United States

Tax reform behind closed doors?

May 19, 2017
From the Tax Governance Institute

Is the Blueprint on a collision course with political reality?

By John Gimigliano, Principal in Charge, Federal Legislative & Regulatory Services, Washington National Tax, KPMG LLP

Read more Tracking Tax Reform blog posts

What if the House and Senate craft a tax reform bill, but we don’t find out about it until the final package is delivered? It could happen.

Everyone’s assumed that the debate over tax reform would play out in the public arena, following the traditional legislative path:  A bill would slowly make its way through the House, then be sent to the Senate (where it would almost certainly be changed), and finally the House bill and Senate bill would be reconciled and the bill sent back to both chambers for final passage. That’s the Reader’s Digest version of the process.  We would hear and read about it every step of the way.

But Congress could opt to shortcut the standard legislative process and negotiate tax reform behind closed doors. Why? The Republican-led Congress and the White House remain committed to enacting tax reform this year. And while the standard process is ideal if a collaborative product is the goal, it’s not the best approach if speed is the goal as it can take weeks certainly, perhaps months, even years.

What goes on behind closed doors: The political realities of healthcare reform, revenue-neutral tax reform, and other recent political distractions have thrown the tax reform timetable into disarray, and could force Congress to attempt a more expeditious, if less transparent, path to tax reform.

The House could decide not to release a bill this summer and, instead, begin negotiating with the Senate behind closed doors to create a tax reform bill that both can support. If the goal is getting tax reform signed into law quickly, this closed-door approach may have several potential benefits.

  • Tax-writers could make progress while they await resolution of healthcare reform. By “pre-negotiating” the tax reform bill, the House and Senate could get a big head start while the debate over health care continues.
  • The negotiations could be largely limited to just the principals. Representatives Paul Ryan and Kevin Brady, Senators Mitch McConnell and Orin Hatch, and other select tax-writers would be involved and act as proxy for their House and Senate colleagues. In theory, the fewer people involved, the fewer amendments and lobbying by Congress members, and the more efficient the process.
  • Weakening the lobbying influence of special interests could make it easier for Congress to make the decisions that will be needed to achieve revenue-neutral tax reform.
  • The Administration could more easily navigate between House and Senate plans and push its own tax reform agenda.

Of course, many members of Congress will argue that this behind-closed-doors approach denies them access to the legislative process and doesn’t allow them to influence the outcome of the bill. And that’s exactly the point, although it can also complicate finding support needed for passage.

Another consequence of Congress working behind closed doors is that the House will likely not release a bill any time soon. This could leave the tax community guessing for months to come about many key details, including transition rules, effective dates, and many others. This, too, is perhaps the point.

____________________

This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.