Senate Democrats Laying Building Blocks for 2017 Tax Plans

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May 10 — Though 2017 remains far off, Democratic leaders such as Sen. Ron Wyden (Ore.) are already preparing for what next year could bring—majority control of the Senate.

Wyden, the Senate Finance Committee's ranking member, will soon introduce draft legislation to revise taxes on financial products like derivatives. He recently introduced a proposal to simplify depreciation schedules, and Wyden and other Democrats have talked regularly about legislation to tackle inversions and related cross-border income issues.

All such activity reflects maneuvering, according to a number of tax observers who expect more Democratic positioning in the months to come, ahead of a possible Senate takeover.

What's at Stake

At stake is the 2017 tax agenda and what it might look like if Democrats recapture the Senate and Hillary Clinton is elected president.

“We are putting together the building blocks hopefully so that we will be ready when in 2017 or whenever the window opens or the opportunity arises, we are ready to seize the opportunity,” said Todd Metcalf, minority chief tax counsel for the Senate Finance Committee, during the recent American Bar Association Section of Taxation May meeting.

In other words, the plan to float drafts and collect stakeholder feedback this year ensures readiness in case the chance for a tax overhaul becomes reality in 2017.

Republicans are doing the same thing. The corporate integration plan to end double taxes on corporate income from Senate Finance Committee Chairman Orrin G. Hatch (R-Utah) and the tax blueprint by House Ways and Means Committee Chairman Kevin Brady (R-Texas) are being developed to carry forward priorities while awaiting the right moment.

Preparatory Year

This is a preparatory year, said a Democratic aide on the Senate Finance Committee, who spoke on condition of anonymity to more freely discuss plans.

Wyden's financial products draft will in some ways resemble proposals offered in early 2013 by former Ways and Means Chairman Dave Camp (R-Mich.).

But the Wyden draft will build on some of the responses drawn by the Camp plan, which would have treated most derivatives as mark-to-market assets, though with a business hedging exception. Another proposal from Camp included changes to the wash-sale rules, which would stop taxpayers from benefitting from tax losses by selling their securities at a loss before immediately reacquiring the same securities.

Wyden in 2015 released a report that said legislation to mark all derivative instruments to market and tax the resulting gains or losses as ordinary income would end the manipulation of timing and income character that derivatives allow. On wash sales, the Wyden report said rules could be updated to apply to forward contracts, swaps and derivatives involving commodities and currencies, and additional legislation could address immediately replacing a loss position.

The financial products draft is meant to address tax games, the Democratic committee aide told Bloomberg BNA.

“Those without access to fancy tax planning tools shouldn't feel like the tax system is rigged against them,” Wyden said in a statement issued with the report.

Schumer Input

Prospects for any sort of overhaul would depend on what a Democratic president might want to achieve in the first 100 days of a new presidency, but Sen. Charles E. Schumer (D-N.Y.) would also have a say on the need to do so early on, said a former Democratic tax staffer.

Schumer, who is expected to be majority leader if Democrats take the Senate, has consistently said he would link an international tax overhaul to infrastructure spending. He plans to maintain the drumbeat this year to forward that agenda.

“Keep talking about it,” Schumer told Bloomberg BNA. “Let people know how great the need is on both sides to straighten out the international system, for the inversions and everything, but also how demanding our need for infrastructure is and to marry the two.”

But compromise is needed, so neither Republicans nor Democrats should think they should fully get their way, Schumer said.

Revenues for infrastructure have proven problematic in the past. A “simple flip” in the Senate would not produce the kind of legislation that would satisfy progressives, said Edward Kleinbard, a University of Southern California law professor.

“Compromises will still have to be reached,” he told Bloomberg BNA, though he guessed the tenor of the debate would change.

Schumer said he has not had any discussions with House Speaker Paul D. Ryan (R-Wis.) since he assumed the speakership in October 2015.

“I've had a few with Brady,” he said. “We both want to do it but their side is sort of tied in a knot right now.”

Untying the Knots

Schumer and Ryan are accustomed to making bipartisan deals, the former Democratic staffer told Bloomberg BNA.

Wyden's depreciation plan draws partly on a proposal from former Senate Finance Committee chairman Max Baucus (D-Mont.) and could also look to old Baucus proposals on tax administration. Wyden will continue to push for renewing investment and production tax credits for certain alternative energy sources. He is also expected to unveil a plan to make tax incentives more neutral across various energy technologies, rather than favoring some over others.

Wyden can be aggressive in looking for bipartisan solutions and others might have that willingness, said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.

“Sen. Schumer might be more willing to work with Republicans than the current Democratic leadership in the Senate,” Gleckman told Bloomberg BNA. “Sen. Hatch, left to himself, can probably also work with Democrats on some issues.”

Hatch told Bloomberg BNA he always works well with Wyden.

Gleckman said there could be agreement on the margins, but a lot would depend on how constrained Ryan is by his own caucus. Efforts at a business tax overhaul are expected to continue, Kleinbard said, calling Ryan a “tax pragmatist.”

Kleinbard said he remains optimistic about the prospects for international tax changes, although they might not be the “simplistic giveaway” that multinational corporations want or be as tough as some progressives might want.

“But I think that I would be optimistic that there would be prospects for international tax reform,” he said, calling the case for infrastructure investment powerful and repatriation a logical option.

To contact the reporters on this story: Aaron E. Lorenzo in Washington at and Kaustuv Basu in Washington at
To contact the editor responsible for this story: Brett Ferguson at

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