The Trump Administration previously said that it was “driving the train” with respect to efforts to enact tax reform legislation, but a more apt analogy might be that of running an airline, given Congress’s bandwidth and many other priorities. As many as a dozen legislative proposals will be priorities for Congress this summer, which makes for a full schedule. Adding tax and health care reform to the agenda may be a recipe for delays, and possibly even cancellations.
Among the legislative priorities for Congress are projects that were booked well in advance. This includes a 2018 spending bill, a measure to increase the debt ceiling, expiring laws and initiatives regarding the FAA, federal flood insurance, and health care for children. Additionally, certain laws regarding the Coast Guard, some FDA programs, and portions of Medicare programs must be renewed or revised.
The 2018 spending bill and an increase to the debt ceiling are expected to be the most contentious measures. On May 3, 2017, Congress passed a bipartisan spending bill to avoid a government shutdown through September 2017. The bill provided for many concessions to appease demands from Democrats, whose ability to filibuster the bill diminished the control Republicans have in both chambers of Commerce.
Early comments on the result cast doubt on the ability for compromise in the next spending bill. President Trump tweeted that the country is in need of a “good shutdown,” and many Republicans also indicated their displeasure with the spending bill. Sen. Lindsey Graham (R-SC) said, "I think the Democrats cleaned our clock.”
Rep. Mark Meadows (R-NC) summed it up by saying, “Does this make the 2018 budget much more difficult and much more contentious in its debate? I think the answer is yes.”
This dovetails with negotiations concerning the debt ceiling, where resistance from the House Freedom Caucus may require support from Democrats to pass an increase. This dynamic could make for a more complicated process if the 2018 spending bill and an increase to the debt ceiling are considered together.
As these issues crowd the Congressional schedule, tax and health care reform must also be prioritized if all of these initiatives are going to become law in 2017. At the outset, it appeared that the goal was to complete health care reform in May so that Congress could craft a tax reform package over the summer and pass it in August. But both health care reform and tax reform are operating on a slower schedule than anticipated.
The Senate is expected to draft its own health care plan, which will add time to the process. If the Senate drafts its own bill, a Senate working group will draft a plan, and the plan would then need to be reconciled with the House version of the bill via a conference committee.
Tax reform legislation is also moving slowly. While part of the delay can be attributed to the AHCA, there are other factors that have slowed the process. The Trump administration released its tax reform outline substantially later than anticipated. Widespread opposition to the border adjustment tax (BAT) is also complicating matters.. The BAT was designed to curb tax avoidance by moving to a territorial tax system while generating additional tax revenue that would offset tax cuts associated with rate reductions for corporations and pass-through entities (PTEs). The House Tax Reform Blueprint mentions a border adjustment that would tax imports, but while the Administration’s tax reform outline mentioned a move to a territorial tax system, it did not mention the BAT. Differences between revenue measures in tax reform leave uncertainties about where Congressional priorities will fall.
Another reason for delays in tax reform legislation is the size of the cuts proposed by President Trump. The House Blueprint proposed a 20 percent corporate tax rate and a 25 percent rate for PTEs, whereas the President’s tax outline set the rate at 15 percent for both corporations and PTEs. Negotiating the budgetary impact over tax cuts of this caliber within the Senate’s Budget Reconciliation rules continues to be a vexing topic in Congress. Industry groups also will seek input into any proposed tax reform legislation, which will demand the time and attention of Congress.
In addition to all of this there are upcoming midterm elections in 2018, which will influence negotiations on tax and health care reform, and will place a burden on the capacity of Congress. Combined with the other legislation that Congress must approve to keep the government open and functioning, one or more legislative priorities stands to be delayed or even cancelled. Steve Bell, a senior advisor with the Bipartisan Policy Center and former staff director for the Budget Committee of Senate Republicans, said that tax reform legislation is “very, very unlikely” to pass in 2017, adding, “I don’t think they have enough time.”
A straightforward tax cut or pared down tax proposal may be the end result. We will keep you up-to-date on emerging tax developments with our Eye on Washington series. For more information, please visit our Eye on Washington tax resource page or contact your local CBIZ MHM tax professional.
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