United States

Things are happening, but are we getting closer?

Sep 18, 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

Here's what's on our minds this week:

The number of developments on the tax reform front last week makes it feel as if the issue has (finally) moved to center stage in Washington. President Trump continued to court Democrats with a Rep. Nancy Pelosi-Sen. Chuck Schumer dinner at the White House; House Speaker Paul Ryan announced that more tax reform details were coming the week of September 25; and Sen. Orrin Hatch reminded us that the he’s still the Chairman of the Senate Finance Committee.

It’s logical to expect the pace of developments to accelerate and to perhaps think we are getting closer to real legislation.

But we shouldn’t confuse motion with action. The path to reform is not linear. Several wrong turns, dead ends and detours are ahead. And at this point, there’s not much tangible evidence that we are closer to the end of the path than we were in January.

Read full article below:

Tax reform seems finally to be moving to center stage in Washington. And we can expect the pace of developments will soon accelerate.

Last week:

  • House Speaker Paul Ryan announced that more tax reform details are about to be released.
  • President Trump made overtures to Democrats.
  • Senate Finance Chairman Hatch indicated his committee might develop its own bill.

Despite these events, we still may not be much closer to the end of the tax reform journey than we were in January.

Let’s take a closer look at these developments and what they may mean.

Chicken and egg: The “details” to which Ryan referred now seem likely to be little more than a more detailed outline of a tax plan, not a comprehensive document. His principal motivation for making the announcement was likely to rally the GOP rank and file by offering more detail on the direction of tax reform, and thereby to bolster confidence in the tax reform effort.

Rallying the rank and file is important to the budget procedure that the GOP will likely need to pass a tax reform bill. As we’ve explained previously, the GOP first needs to pass a budget so it can use the budget reconciliation process to move tax reform through the Senate with a simple majority of 51 votes.

The budget writers, and the rank and file who must vote for that budget, need more details on the direction of reform before they can determine how much to allocate to it. Conversely, the tax writers need to know how much revenue they can afford to lose and still comply with the budget reconciliation rules. Ryan’s outline is designed, in part, to break this “chicken and egg” stalemate.

Trump’s overtures: For two weeks in a row, the President made overtures across the aisle. First, he met with top Democratic leaders to get the debt limit and budget extended. Then, he explored a deal on immigration and tax reform with them over dinner. These meetings increase pressure on Ryan and GOP House members to make progress on tax reform.

Senate bill: Senate Finance Chair Orrin Hatch essentially declared that no matter what kind of outline the House releases next week, the Senate will continue to work on its own bill. He stated emphatically that his Committee is “not anyone's rubber stamp.”

Hatch has had his staff working on a tax reform plan for more than two years. He has made it clear he will want to leave his mark on what potentially will be generational and transformational tax reform. So it’s highly unlikely that he and his committee will simply accept the House version.  And it does not appear there is a total meeting of the minds.

Further than nearer

Here are some thoughts to keep in mind during the next few weeks.

  • Ryan’s announcement about release of the tax reform outline may not indicate an imminent agreement on a plan. Hatch, his committee, and the Senate will move at their own pace.
  • Despite trying to exert pressure, the President can only sign or veto a tax reform bill sent by Congress. So the Republican Congress has ultimate authority over the content and timing of the bill.
  • Significant differences still exist between the House and the Senate on essential components of tax reform, including expensing, interest deductibility, state and local tax deductions, dividend-paid deductions, and much more.

Bottom line: Even though the release an outline next week may represent progress—especially if it offers specific rates and details on how programs will be paid for—the path to tax reform may still be a long one.

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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.

____________________

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.