Getting Serious About Tax Reform: Congressional, Administration Leaders Outline Priorities
Last week, Trump administration and Congressional leaders released a joint statement on federal tax reform that outlined Republicans’ priorities for reform. This group, which included U.S. House Speaker Paul Ryan (R-WI), U.S. Senate Majority Leader Mitch McConnell (R-KY), U.S. Treasury Secretary Steven Mnuchin, White House National Economic Council Director Gary Cohn, U.S. Senate Finance Committee Chairman Orrin Hatch (R-UT), and U.S. House Ways and Means Committee Chairman Kevin Brady (R-TX), has been meeting for several months to develop a comprehensive tax reform plan.
The statement made it clear that negotiators want to reduce both individual and corporates rates as much as possible, allow increased capital expensing, and encourage the return of overseas profits to the United States. The statement also made clear that the group has abandoned the idea of implementing a border adjustable tax, or BAT. On the BAT, the statement said, “While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform.”
As Bloomberg noted, the demise of the BAT means that lawmakers will have to find new ways to raise revenue to “pay for” tax reform. Specifically, as Connecting the Dots explained last week, abandoning the BAT indicates that LIFO repeal is back on the table. The Metals Service Center Institute (MSCI) will need its members to engage on this issue. Stay tuned to Connecting the Dots as the organization’s advocacy efforts develop.
On tax rate parity between small businesses and corporations, the six negotiators said, “[T]here should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones.” The statement also said negotiators want to avoid passing legislation that only reduces tax rates temporarily. Both principles are consistent with the principles MSCI outlined this month in comments submitted to the U.S. Finance Committee. (Click here to read more about those comments.)
As MSCI’s partners at the S-Corp Association explained, the negotiators’ statement also indicates that they are “moving away from full expensing and towards more limited capital cost recovery improvements, such as permanent bonus depreciation and faster depreciation schedules,” because “full expensing was a predicate for the BAT and a cash-flow tax system …”
The joint statement clears the way for congressional tax-writing staff to begin work in September on comprehensive federal tax reform.
Want to learn more? House Speaker Ryan discussed comprehensive federal tax reform in a television interview last week with the Fox Business Network. Click here to watch.