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2017 Tax Reform: House Speaker Ryan offers tax reform preview; no mention of BAT

July 24, 2017

As reported by Reuters, in a recent speech, House Speaker Paul Ryan (R-WI) said that tax reform talks among the so-called “Big Six” are nearing a consensus, mentioning specifically that business tax reform would include accelerated expensing and referring to a reduction in the corporate tax rate to 20% as “very realistic.” Noticeably absent from his remarks, however, was any mention of the border adjustment tax (BAT), which was once considered a cornerstone of the GOP’s tax reform plan.

House Republicans had billed the BAT as an effective way to pay for tax cuts because it would raise more than $1 trillion over a decade by effectively taxing imports while exempting exports from taxation. (For a more detailed description of the BAT, see  Weekly Alert ¶  5  03/02/2017 .)

Ryan’s failure to mention the BAT could fuel speculation that House Republicans are moving away from the idea in discussions among the “Big Six” principals (i.e., Ryan, Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, White House adviser Gary Cohn, House Ways & Means Committee Chairman Kevin Brady (R-TX), and Senate Finance Committee Chairman Orrin Hatch (R-UT)). These six officials are reportedly trying to reach agreement on tax reform in closed-door discussions aimed at producing legislation in September (presumably to go into effect for the 2018 tax year).

Ryan said tax reform would include accelerating business expensing, doubling the standard deduction for individuals, and retaining popular deductions for charity donations, home mortgages and retirement. He has also indicated before that tax reform should include a shift to the territorial system, such that U.S. multinational corporations will no longer be subject to U.S. tax on their foreign profits.

He also referred to a reduction in the corporate tax rate to 20% as “very realistic.” Administration officials have said that negotiators realize that President Trump’s proposed 15% corporate rate is unlikely without expanding the federal deficit, which Republican leaders in the House and Senate are unlikely to allow. Brady recently told reporters that tax reform would be “truly deficit neutral.”

Speaking separately at a White House press briefing, White House budget director Mick Mulvaney also offered some insights into the tax reform discussions and timeline, as well as a somewhat different view on the deficit.

Mulvaney discussed the relationship between economic growth, tax reform, and the deficit, saying that “we should be willing to take on short-term increases on deficits if it’s what it takes to get an increase in our long-term sustained growth.” He referred to himself as “one of the big fiscal hawks in town,” but said that “if we need more aggressive tax reform in order to get to 3 percent [growth], then I’m more than willing to argue that despite the fact that it may increase the deficit.”

When asked about taxes in the Affordable Care Act, some of which would be left in place under the Senate’s healthcare bill, Cohn said that he “agree[s] with many of my Republican colleagues on the Hill who say…you get another bite of that apple on tax reform.”

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