T-MINUS ONE DAY: House Ways and Means Chairman Kevin Brady (R-Texas) is scheduled to drop his eagerly anticipated tax bill in just one day, and there’s still a lot of frenzy surrounding the House GOP’s efforts.
In fact, you’d be excused for thinking the House Republican tax writers are having something like a last-minute cram session today. Ways and Means Republicans are supposed to start huddling early this morning, and meet into the evening as Brady and company try to put the finishing touches on their tax overhaul. The Ways and Means chairman, along with Speaker Paul Ryan, is then expected to brief the GOP conference-at-large on his work on Wednesday morning.
That schedule comes amid open conversations both on K Street and among congressional staffers about whether Wednesday’s scheduled release will be fully fleshed out and ready for the Ways and Means Committee to mark up.
MORE ON THOSE ISSUES OUTSTANDING: House Republicans are still considering whether to enact punitive measures against companies — think Big Pharma — that shift jobs out of the U.S., Pro Tax’s Brian Faler reports. That’s something President Donald Trump repeatedly has called for, but it’s not an idea that would necessarily simplify the tax system, either. “One possibility would be requiring firms that pull up stakes and still sell their wares to American consumers to pay the full U.S. domestic corporate tax rate, instead of a minimal tax on foreign earnings lawmakers are considering,” Brian writes. That would be similar to what former House Ways and Means Chairman Dave Camp (R-Mich.) proposed back in 2014, but potentially also could expand to include foreign companies operating in the U.S. — an idea that naturally worries the group that advocates for those corporations, the Organization for International Investment.
AND DON’T FORGET THAT CORPORATE RATE: Trump has called cutting the corporate rate from 35 percent to 20 percent his red line on taxes, but one of the questions hanging over that proposal was whether it cost so much that Republicans would have to phase in that rate. Now, Bloomberg reports that the GOP is discussing phasing the rate in over a five-year span, 3 points at a time.
That would potentially mean the corporate rate wouldn’t drop to 20 percent until 2022, which has some tax analysts worried the plan won’t pack the needed economic punch. (And that’s not even getting into the question of whether the rate would have to expire because of budget rules.) Lots of Washington tax people say at the very least that they won’t be surprised if the corporate rate needs to be implemented in chunks. But because it’s the Senate with the strict budget rules, that phase-in wouldn’t necessarily need to first come from the House. (For instance, the 2001 Bush tax cuts passed with a 10-year expiration date, but the first House bill didn’t have any sunsets.)
WELCOME TO TUESDAY’S MORNING TAX, where your author can confidently report the existence of a 2-year-old Rosie the Riveter who’s very excited to wear her headband today.
Today also marks 79 years since Orson Welles apologized to the public for scaring them so much with his “War of the Worlds” radio broadcast, but also asked how in the world so many of them thought it could be real.
We’ll accept all your real tax reform tips here, no matter how frightening.
WHAT SAYS THE WHITE HOUSE? Sarah Huckabee Sanders, the White House press secretary, told reporters Monday that Trump still wants to immediately cut the corporate rate to 20 percent, our Colin Wilhelm reports.
Perhaps more interestingly, Sanders kicked off the briefing by telling a story about reporters sharing a beer tab that, as The New York Times’ Jim Tankersley writes, appears to undercut Trump’s statements that his tax plan would be focused on the middle class. The story “is a defense of cutting taxes on high earners because they pay a greater share of taxes than those on the lower end of the income scale.”
HOW SALTY ARE WE FEELING: Treasury Secretary Steven Mnuchin and Gary Cohn, the director of the National Economic Council, say they’re closing in on how to treat the deduction for state and local taxes in tax reform — but they’re not exactly ready to let people know what that decision will be, Pro Tax’s Aaron Lorenzo reports. Mnuchin and Cohn had a call with New York’s nine Republican House members on Monday, and didn’t commit to either leaving the deduction alone or keeping an incentive solely for property taxes, Rep. Dan Donovan said.
More property tax! Now that both the homebuilders and the Realtors are working against the GOP tax plan, the White House is circulating a Heritage Action letter in which around 140 real estate agents and executives support the framework, arguing that it would lower housing prices and help first-time buyers. It’s fair to say that the National Association of Realtors wasn’t impressed, as Lorraine Woellert notes. “Seriously? There are 1.3 million Realtor members. There are somewhere between 3 million real estate licensees in the country and the best they can come up with is 147 names?” said Jamie Gregory, the group’s point man on taxes.
