House Tax-Writers to Meet for Talk on ‘Decision Points’

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By Kaustuv Basu and Laura Davison

Dec. 6 — House Ways and Means Republicans will discuss the nuts and bolts of a tax overhaul plan over two days next week, Chairman Kevin Brady (R-Texas) told Bloomberg BNA.

The meeting will be held on Dec. 14 and Dec. 15, almost a week after Congress likely leaves for the holidays.

The meeting comes even as House Speaker Paul D. Ryan (R-Wis.) and the Trump administration keep up the drumbeat about a tax overhaul in 2017, putting pressure on Brady to move quickly on an overhaul package. “We’re going to do fundamental tax reform this spring,” Vice President-elect Mike Pence has said on Fox News.

“We will be going through the decision points on tax reform and health care,” Brady said, adding that members will also be looking at tax issues that are part of a health-care overhaul package at the two-day meeting.

Brady and House Majority Leader Kevin McCarthy (R-Calif.) are meeting with members of the Republican Caucus Dec. 7 to discuss tax ideas at a “listening session.” And all of this week, Brady has met with leaders from the business community, including top officials from companies such as Best Buy Inc., Walgreens Co. and Target Corp. to discuss the blueprint—including a controversial provision called border adjustability, which would tax imports and provide rebates for exports.

Import Taxes

The border adjustability provision is likely to get more scrutiny at next week’s meeting.

The provisions are starting to garner more negative attention from companies and industry groups, and members not on Ways and Means are starting to get calls complaining about how the import taxes could damage their business models, a Republican aide said.

There will be losers in the process of tax overhaul and non-committee members are funneling the negative feedback they are hearing from constituents to Brady, the aide said.

The border adjustability provisions could face two obstacles, one legal and one political, Eric Toder, co-director of the Urban-Brookings Tax Policy Center, told Bloomberg BNA. The blueprint is a good academic document and there are lots of valid reasons to tax products where they are consumed, but the blueprint drafters didn’t think through all the practical problems, he said.

Compliance Issue

It is unclear whether the World Trade Organization would find the import taxes and deductions for exports compliant with international trade laws, because it is not paired with a value-added tax, Toder said. The destination-based cash flow system outlined in the Republican plan is similar to a VAT, but because the framework still includes some income taxation, the WTO could rule it an unfair tax practice.

In a world with border adjustability taxes, some exporters would see big refunds from the government because their sales would be exempt from tax and they would still be able to deduct domestic purchases, generating big losses, Toder said. Importers such as retailers and electronic producers would see their taxes increase because they can’t deduct the cost of the products they bring into the country, he said.

Brady told Bloomberg BNA that the provision would eliminate any tax incentives to move jobs or research abroad.

“We’re listening to their concerns about border adjustability. They clearly support the corporate rates, expensing, ability to use their capital, bring those earnings back to the U.S.,” Brady said, referring to the business community.

The GOP blueprint calls for a 20 percent corporate tax rate, a 25 percent tax rate for passthroughs and a top individual rate of 33 percent. It also proposes full and immediate tax write-off of equipment and machinery.

Two executives had told him that the blueprint would be an incentive to move operations back to the U.S., he said.

Wind in the Sails

Another Republican aide who spoke on the condition of anonymity said that discussions about the blueprint before the elections did not include a lot of detail.

“People are asking for a lot more detail now,” the aide said. The two-day meeting would be the first step toward filling in those gaps and preparing to write actual legislative text. The meeting will also be a time to discuss “every member’s favorite provision,” the aide said.

A Trump administration official could possibly be at the meeting, Brady said. “We need to deliver early in 2017,” he added.

That would mean that the time for gathering opinion and feedback about the tax plan is coming to an end soon. Brady seemed to indicate as much at a Heritage Foundation event last week, saying that the time for input about the blueprint would be limited to the end of the year.

To contact the reporters on this story: Kaustuv Basu in Washington at kbasu@bna.com and Laura Davison in Washington at ldavison@bna.com

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

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