Election result opens door for tax reform legislation

Election result opens door for tax reform legislation
© Greg Nash

Donald TrumpDonald John TrumpHouse Republicans move to block Yemen war-powers votes for rest of Congress Trump says he's considering 10 to 12 contenders for chief of staff Michael Flynn asks judge to spare him from jail time MORE’s election victory and the Republican success in holding the House and Senate have opened the door for tax legislation in 2017.

Next year, Republicans will control the White House and both houses of Congress for the first time since 2006. Lowering tax rates has long been a top priority for the GOP, raising anticipation that legislation could be moving early on in the next Congress.

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“Taxes will clearly be high on the to-do list,” said Dean Zerbe, national managing director at Alliantgroup and former senior counsel to the Senate Finance Committee.

Republicans and some Democrats have talked for years of the need to reform the tax code, but differences on how to use the revenue — and skepticism about the effort from President Obama — have stood in the way of progress.

President-elect Trump, in contrast, is mostly aligned with the GOP on tax matters, according to Sage Eastman, a lobbyist at the firm Mehlman Castagnetti and a former senior counselor on the House Ways and Means Committee.

“You clearly just got the power of the White House behind tax reform, and that’s a game-changer,” Eastman said.

Trump talked often about taxes on the campaign trail, and his policy proposals in that area were among his most detailed.

The president-elect’s tax proposals changed over the course of his campaign, but the most recent version bears a strong resemblance to the House Republicans’ tax-reform blueprint released in June. In fact, Trump explicitly adopted the individual tax rates of 12 percent, 25 percent and 33 percent that were laid out in the House GOP blueprint.

House Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyIRS issues guidance aimed at limiting impact of tax on nonprofits' parking expenses On The Money: New director takes helm at troubled consumer agency | Trump’s economy teetering on trade tensions, volatile markets | Brexit crisis deepens | House report scolds Equifax over breach Brady releases revised version of year-end tax package MORE (R-Texas) said on CNBC Wednesday that House Republicans are ready to work with Trump on tax reform.

“The built-for-growth tax blueprint the House has laid out is very close to Mr. Trump’s proposal,” Brady said. “It’s really important that we redesign the way we tax so our companies can compete and win anywhere in the world, especially here at home.”

Marc Gerson, vice chairman of the tax department at Miller & Chevalier and a former tax counsel to the Ways and Means Committee, said that the blueprint is likely to be the “starting document” for tax reform legislation.

Ways and Means staff members have been getting feedback on the blueprint from stakeholders and are working on converting the blueprint into legislation. With Trump’s win, there will be a greater sense of urgency to produce a bill based on the plan, Gerson said.

“You could see tax reform really getting a jump-start at the beginning of the year,” he said.

To be sure, there are some differences between the two proposals. The president-elect’s plan includes lower tax rates for businesses and is significantly more expensive. Zerbe said that deficit-conscious House GOP lawmakers would try to put a check on the costs being too high.

On the other side of the Capitol, the Senate Finance Committee organized tax reform working groups last year that produced papers. Since then, the panel has held several tax-related hearings.

Senate Finance Committee Chairman Orrin HatchOrrin Grant HatchSenate confirms Trump's pick to be deputy Treasury secretary Brzezinski: It’s ‘despicable’ for GOP lawmakers to dismiss Cohen memo implicating Trump Hatch suggests 611 for new National Suicide Prevention Lifeline MORE (R-Utah) said in a statement Wednesday that one of the panel’s priorities next year would be to “renew our efforts to revamp the nation’s tax code.”

Because Republicans will not have 60 votes in the Senate, they will likely have to use budget reconciliation to pass tax changes.

Despite the challenges with using reconciliation, it would be “well worth the effort,” Zerbe said.

Even with Republicans controlling both chambers of Congress and the presidency, Democrats may get to provide input in tax legislation, particularly in the Senate. Vulnerable Democrats who are up for reelection in 2018 might be interested in dealmaking.

It’s unclear whether Congress will home in on comprehensive tax reform or start with a more focused tax bill. While Zerbe said Republicans are “going to want to do something very significant,” Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center, suggested that Congress could pass some tax cuts as a down payment for tax reform.

“It remains to be seen … what compromises will be necessary between Congress and the Trump administration to find common ground,” the information services company Wolters Kluwer said in a briefing Wednesday. “And beyond moving forward individual tax proposals, it also remains to be seen whether there can be packages within a mandate for broader ‘tax reform’ and ‘tax simplification.’ ”

Despite unified GOP control, there will still be challenges to passing tax legislation. It remains to be seen where tax reform will fall among Trump’s other policy priorities.

Gleckman noted that Trump has also talked about other issues — including immigration, trade and repealing ObamaCare — that he might prioritize over taxes. Without enthusiastic advocacy from a president, tax reform efforts tend to stall, he said.

But Gleckman said Republicans would feel pressure to follow through on Trump’s campaign priorities next year given that voters will look at what they deliver during the 2018 midterm elections.

“If you’re a congressional Republican, you do want to do a tax cut,” he said.