Search This Blog

Wednesday, July 19, 2017

House Budget Plan and Tax Reform

House Budget Plan
Speaker Ryan's email message and blog post today notes that the House Republican budget plan "paves the way for transformational tax reform." The Budget Committee has a markup session this morning. When Speaker Ryan tours the New Balance factory in Massachusetts on July 20 he will "promote the historic tax reform plan currently being developed by the House, Senate, and Trump administration." [7/17/17 press release

Here is what's in the 63-page budget plan released in July, Building a Better America – A Plan for Fiscal Responsibility, related to tax reform [page 22]:
    • The FY18 budget resolution “instructs the Ways & Means Committee to produce deficit-neutral tax reform legislation that will reduce tax rates and simplify the tax code to boost economic growth.” 
    • The budget plan presents the following reasons to simplify:
·   “Individuals, families, and employers spend more than an estimated 8.9 billion hours and $409 billion a year navigating its labyrinth of special rules, deductions, and tax schedules.”
·   Over 5,800 changes have been made to the IRC since 2001.
·   Tax breaks in the Code cost $1.4 trillion/year while tax collections are about $1.5 trillion.
    • A corporate rate reduction is desired to promote competitiveness.
    • Ways and Means Committee should develop “specific policies” for “deficit-neutral, fundamental tax reform that:
·  "Simplifies the tax code to make it fairer to American families and businesses and reduces the amount of time and resources necessary to comply with tax laws;
·   Lowers tax rates for individuals and consolidates the current seven individual income tax brackets;
·   Repeals the Alternative Minimum Tax;
·   Reduces the corporate tax rate; and

·   Transitions the tax code from a “worldwide” system to a 'territorial' system.”
A few observations:
  • When will the tax reform plan be released and will it be an outline or legislative language?
  • Will there also be a lower rate for business income of entities not operating in the corporate form? The House Republican blueprint of June 2016 said yes (page 17, 23 and 27), the budget plan is silent (but brief).
  • Will the border-adjusted tax and consumption tax aspects of the June 2016 House Republican blueprint be part of the plan?  Speaker Ryan's press release about visiting New Balance's factory stresses that it's an American factory.
  • How will lower rates be addressed with base broadeners for revenue neutrality?
  • Will there be distributional neutrality?
  • Will there be hearings once there is legislative language? This question was asked by Senator McCaskill at the 7/18/17 Senate Finance Committee hearing. Chairman Hatch said he wasn't sure - he would like to have hearings, but could not guarantee it. Senator Hatch also noted that they were having a hearing right now, to which Senator McCaskill noted that they were not discussing an actual bill. Her questions start at about 2:02 hours into the hearing. All four witnesses - former Assistant Secretaries of Tax Policy at Treasury answered her question that "yes" bipartisan legislation would be good. For the Tax Reform Act of 1986, there were over 100 days of public hearings, markup, subcommittee meetings, and conference meetings (see pages 1 - 4 of General Explanation Of The Tax Reform Act of 1986, (H.R. 3838, 99th Congress, Public Law 99-514 (Bluebook)). That's a lot of hearings. Of course, not all likely were on legislative language. 
What do you think? Will we see tax reform this year? How transformational do you expect it to be?

1 comment:

Nina Athena said...

Thank you for sharing the insight! Your article is very helpful and informative. I would like to read more updates from you.

Tax Specialist