House Expected to Move Tax Revamp First; Senate to Act Later

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By Aaron E. Lorenzo and Kaustuv Basu

Dec. 13 — President-elect Donald Trump’s economic goals hinge largely on overhauling current tax law, which he says will unleash a long-lasting expansion, and House Republicans are working to oblige him early next year.

They are preparing legislation for activity soon after Inauguration Day on Jan. 20, based on the tax revamp blueprint they released in June, should Trump follow through with campaign pledges to address taxes early in his term. While exact timing remains uncertain, House Ways and Means Committee Chairman Kevin Brady (R-Texas) has said a bill would be ready.

It will get introduced early next year, he said in a recent speech. “And now because we have a president willing to lead on tax reform in Mr. Trump, while we don’t know yet where this fits in that first 100 days of governing, but wherever it fits, we’re going to be ready to deliver pro-growth tax reform,” Brady said.

He and staffers who are drafting legislation based on the blueprint have kept many details under wraps, though they have publicized some top-line particulars.

The plan includes a 20 percent corporate tax rate and a 25 percent tax rate for passthrough businesses, full and immediate expensing for companies and a top individual tax rate of 33 percent followed by 25 percent and 12 percent brackets. Investment income would be taxed at half the individual rates, depending on an investor’s income bracket.

Trump has backed the same individual rates and full expensing, but campaigned on a 15 percent business rate. Brady, who has said Trump’s ideas line up with 80 percent of the blueprint, has indicated openness to discussing a 15 percent corporate rate with Trump’s Treasury Department team, which is still being assembled under the president-elect’s pick for secretary, Steven Mnuchin.

Another key element in the GOP blueprint would tax imports and exempt exports under a border adjustment provision, though question marks remain on that part of the proposal, not to mention the overall plan’s potential budget impact and the politics surrounding it.

Feedback Window

Ways and Means staff is soliciting feedback from businesses and interested individuals through the end of this year, Brady said.

As a result, not much time is expected to lapse once he drops a draft, introduces bill text and the committee goes to markup, one lobbyist is advising clients. The opportunity to offer input is in its waning days because Brady doesn’t want his tax bill to get picked apart due to its having sat exposed too long, the lobbyist told Bloomberg BNA on condition of anonymity to protect client sensitivities.

Those with past Ways and Means ties are taking Brady’s bullishness at his word. Inner House workings and the wide majority that Republicans enjoy mean they can advance the pending legislation swiftly.

“Compared to the Senate, the process in the House is typically more predictable,” John Gimigliano, head of the federal tax legislative group at KPMG LLP and former senior tax counsel on the Ways and Means Committee, told Bloomberg BNA. “House rules usually mean that bills move in a more orderly and linear path than they do in the Senate.”

Although Brady has made bipartisan overtures, the House tax bill isn’t expected to reflect many ideas from the other side of the aisle, and that won’t hurt House passage prospects. Still, House Republicans might make use of the fast-track procedural option known as reconciliation to limit Senate Democrats’ ability to block the tax bill when it goes to the Senate, former Ways and Means member Phil English, now a senior government relations adviser at Arent Fox LLP, told Bloomberg BNA.

However, he and others have acknowledged pitfalls with reconciliation, including concern that it wouldn’t produce durable legislation.

As a result, Senate Republicans are expected to try to court some Democrats, perhaps with offers of attaching infrastructure spending to the tax bill or expanding the child tax credit or earned income tax credit. But Senate input isn’t expected early in the year, at least publicly, because initial action on tax legislation will happen in the House.

Senate Check

Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) said a tax overhaul is never speedy.

“Good for Kevin,” he said when asked about the possibility of a tax revamp in the first 100 days of Trump’s administration. “Good for the House.”

Hatch’s committee is expected to play a more bipartisan role when it comes to rewriting the tax code. Ultimately, the upper chamber’s say in the matter will be reflected in what ends up as new law.

The Senate will bring a more deliberative approach down the line that possibly extends across the aisle, several Capitol Hill aides and lobbyists have told Bloomberg BNA.

Hatch is talking to other committee members about a tax overhaul, hinting that he is looking beyond his narrower focus this year on corporate integration, which would remove the double layer of corporate taxation.

Window of Opportunity

In the meantime, a more sobering viewpoint has filtered in since the immediate aftermath of Trump’s election, when some House Republicans stoked the idea that tax overhaul legislation would pass quickly through Congress and reach the president’s desk for signature.

Rep. Tom Reed (R-N.Y.), a Ways and Means member who Trump has named to his transition team, told Bloomberg BNA that 2017 remains the window of opportunity although other issues might precede tax.

“First is going to be on the health care front, Supreme Court issues, immigration issues,” he said. “Probably toward the latter part of 2017 with the second reconciliation vehicle, that’s potentially a vehicle to be a backstop for tax reform. That would be a realistic assessment.”

Lessons have been learned from the Affordable Care Act, which congressional Republicans have railed against since it became law through reconciliation. Now they are working to change it.

“When you have an issue like tax reform,” Reed said, “it’s not a simple thing that you can pass in 24 hours. You don’t want to make the mistake that the predecessors made on Obamacare. You don’t want to pass it to find out what’s in it. So this is about finalizing the details.”

With assistance from Laura Davison in Washington.

To contact the reporters on this story: Aaron E. Lorenzo in Washington at aaron@bna.com and Kaustuv Basu in Washington at kbasu@bna.com

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

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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