Congressional Republicans and the White House are escalating their efforts to overhaul the tax code following the Senate’s failure to pass healthcare legislation.
Key players released a statement last week — even before the ObamaCare repeal setback — describing shared tax-reform principles, and Republicans are spending the August recess working to get voters behind their ideas.
The joint statement from administration officials, congressional GOP leaders and the chairmen of the tax-writing committees lays out broad goals for tax legislation, but details haven’t been finalized.
Here’s what we know about Republicans’ tax-reform efforts, and where there are still gray areas.
The joint statement does not specify numbers for tax rates. Instead, it calls for a tax plan “that reduces tax rates as much as possible” and cuts taxes for families and small and large businesses.
The extent to which tax rates can be cut will depend on the extent to which policymakers can find ways to offset the lower tax rates.
On the corporate side, there appear to be divisions between the White House and congressional Republicans.
The tax plan that the White House released earlier this year proposes lowering the corporate rate from 35 percent to 15 percent, and administration officials are still hoping to reach that goal. But Senate Finance Committee Chairman Orrin HatchOrrin Grant HatchCongress, stop holding 'Dreamers' hostage Drug prices are declining amid inflation fears The national action imperative to achieve 30 by 30 MORE (R-Utah) told Reuters on Monday that it would be “miraculous” if lawmakers could lower the rate to even 25 percent.
Deductions and other tax preferences
Republicans want to eliminate many tax breaks in order to simplify the tax code and to help pay for lowering tax rates.
Republicans have called for significantly increasing the standard deduction, keeping the deductions for mortgage interest and charitable giving and tax benefits for retirement savings, and doing away with the remaining itemized deductions as well as other tax preferences.
GOP congressional leaders and the White House have made it clear that they want to do away with the deduction for state and local taxes. But they haven’t been as specific about what other tax preferences they plan to cut.
Business investment provisions
Republicans are still discussing the extent to which tax-reform legislation will allow businesses to immediately deduct the costs of their capital investments.
A 2016 tax plan from House Republicans proposed allowing businesses to immediately write off the full costs of their investments, a concept known as “full expensing.” At the same time, the plan proposed eliminating the deduction for businesses’ net interest expenses.
But full expensing would reduce federal revenue, and some lawmakers and administration officials would prefer to keep the interest deduction.
Last week’s statement from congressional Republicans and the White House only called for “unprecedented capital expensing.” House Ways and Means Committee Chairman Kevin BradyKevin Patrick BradyHouse panel advances key portion of Democrats' .5T bill LIVE COVERAGE: Ways and Means to conclude work on .5T package LIVE COVERAGE: Tax hikes take center stage in Ways and Means markup MORE (R-Texas) told reporters last week that policymakers are pushing for more expensing than currently exists in the tax code. He added that full expensing is still a possibility.
International tax changes
The White House and congressional GOP leaders said in their statement last week that tax reform should create “a system that encourages American companies to bring back jobs and profits trapped overseas.”
Republicans have been interested in moving toward a “territorial” tax system that doesn’t tax U.S. companies’ foreign earnings. They also want to allow companies to bring profits currently held overseas at low tax rates.
A challenge with moving to a territorial tax system is that policymakers also want to prevent companies from shifting profits overseas to avoid paying taxes.
House Republicans last year had proposed preventing tax avoidance by taxing imports and exempting exports — an idea known as border adjustment. But that proposal was controversial, and Republicans said in their joint statement that they were taking border adjustment off the table.
The joint statement says that policymakers are confident that even without border adjustment, “there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.” But the statement doesn’t specify what that approach is.
The joint statement calls for tax reform that “places a priority on permanence” — a comment that signals deficit neutrality but leaves some wiggle room.
If Republicans want to pass tax-reform legislation through budget reconciliation in order to prevent a filibuster from Democrats, the bill won’t be able to increase the deficit outside of the budget window. As a result, permanent tax cuts would need to be offset.
House GOP leaders on tax reform want key provisions to be permanent and as a result would prefer legislation that doesn’t increase the deficit. But the White House and other GOP lawmakers are less committed to revenue neutrality.
It’s possible that some tax changes will be permanent while others won’t be. In a meeting with conservative leaders last week, Speaker Paul RyanPaul Davis RyanPaul Ryan researched narcissistic personality disorder after Trump win: book Paul Ryan says it's 'really clear' Biden won election: 'It was not rigged. It was not stolen' Democrats fret over Trump-district retirements ahead of midterms MORE (R-Wis.) stressed three elements that have to be permanent: business tax rates, capital gains rates and international tax rules, according to Ryan Ellis, a senior tax adviser at the Family Business Coalition.
The House Ways and Means Committee and the Senate Finance Committee are expected to write tax legislation and are expected to hold markups before legislation moves to the House and Senate floors.
White House Legislative Affairs Director Marc Short said Monday that he expected a bill to receive a House vote in October and a Senate vote in November. But that timeline is ambitious, given that Congress also has other items on its to-do list.
Republicans said in their statement that they hope Democrats will be involved in the tax-reform effort. Democrats also say they want to work with Republicans, but they have their own set of priorities for tax reform that are at least somewhat at odds with the GOP’s plans.
In a letter to Senate GOP leaders and Trump, a group of Senate Democrats said they don’t want tax reform to benefit the wealthy, be passed through reconciliation or add to the deficit.