By Bernie Becker | 04/20/2017 10:00 AM EDT
NOT AS EASY AS IT SOUNDS: It might be an exaggeration to say Republicans were put on this Earth to cut taxes.
But because Republicans do like to cut taxes, why might that be a difficult alternative if they fall short on their grander ambition of rewriting the tax code? It kind of comes down to this, as our Brian Faler reports - priority No. 1 for many Republicans is slashing that statutory 35 percent rate for corporations, something even some Democrats think is a good idea. But politically, it'd be a huge problem in this populist environment to leave out individuals, not to mention the pass-through businesses that have historically supported Republicans.
In short, it all adds up pretty quickly - just a 1 percentage point cut in the corporate rate costs around $100 billion. If it comes to it, Republicans ultimately could cobble together some offsets for the tax cut, while falling far short of revenue-neutrality. And keep in mind: This is all partly predicated on the idea that Republicans and President Donald Trump need a big victory this year, especially after the health care implosion. But there's also precedent to think that a simpler tax cut could take some time as well. President George W. Bush and Congress had to work almost five months to get the 2001 tax cuts into law.
Speaking of populism: It's not just that it'd be difficult to give corporations a tax cut while leaving out individuals. No, lots of people think corporations aren't paying enough as it is - so why cut their rates?
That's especially true on the left, where a lot of the political energy is these days. The AFL-CIO released a memo this week noting that any tax deal should have higher taxes on the rich and corporations. The organizing forces behind last week's marches aimed at Trump's tax returns are now saying they want to focus their energies on the looming GOP tax bill, as your Morning Tax author noted Wednesday. And just this morning, the progressive Economic Policy Institute is out with a new report saying that opposing net tax cuts for the wealthy and corporations will be one of its central goals in the tax overhaul debate.
WELCOME TO THURSDAY, where Morning Tax also promises not to make any stale jokes about what day it is. It's also the 97th birthday for former Supreme Court Justice John Paul Stevens - who, you might have heard last October, was in the stands for a pretty historic baseball play back in 1932.
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DOESN'T MEAN THEY'RE NOT TRYING! Republicans are still searching for ways to get the big deal - and finding the offsets can always be among the most challenging tasks, especially with the House GOP's border adjustment not appearing in good health.
The Hill's Alex Bolton examines the Trump administration's deliberations over limiting the deduction for charitable giving, a proposal that has animated the nonprofit sector for a number of administrations now. Trump proposed a cap on itemized deductions during the campaign, and the House GOP plan would limit the number of taxpayers who would have to itemize, both of which would put a crimp in the charitable deduction.
And Axios' Jonathan Swan reports that National Economic Council Director Gary Cohn is warming up to the idea of slashing the deduction for state and local taxes. (That proposal would be a potential hit in the wallet for Trump, Cohn and the other wealthy New Yorkers and Californians in the administration.) One slight quibble: Axios suggests that scrapping the state and local deduction is a potential replacement revenue-raiser for the border adjustment. But independent projections of the House GOP plan already assume that Republicans will get rid of it - and some of them still see the House plan as losing trillions of dollars.
WHICH LEADS TO ... : Perhaps the best case for the border adjustment right now is that no alternative really stands out, as PwC's Rohit Kumar told The Financial Times.
Meanwhile, the anti-border adjustment folks are rallying around new comments from currency traders , who say supporters are far too confident in predicting that the plan will spark a robust currency adjustment. Quote du jour: "The FX [foreign exchange] market is the most difficult thing to forecast, and to build an inter-generational tax reform based on the assumption of what the FX market will do is a laughable notion," said David Woo, the head of FX strategy at Bank of America. (Another salient point, from Bloomberg: "Daily trading of goods and services between the U.S. and the rest of the world averages about $14 billion. That amounts to 0.3 percent of the $4.4 trillion in dollars transacted in the global currency market each day.")
** A message from H&R Block Policy Perspectives: H&R Block has long supported streamlining the tax code. And while the debate on how best to accomplish that simplification continues, there is much to learn as the 2017 tax season ends. Read more about what we expect to learn: http://bit.ly/2oyhKGg **
NOT JUST MNUCHIN: House Speaker Paul Ryan is also openly talking about how much of a slog tax reform would be, and how much it might consume 2017. "This will be done in 2017, that is our time line, we would like to get it done as soon as possible," Ryan told reporters in London, via Reuters, adding: "As soon as possible for us is by the end of summer, but we're going to take our time to get it right. We can clearly get this done by the end of summer but if it needs to go a little longer, we'll do that."
TAX REFORM IS HARD, NON-BAT EDITION: If you've followed the tax debate at all in recent years, you've heard about the bipartisan interest in getting the more than $2 trillion that multinationals have offshore back to the U.S. That's not as easy as it sounds, reports Bloomberg BNA's Alex Parker. "Targeting true offshore cash piles rather than genuine foreign investments may prove to be a complex problem and an administrative headache, as it requires an analysis of what constitutes cash as opposed to other investment."
THAT OVERSIGHT GAVEL: House Oversight Chairman Jason Chaffetz won't seek reelection next year, as POLITICO's Austin Wright reports . He'll be giving up a position that can certainly cause a lot of headaches for the IRS - as Commissioner John Koskinen can probably attest, given how hard Chaffetz has tried to impeach him. Next question to watch: Who might replace Chaffetz as chairman? Rep. Jim Jordan, who's been one of the IRS's most strident critics since the tea party controversy broke in 2013, sought the job when Chaffetz won it a little over two years ago. But that was before the House Freedom Caucus was founded, which has thrust Jordan more into the center of the broader policy debates on the Hill.
INTERNATIONAL UPDATE -
CHINA BREAKS OUT THE TAX AX: Beijing has decided to cut taxes to try to give another kick to the economy, Bloomberg reports. Starting in July, China will simplify its value-added tax and reduce the rate for items like natural gas and agricultural products. Other tax cut recipients: people who have purchased health insurance, and smaller companies.
STATE NEWS -
A JERSEY-STYLE TAX CUT: Lt. Gov. Kim Guadagno of New Jersey, locked in a race to replace Gov. Chris Christie, thinks she's found a way into GOP primary voters' hearts - a proposal to cut their "notoriously high" property taxes, as NJ Advance Media put it . Under Guadagno's proposal, homeowners would pay no more than 5 percent of their family income on property taxes earmarked for schools. The lieutenant governor added that the proposal wouldn't lead to schools getting short shrift - any money they lose would be replaced with old-fashioned state spending. (If this sounds expensive, it is: an estimated $1.5 billion a year.)
- Steve Forbes, Larry Kudlow, Arthur Laffer and Stephen Moore are getting impatient.
- Red-state Republicans aren't shying away from the Trump tax return issue.
- The president of Alaska's state Senate says no go to an income tax.
DID YOU KNOW?
Shia LaBeouf won a Daytime Emmy for Outstanding Performer in a Children's Series, for his work on "Even Stevens."
** A message from H&R Block Policy Perspectives: H&R Block has long supported streamlining the tax code to make it easier for all taxpayers to win. H&R Block supports tax reform that addresses three critical areas: streamlining individual taxes, decreasing burdens on small businesses and reforming corporate taxes. While the debate on how best to accomplish this simplification continues, there is much to learn as the 2017 tax season ends.
When we opened our doors in 1955, the tax code looked a lot different than it does today, and our clients looked to us for expert advice. Regardless of the tax reform changes to come, we know people will continue to want expert help and the assurance that they are getting the most money back.
Read more about H&R Block's perspective on tax reform and an analysis on the 2017 tax season on the Policy Perspectives blog: http://bit.ly/2oyhKGg **
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