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Elements of this year’s tax bill could end up reading much like 2014 tax legislation introduced by Former Ways and Means Committee Chairman Dave Camp (R-Mich.) as Republicans search for ways to pay for tax rate cuts.
Lawmakers have three months to come up with revenue raisers to offset the cuts that aren’t yet paid for. The first place to look is the 2014 Camp plan, which includes a menu of pay-fors that are drafted in legislative language. The industries affected by those revenue raisers may not like those provisions, but they have been vetted and trade groups have had years to give their feedback.
The House will try to steer away from adopting all of the Camp pay-fors as they turn the Sept. 27 framework into legislation, but the plan will almost certainly contain several of them, a GOP aide and a tax lobbyist told Bloomberg BNA on the condition of anonymity to talk candidly. As lawmakers get more desperate, provisions that were considered sacred are potentially on the chopping block, the lobbyist said.
“Any raiser in Camp is in play, unless it is philosophically inconsistent with what’s in the tax framework,” said John P. Gimigliano, principal-in-charge of federal legislative and regulatory services at KPMG LLP.
Camp raised billions in revenue from extending depreciation tables. The framework released Sept. 27 by the Big Six—the group of White House officials and Republican leaders who have been meeting for months about a tax bill—calls for the opposite: moving to full expensing for five years. The most recent plan is also more ambitious than Camp's proposal. It calls for a 20 percent corporate rate, where Camp called for 25 percent.
“Getting the corporate rate down to 20 percent will require tax-writers to look at many of the dials Camp used to get the rate lowered, even if they account for dynamic scoring, if they decide to pay for the rate reductions,” said James Brandell, Camp’s former chief of staff.
The amount of offsets that would be needed ranges into the trillions, according to outside estimates based on the plan. The Committee for a Responsible Federal Budget said lawmakers would need to raise about $2.2 trillion. Henrietta Treyz, managing partner and director of economic policy research at Veda Partners, estimates $1.5 trillion to $3.5 trillion. The Tax Foundation estimates about $4 trillion unaccounted for, not factoring in the elimination of state and local tax deduction, a foreign minimum tax, and partially limiting interest deductibility, because the plan doesn’t have enough detail to model those out, a spokesman for the group said.
Lawmakers would likely allow the plan to lose some revenue within the next decade and would use dynamic scoring to offset some of the cost. Republicans have already agreed to eliminate the state and local tax deduction and other tax breaks for individuals, as well as to curb interest deductibility to make up some of the gap.
“Camp had to pull a lot of different levers to get down to 25 percent,” said Brandell, now with Dykema Gossett PLLC.
The legislation is likely to differ in two key areas from the Camp bill: the rate cuts would be temporary and the bill could lose revenue over the next 10 years. Both aspects are tied to the legislation likely moving through the budget reconciliation process, which has restrictions about the bill adding to the deficit after a decade.
In July, lawmakers nixed the idea of a border adjustment tax on imports, an idea that was projected to raise more than $1 trillion over a decade. With that out, lawmakers are now looking at including many smaller offsets to make up the difference, which could affect a wider swath of industries, said Marc Gerson, former Ways and Means staffer now at Miller & Chevalier Chartered.
With trillions in revenue to raise, lawmakers are likely to be tempted by provisions with hefty scores. Lobbyists, however, are scrambling to make the case that money to pay for the cuts shouldn’t come from the industries they represent.
Revenue raisers that could be considered include changing how life insurance reserves are calculated ($24.5 billion over a decade, according to a 2014 Joint Committee on Taxation estimate); repealing last-in, first-out method of inventory ($79.1 billion); altering amortization for advertising expenses ($169 billion); and repealing like-kind exchanges ($40.9 billion). The House has largely been silent on how it plans to treat these provisions, although a 2016 tax blueprint did preserve the last-in, first-out accounting method.
“Few decisions are binary,” said Jason Oh, a professor at the University of California, Los Angeles, School of Law. “There are a spectrum of decisions they can make on many provisions.”
Another area that could be tapped is moving to treat 401(k) accounts like Roth individual retirement accounts, Brandell said. That has been discussed in recent negotiations, and the retirement industry is mobilizing against the idea of taxing retirement savings upfront, rather than when they are withdrawn.
“The frameworks says it wants to maintain or raise retirement plan participation of workers and the resources available for retirement,” Brandell said. “But, how the tax-writers interpret ‘efficient and effective’ in the legislation could mean they look back at Camp and how he treated Roth IRAs and 401(k) plans.”
There aren’t a lot of revenue raisers that are politically popular, said Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center. But policy-wise, there are plenty of options, including the tax code Section 199 deduction for domestic manufacturing, which the Big Six framework said it would eliminate, and tax breaks for fossil fuels and renewable energy, he said.
“The gap between general principles and legislation is huge. Everyone wants a simpler, fairer tax code that encourages economic growth,” Oh said. “Camp worked hard to get buy-in, and then as soon as the actual plan was released there were crickets. It was hard to find a legislator out there other than Camp who was willing to support it.”
With assistance from Allyson Versprille in Washington.
To contact the reporter on this story: Laura Davison in Washington at lDavison@bna.com
To contact the editor responsible for this story: Meg Shreve at firstname.lastname@example.org
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