Trump Victory Paves Path Forward for House GOP Tax Blueprint

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By Aaron E. Lorenzo

Nov. 9 — A GOP tax overhaul looks a lot more likely next year as the election dust quickly settles.

President-elect Donald Trump’s White House win Nov. 8, along with renewed majorities for congressional Republicans and a key maneuvering option available to them, put their plans very much in play.

That includes the House Republican tax blueprint, tax proposals from the Senate and numerous tax cut ideas from Trump, or some combination of them all.

Tax overhaul will be near the top of the congressional agenda in 2017, Senate Majority Leader Mitch McConnell (R-Ky.) said at a press conference on Nov. 9, noting that Trump had discussed the subject. “I think this is really important,” McConnell said.

“If we want to make America truly competitive, the goal ought to be, when revenue is produced by the elimination of preferences, use that to buy down the rates,” McConnell said.

Much of the early focus has centered on a procedural pathway they can use, known as reconciliation, which would limit Senate Democrats’ ability to block Republican legislation. House Speaker Paul D. Ryan (R-Wis.) raised the reconciliation specter a month before the election, though the notion has long loomed as a possibility if the stars aligned.

Now they have.

“This is the day that Republicans have been dreaming of for eight years,” said Sage Eastman, principal at Mehlman Castagnetti Rosen & Thomas. “A lot of them are going to say if they have it, why not use it?”

As a result, a tax revamp appears much more probable, said Jon Traub, managing principal of Deloitte LLP’s Tax Policy Group.

But they don’t have to use reconciliation, Eastman, Traub and others said, should Senate Republicans prefer to try to build a coalition with some Democrats who might envision compromise on a tax deal as beneficial to their reelection prospects two years from now. They are scheduled to defend 23 seats in the next cycle, in which two Independents who also vote with them face reelection too.

Many of those Democrats face challenges trying to hang on in states that voted for Trump and the 2012 Republican nominee Mitt Romney, said Rohit Kumar, co-leader of tax policy services in PricewaterhouseCoopers LLP’s Washington National Tax Services practice.

Repatriation for Infrastructure

Senate Democrats are expected to make a play to fund infrastructure through a reduced tax on repatriation, said Marc Gerson, member at Miller & Chevalier Chartered.

The idea isn’t dissimilar to expectations that Ryan would have reentered such talks with Sen. Charles Schumer (D-N.Y.), Senate Democrats’ incoming leader, had Republicans not retained control of the Senate. The two held preliminary conversations on the subject last year.

Republican leaders would likely entertain offers from Democrats—McConnell said the last major tax revamp in 1986 was bipartisan—while simultaneously developing their best path forward under reconciliation, which includes limits like a restriction against expanding the federal deficit outside the 10-year budget window.

The former would provide more political durability given the bipartisanship inherent to that process as opposed to the latter, under which a good share of the politically vilified Affordable Care Act passed and appears likely to get repealed, Kumar said.

But reconciliation offers expediency, said Pete Sepp, president of the National Taxpayers Union. Time is of the essence when it comes to remaking the U.S. tax code, which shouldn’t wait for the next congressional elections in 2018 given pressures from foreign tax authorities that threaten to further erode the domestic tax base, he said.

The blueprint represents the leading vehicle for advancing a host of tax changes, from cutting business taxes for corporations and those formed as passthroughs to reducing taxes for individuals, said Bill Smith, managing director of CBIZ MHM’s National Tax Office.

“The blueprint has some real legs here,” Kumar said.

A House vote next year has already been promised by Ryan and House Ways and Means Committee Chairman Kevin Brady (R-Texas).

“With the GOP in control of the Congress and the White House, tax reform is likely to be a top priority,” Traub said.

Brady said Nov. 9 on CNBC that Congress will be ready to act on legislation to overhaul the U.S. tax code in the first 100 days of Trump's administration. “We want to make sure we eliminate every tax incentive to move U.S. jobs or headquarters or research overseas,” he said.

Soliciting Stakeholders

Though Republicans in the House don’t need to compromise on their proposal to make gains, Ways and Means members and their staffs have solicited input since debuting the blueprint in June.

Stakeholder input has followed to a degree, though in many cases the dialogue has been reserved since many details of the blueprint remain unknown to all but a few insiders, by design.

Much of the concern expressed to date relates to the blueprint’s border adjustment provision, under which imports would face taxes while exports would get an exemption, Gerson said. Some discussion has suggested an exemption for raw materials imported as components for goods that get finished stateside, Sepp said.

As such conversations have played out, Trump tailored his campaign’s initial tax proposals to more closely sync with parts of the blueprint, which in addition to rate reductions also envisions repealing estate taxes and the alternative minimum tax, Smith said.

Tax policy conversations between Trump’s transition team and congressional Republicans should start soon, Kumar said, forecasting draft legislation based on the blueprint to likely surface early next year. The ball will be rolling along during Trump’s first 100 days, Kumar said.

A reconciliation measure would come from a joint budget resolution, most probably in April, Eastman said.

“We’ve certainly been advising people to take the Ways and Means committee up on that offer” to discuss the blueprint, Kumar said, “and I think those that have feel pretty good that that was a good investment of time, and those that haven’t will be thinking about doing that in the relatively near future.”

To contact the reporter on this story: Aaron E. Lorenzo in Washington at aaron@bna.com

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

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