And speaking of Mnuchin: Rep. Richard Neal of Massachusetts, the top Democrat at House Ways and Means, invited Mnuchin or one of his designees to sit at the witness table for the tax reform markup expected next week.
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SPEAKING OF NEAL: Rep. Mike Kelly (R-Pa.) is teaming up with the Ways and Means ranking member on retirement issues, Aaron also notes. Kelly is concerned about the idea of limiting pretax contributions to retirement accounts and will be hosting a briefing with Neal on Wednesday — the same day the House GOP bill is expected.
LAYING DOWN MARKERS: Remember how Senate Republicans likely have to keep 50 of their 52 members on board to pass a tax bill? Well, Sen. Susan Collins (R-Maine), who consistently opposed GOP proposals to roll back Obamacare, has the following wish list for that measure: “I do not believe that the top rate should be lowered for individuals who are making more than $1 million a year,” Collins told Bloomberg. “I don’t think there’s any need to eliminate the estate tax.” That said, Collins did sound open to raising, if just a bit, the estate tax exemptions and stopped short of saying she’d oppose any tax bill that added to deficits.
PAUL MANAFORT, THE TAX ANGLE: So why was tax fraud among the charges that Paul Manafort, Trump’s former campaign chief, will face? Tony Nitti explains at Forbes that Manafort, who didn’t register as an agent with a foreign government, is accused of funneling almost $75 million he got from interests in Ukraine to places like Saint Vincent and the Grenadines and never reporting that income to the IRS. According to the indictment, Manafort then laundered about a quarter of that money either by having it directly wired to American vendors or by having his foreign entities snap up real estate. “Because Manafort failed to report any of the income earned by him in the Ukraine on his U.S. tax returns, he is being charged with tax evasion and tax fraud,” Nitti writes.
ADVICE FOR DAVID KAUTTER: Mark Everson, the former IRS commissioner during the George W. Bush presidency, has some advice for David Kautter, Treasury’s assistant secretary for tax policy who will soon take on a second role as acting IRS chief. First off, Everson told Morning Tax, the new acting commissioner needs to make sure he respects the expected firewall between the IRS and Treasury — to understand what matters can be discussed between the two and which should solely be IRS issues. “He has to be very careful and respect the fact that enforcement matters can’t be shareable, can’t go into Treasury,” Everson aid. “You have to be careful to ensure that separation is maintained.”
Everson added that it would likely be tougher to balance the two positions after a tax overhaul was passed, because the IRS would concern itself with the implementation of new tax law more than the policy itself. But Everson, now at alliantgroup, added that there could be a pretty good chance that Kautter would be back to one job if a tax reform measure was being implemented — there’s a limit of 210 days for an acting commissioner.
NOT THE INSURANCE: Four House Republicans from Florida — Gus Bilirakis, Bill Posey, Dennis Ross and Ted Yoho — wrote to Ryan this week to argue against a proposal that would essentially keep insurers from deducting premiums on global policies. (Premiums on domestic policies could still be deducted.) The four Floridians argued that global insurers play a key role in disaster recovery efforts. Ryan Ellis, the conservative tax analyst, wrote more on this issue at Forbes last week.
DON’T FORGET THE CHILD CREDIT! Sen. Marco Rubio (R-Fla.) is among those leading the charge to expand the child tax credit in tax reform, calling last week for a $2,000-per-child credit. But as Bloomberg BNA’s Kaustuv Basu reports, “some House Ways and Means Committee Republicans see the $2,000 amount as making a bill too expensive.”
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GOING TO SANTIAGO? Sebastian Pinera, the top center-right candidate for president in Chile, outlined an ambitious $14 billion, four-year spending plan, Reuters reports. “The former president, who governed from 2010 to 2014, said he would pay for his proposals by cutting ‘unnecessary’ government spending and simplifying the tax code to encourage investment and boost growth and the country’s coffers.”
UP TO YOU, KEYSTONE STATE: Pennsylvanians can vote next week to allow their local governments to exempt them from paying property taxes, the Tribune-Review reports. Sounds like a great deal, huh? Except localities will likely just have to find more revenue from other means. “It sounds good,” said Allegheny County Executive Rich Fitzgerald. “We’d all love to eliminate property taxes, but you can’t eliminate it unless you have a replacement.”