Hatch: Big-Six Tax Framework Won’t Dictate Finance Bill

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By Kaustuv Basu

A preview of the coming battles over tax reform was evident at a Senate Finance Committee hearing where Chairman Orrin G. Hatch (R-Utah) said his committee wouldn’t be “anyone’s rubber stamp.”

Hatch’s comments Sept. 14 at a hearing to discuss the individual side of the tax code came as Republicans get ready to release a tax reform framework the week of Sept. 25. That framework would only be viewed “as guidance or potential signposts for drafting legislation,” Hatch said, according to a transcript of his testimony.

The comments from the Senate’s top tax-writer were a sign that the key Republican leaders on tax reform aren’t united on a tax bill and crucial elements such as a corporate tax rate or expensing of capital investments remain undecided. It was also a signal from Hatch to his colleagues in the Senate that they will have a say about what ends up in a tax bill.

“I am addressing it to everybody on the committee, because we got a wide-ranging committee with a lot of different viewpoints and I don’t want the committee stifled,” Hatch told reporters later. “We’re going to have to look at everybody’s ideas and try and come up with the very best thing we can.”

Trump administration officials and Republican leaders have been working on provisions for a tax reform bill. “The group—some have deemed us the Big Six—will not dictate the direction we take in the committee,” Hatch said.

The Trump administration has pushed Congress in recent weeks to release a framework this month, to be followed quickly with the release of actual legislation. President Donald Trump’s overture to Democrats on key legislative issues has also created anxieties among congressional Republicans about how the new alliance affects tax legislation.

The Latest Wrinkle

Hatch’s testimony is only the latest wrinkle in a series of hurdles that a Republican Congress faces on its stated goal: getting a tax reform bill to the president’s desk by the end of the year.

The Finance Committee has its own priorities, including a dividends-paid corporate integration proposal to remove the double layer of corporate taxation, said Marc Gerson, a former Republican tax counsel for the House Ways and Means Committee.

“To the extent a framework is released that does not incorporate these priorities, you would expect them to be considered by the Senate Finance Committee in its own markup,” Gerson, now with Miller & Chevalier Chartered, said in an email. “Of course, the level of detail in the anticipated framework is unknown—the framework itself may in fact provide flexibility for inclusion of Senate Finance Committee priorities.”

Hatch’s comments suggested that the House and Senate Republicans aren’t on the same page on tax reform or budget issues, a former Senate staff member said, speaking on the condition of anonymity to speak more freely. There are good reasons to have a tax bill drafted in committee, because it enables staff to think through complex technical issues that may arise, the former staff member said.

Emily Schillinger, a spokeswoman for the House Ways and Means Committee, said in a statement that Chairman Kevin Brady (R-Texas) agrees that the tax-writing committees “will be responsible for drafting the final legislation based on the united, core elements from President Trump and the tax working group.”

The White House didn’t immediately respond to a request for comment.

Interest Deduction Details

Brady said at a Politico Pro event Sept. 14 that more clarity on the treatment of corporate interest deductions will be released as part of the tax framework. The plan is to grandfather existing debt and provide exemptions to small businesses and agriculture, he said.

“We will continue to work toward some changes, but in a way that creates certainty and helps us grow the economy in a big way,” Brady said.

U.S. companies can expect to learn more about the tax rate they would pay and the deductions they would be allowed to claim on interest payments later this month as part of a new framework, Treasury Secretary Steven Mnuchin said at the same event.

Ways and Means Republicans are scheduled to meet at a retreat Sept. 24-25 to discuss the tax bill before a framework is released. Republicans will have to pass a 2018 budget resolution next month, which is expected to be a vehicle for a tax bill.

Lack of Details

Some House Republicans have been clamoring for more details on a tax plan. A Ways and Means Republican who spoke on condition of anonymity to speak more freely said that he didn’t expect a lot more details at the retreat, to his disappointment.

House Freedom Caucus Chairman Mark Meadows (R-N.C.) said Brady signaled during a meeting Sept. 13 that Republicans are pursuing accelerated expensing of capital investments but not full expensing, a corporate tax rate goal of 20 percent, and a passthrough tax rate in the 25 percent range.

But key details remain undecided, including what to do with local and state tax deductions.

The House tax blueprint includes a proposal to get rid of the deductions but it is unclear if it would end up in the tax framework. Alex Brill, a research fellow at the American Enterprise Institute, said at the Finance Committee hearing that a full repeal of the deductions would raise $1.4 trillion over a decade, according to a transcript of his remarks.

But Sen. Benjamin L. Cardin (D-Md.) said, “let’s respect federalism. There’s a reason there is a local and state tax deduction.” Otherwise, it leads to double taxation, he said.

Another area of concern is “Rothification,” which would tax retirement savings upfront instead of when they are withdrawn. Some Republican lawmakers have been discussing the idea as a revenue raiser for a tax bill. But Sen. Rob Portman (R-Ohio) said at the hearing that such a move might reduce the incentive to save, adding that people don’t save enough currently.

With assistance from Alexis Leondis at aleondis@bloomberg.net, Saleha Mohsin in Washington at  smohsin2@bloomberg.net, Agnel Philip in New York at  aphilip19@bloomberg.net (Bloomberg)

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

To contact the editors responsible for this story: Meg Shreve at mshreve@bna.com (Bloomberg BNA); Alexis Leondis at aleondis@bloomberg.net; Sarah McGregor at  smcgregor5@bloomberg.net Randall Woods, John Voskuhl (Bloomberg)

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