GOP congressional and administration leaders’ joint tax overhaul statement took one big item off the negotiating table Thursday but left almost everything else on it. And that’s likely by design.
The official death of the border adjustment tax removes the most controversial idea from the tax overhaul conversation and provides GOP lawmakers and stakeholder groups with room to message on aspects of the tax rewrite effort that have garnered less attention.
Whatever message Republicans want to deliver they can do it under the carefully crafted statement the so-called Big Six — the principals from Congress and the administration who have been negotiating parameters of a tax overhaul — released Thursday, setting aside the BAT idea and providing a general overview of their shared vision for a tax overhaul.
“The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas,” the Big Six said.
The Big Six are House Speaker Paul D. Ryan, House Ways and Means Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin G. Hatch, Treasury Secretary Steven Mnuchin and White House chief economic adviser Gary Cohn.
Their stated goals are so carefully worded that they effectively leave the door open to all Republicans’ ideas. And members welcomed that.
“The good thing I think what’s happening today is that everything will be back on the table,” Ways and Means Committee member Jim Renacci said.
When you break down the statement, it does provide room for Republicans on all sides of the major issues to message on their views.
“Reduces tax rates as much as possible” means President Donald Trump can continue to tout a 15 percent corporate tax rate and House Republicans can continue to cite the 20 percent rate from their “A Better Way” plan. Lawmakers with other targets below the current 35 percent rate can cite those too under the noncommittal phrasing.
Senate Finance Committee member Tim Scott said he wants a 23 percent corporate rate and believes the final product will end up closer to that number than 15 percent.
“There are some taxes that we’ll look at [for offsets] and we’ll see if we can find a sweet spot from a number that makes everybody happy, attracts more revenues,” the South Carolina Republican said.
“Unprecedented capital expensing” means they want to allow businesses to write off their expenses more quickly. But that could mean full, immediate expensing, as proposed in the House GOP blueprint, or any other proposals that are more aggressive than the hodgepodge of depreciation schedules in current law.
Ways and Means Committee member Devin Nunes said he plans to continue pushing for full expensing.
“That’s where you get your growth,” the California Republican said. “It could make a big difference for small to medium sized businesses.”
House Freedom Caucus Chairman Mark Meadows, among other conservatives, has argued against full expensing. As an alternative, Meadows has suggested making permanent the existing bonus depreciation provision to allow businesses to write off half of certain business property expenses in the tax year they’re incurred.
“Places a priority on permanence” is a nod to tax writers’ preference for a revenue neutral tax overhaul that would adhere to the budget reconciliation rules for making tax cuts permanent. But the addition of “priority” leaves room for them to fall short of that goal.
That means Republicans like Scott and Meadows, who don’t believe a tax overhaul must be revenue neutral, can continue to push alternative ideas for creating the flexibility needed to achieve permanency, like lengthening the budget window.
“Creates a system that encourages American companies to bring back jobs and profits trapped overseas” encompasses generally undisputed goals of switching to a territorial system of taxation, where profits would be taxed only in the countries where they are earned, and creating a mechanism for companies to repatriate profits accumulated before the transition at a reduced tax rate.
But it also gets at the importance of preventing base erosion, the loss of U.S. businesses from the tax base. Without the BAT, Republicans currently have no proposal for preventing base erosion or another $1.2 trillion offset to help lower rates.
“I’ve been looking for unicorns around this place, but I still haven’t found any yet,” Nunes said. “And I think they’re going to have to find one if they want to get the rates down any lower.”
Brady said the Big Six are getting close to identifying a viable alternative to the BAT, but any idea they come up with is still likely to draw criticism. For now they’re unlikely to start talking about those alternatives and instead focus on pitching the benefits of a tax overhaul.
The timing of the joint statement, released the day before the House is scheduled to adjourn for its August recess, coupled with its lack of policy details, suggests messaging is the primary goal.
“I think there were people who were going to focus on [the BAT] during August that now get to focus on the good things in tax reform and help us get something passed, so I’m excited about it,” National Republican Congressional Committee Chairman Steve Stivers said.
GOP tax writers plan to spend the break drumming up public support for the effort. One event they have planned is an August 16 visit to the Reagan Ranch in California.
“August 16 is an important day in history. That’s the day that House and Senate conferees agreed on the Reagan tax reform, [which] ultimately became the final law,” Ways and Means Chairman Kevin Brady said, referring to the Tax Reform Act of 1986, the last comprehensive tax code overhaul.
Brady hopes other Republicans will join tax writers in spending August talking about taxes and has provided them with a calendar that lists 31 reasons to support and pass a tax bill, one reason for each day of the month and for each year since Congress last overhauled the code.