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Nov. 15 — A bullish sentiment has emerged for wholesale changes to the U.S. tax code in the next year, especially from House Ways and Means Committee Chairman Kevin Brady (R-Texas).
His push for House Republicans’ proposed tax blueprint has gained steam in light of Donald Trump’s election as president, prompting more confidence from Brady on the prospects for advancing what he calls a once-in-a-generation opportunity.
“I’m here to tell you that tax reform is going to occur in 2017,” Brady said at a Nov. 15 event sponsored by Bloomberg BNA and KPMG LLP.
All the right chips have fallen into place, he said, including public frustration, congressional agitation, international pressures on U.S. multinational companies and Trump’s position on taxes, which have tacked more and more toward the House Republican plan.
A top Trump surrogate, Stephen Moore, was dispatched to Capitol Hill Nov. 15 to discuss rewriting the tax code and other policy ideas.
“We would like to move aggressively on tax reform to lower tax rates so that we can make our country competitive again and rebuild the middle class,” House Majority Whip Steve Scalise (R-La.) told Bloomberg BNA at the Capitol after he and members of his whip team met with Moore.
Discussions are ongoing between the Trump transition team, staff for House Speaker Paul D. Ryan (R-Wis.) and Brady’s office on a tax overhaul plan, Scalise said, although he declined to offer specifics.
Brady has also been light on specifics about the blueprint, which his top tax aide, Barbara Angus, called the start of a conversation in remarks later at the Bloomberg BNA-KPMG event, which also featured other key congressional aides.
Features of the framework, released in June, include a 20 percent corporate tax rate and a 25 percent tax rate for passthrough businesses, as well as a top individual tax rate of 33 percent followed by 25 percent and 12 percent brackets. Brady called it the foundation of an overhaul.
Among unanswered questions associated with the blueprint, a draft on international elements of the plan is likely, Brady said. Such specifics would offer more particulars on the border adjustability part of the proposal, through which imports would get taxed while exports would be exempted. Brady declined to say when exactly he would release the draft for feedback.
Other questions relate to the tax treatment of carried interest, which currently gets preferential treatment as investment income. Most carried interest benefits accrue to real estate and venture capital partnerships, Brady said, adding that potential changes are being considered this fall.
“My belief is that the risk should be taxed as capital gains,” Brady said. “Revenue that is ordinary income should be taxed as ordinary income, so we’re looking at how we approach that, that area, so to be determined.”
Also to be determined is how to use revenue from a mandatory repatriation of U.S. multinationals’ accumulated foreign profits, estimated at $2.6 trillion.
Brady said he prefers applying any gains to tax rate reductions and other tax provisions, but acknowledged a still-developing plan to fund domestic infrastructure that he said would get consideration.
A path forward on tax changes also remains up in the air, despite a push for the fast-track process known as reconciliation.
It would allow a simple Senate Republican majority for passage rather than 60 votes, which would require Democrats. But using reconciliation also comes with budget deficit restrictions and political limits, meaning that it isn’t an easy default choice for Republicans, said Mark Prater, chief tax counsel to Senate Finance Committee Chairman Orrin Hatch (R-Utah).
The top tax aide to Finance Committee ranking member Ron Wyden (D-Ore.), Victor Fleischer, affirmed Wyden’s interest in whatever the GOP keeps developing, noting that some elements are positive while others appear negative to Democrats.
But Karen McAfee, top tax aide to Ways and Means ranking member Sander Levin (D-Mich.), expressed concerns about the blueprint’s proposed treatment of passthrough income as well as the possibility of using repatriation income for infrastructure.
Neither a Ways and Means markup of the blueprint nor a House vote has been scheduled yet, Brady said.
With assistance from Kaustuv Basu in Washington.
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