deal has been simmering for a year. Ryan and Sen. Charles E. Schumer (D-N.Y.), widely expected to be chosen majority leader if the Democrats take back the Senate, talked about possibilities in 2015. “If you can get overseas money to come back here, even if it’s at a lower rate than the 35 it now comes back at, you can use that money for a major constructive purpose, such as infrastructure,” Schumer said on CNBC recently.

Meanwhile, Democratic presidential nominee Hillary Clinton has offered a plan to increase federal infrastructure spending by $275 billion over five years by “business tax reform.”

Let Freedom Ring

Ryan’s office recently answered questions about a possible repatriation-funded infrastructure deal by talking about the GOP tax overhaul blueprint unveiled in June, proposing a corporate tax rate of 20 percent and a 25 percent rate for sole proprietorships and passthrough entities.

“We are focused on tax reform in the context of our Better Way agenda,” a spokeswoman said. The office pointed out that a five-year highway funding bill that was fully paid-for passed Congress in 2015.

Does that mean Ryan is walking away from the idea of an infrastructure deal?

Certainly not, according to a senior Senate Democratic aide who spoke to Bloomberg BNA on the condition of anonymity.

The conventional wisdom now is that Ryan will have to reassess how strong he is the day after the election. And then he has to win the House speakership by beating back likely opponents from the Freedom Caucus, which pushed out former Speaker John A. Boehner (R-Ohio).

The aide said Ryan will have an incentive to cut a deal because he will have to do something to revive the GOP, which will be in recovery mode after a difficult and unpredictable election season.

A lobbyist who spoke on the condition of anonymity said that some conservative House members might not like the idea of an infrastructure bill. “They might want some caps on spending. That could bring the Freedom Caucus to the table, but it might not bring the Democrats or the administration,” he said.

Another lobbyist said that if Clinton becomes president, the real action would be between the administration and Ryan, assuming he is still in charge. “Whatever they can agree to that Clinton is willing to sign and the House can pass likely would be more or less rubber-stamped by the Senate—whether Democrat or Republican,” the second lobbyist said. “Obviously, the Senate will need some things in the package. But the broad outlines probably will have to be agreed to by Clinton and Ryan.”

Democratic Pressure

The activist left wing of the Democratic party, led by Sens. Bernard Sanders (I-Vt.) and Elizabeth Warren (D-Mass.), is expected to pressure Congress on tax and other policy goals.

A plan to fund infrastructure with repatriated income might face obstacles, because some Democrats in both chambers might not embrace the idea of doing an international-only overhaul that helps multinationals, several lobbyists said.

This is where Clinton’s idea of an expanded child tax credit and other measures to address income inequality might be helpful, they said. Liberal senators will also like the idea of an infrastructure package that goes beyond highways and includes expanding broadband or cybersecurity issues.

The Senate map in the next election cycle is also loaded against the Democrats.

Many Democratic senators who face re-election in 2018 are in states that typically vote Republican or they are in swing states. That means Democratic leadership would have to help them rack up accomplishments or the appearance of accomplishments, several aides said.

But it also means that Democratic senators have to be careful and deliberative.

A Common Agenda?

Some House Republicans could find themselves working with some moderate Democrats to pass tax legislation if Clinton wins and the Democrats take the Senate. One driving force for bipartisanship could be the European Union’s state aid investigations into U.S. multinationals and changes to country-by-country tax data reporting standards, several lobbyists said.

But that idea could only go so far, because Ryan or another Republican speaker might not want to pass bills with a majority of House Democrats, they said.

In addition to those obstacles, some House Republicans could aggressively investigate Clinton and the issue of the private e-mail server if she became president. Ryan said in an Oct. 17 statement that aggressive oversight work in the House is important and “it will continue.”

With assistance from Laura Davison in Washington.

To contact the reporter on this story: Kaustuv Basu in Washington at kbasu@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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