Tax Reform - Process
Norm Richter
Dan Berman
IFA New England Breakfast Discussion
March 16, 2017
Topics
• Timing?
• Scoring?
• Scope?
• Personalities & Politics?
Timing of Tax Reform?
• Early promises of tax reform enactment in first 100 days – forgotten
• Release of specific proposals?
• Trump proposal promised by mid March
• House GOP Blueprint language promised in March
• Enactment by August recess?
• Treasury Sect’y Mnuchin and VP Pence commitment
• House W&M Chair Brady commitment
• Senate Majority Leader McConnell? Skeptical
• Budget Reconciliation timetable?
• ACA Repeal-and-Replace Legislation: FY 2017 Budget Resolution (goes first)
• Tax Reform: FY 2018 Budget Resolution – technically, April 15 deadline
Compare Tax Reform 1986 Timeline
• The Tax Reform Act of 1986 (the “1986 Act”) required bipartisan support because of a
divided government (Republican president, Democratic House, and Republican Senate)
and the process had several near-death experiences. Timeline:
• The Ways and Means Committee conducted 26 days of markup of tax reform; this markup began
on September 18, 1985, included some breaks, and did not end until December 3, 1985. The
House passed the bill about two weeks after the markup concluded (on December 17, 1985).
• The Senate Finance Committee reported its tax reform bill approximately four and one-half
months after the House passed its version of tax reform. The Senate Finance Committee
conducted 17 days of markup; its markup began on March 19, 1986, included some breaks, and
concluded on May 6, 1986.
• After the Senate Finance Committee filed its report for its bill on May 29, 1986, the full Senate
deliberated for a little under a month before passing its bill, with amendments, on June 24, 1986.
• The conference committee approved a conference agreement about two months after Senate
passage and filed its report another month later (on September 18, 1986)
• The House and Senate then each passed the conference agreement, which was signed into law by
President Reagan a few weeks later (on October 22, 1986).
• Total time elapsed between Ways and Means beginning its markup and enactment of the
1986 Act: About 13 months.
Scoring Revenue Effects of Tax Reform
• Commitments to ”deficit neutrality”
• NEC Director Cohn public statement as recently as last week
• House GOP Blueprint’s stated goal
• Using the Budget Reconciliation process:
• McConnell: “this is not one of those bipartisan, kumbaya moments."
• But will even “only” 50 Republican votes be easy?
• Limited to 20 hrs debate; no filibusters; only “non-extraneous” amendments
• Dynamic scoring of revenue effects
• Only House rules call for dynamic scoring – not in Senate rules (not yet)
• Congress can reject CBO/JCT scoring (none yet issued)
• GDP growth rate assumption: CBO says 2.1% but Admin tells OMB/CEA to assume
higher
• Even the conservative Tax Foundation scores Blueprint as losing $2.4 trillion ($191B
loss with dynamic scoring)
Scoring Revenue Effects of Tax Reform (cont’d)
• Senate obstacle -- Byrd Rule: Budget reconciliation cannot lose
revenue outside the 10-year budget window
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Transition rules delaying revenue-raising elements of tax reform
If revenue-raiser used is mandatory repatriation tax, one time pickup only
Overriding the Byrd rule requires 60 votes
Sunset rate reduction after 10 years? See Bush cuts of 2001 and 2003
• Revenue raisers:
• Border tax on imports: $500B annual trade deficit times 20%?
• Mandatory repatriation tax – or does this fund infrastructure spending?
• Base broadening, eg, repeal of 199, etc – but not R&D, depreciation ?
Scope of Tax Reform?
• International tax reform only?
• Business tax reform only, including treatment of pass-throughs?
• Comprehensive tax reform, including individual income taxes?
• Recall that in 1986, corporate tax reform provided revenue increases
that funded the rate reductions of individual tax reform
Personalities & Politics?
• Presidential commitment?
• Trump initial comments in mid-January that border adjustment “too
complicated”. See also NEC Director Gary Cohn negative comments late-Feb
• In 1986, Reagan’s all-in commitment was crucial
• Senate? SFC Chair Hatch & Maj Leader McConnell noncommittal
• Distributional effects?
• Speaker Ryan commitment to distributional neutrality – feasible?
• Politics of 2018 elections: Windfall to wealthy and big business?
• Resistance from industry and other special interests
• Border adjustment on imports
• Interest deduction repeal