By Bernie Becker | 05/17/2017 10:00 AM EDT
With help from Aaron Lorenzo
WE'LL ALWAYS HAVE TAXES: Other developments within President Donald Trump's administration might be overshadowing the tax reform debate these days, but both sides of Pennsylvania Avenue are still pressing ahead on the issue.
For starters, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn have a couple of meetings about tax reform on Capitol Hill today. The two Goldman Sachs alums will meet with both Democrats and Republicans on the Senate Finance Committee in the morning - a potentially significant step, given that Democrats have felt shut out of the discussions so far and how limiting Senate budget reconciliation rules can be. (More on that in a bit.) Mnuchin and Cohn will head over to the House in the afternoon, meeting with the more centrist Republicans in the Tuesday Group.
MORE DETAILS, MORE PROBLEMS: Senate Majority Leader Mitch McConnell isn't on board with any idea of passing a tax cut, telling Bloomberg Television in an interview Tuesday that the current pile of debt makes revenue-neutral tax reform the way to go.
All well and good, but McConnell also said what's become pretty obvious - that the border adjustment from the House GOP's blueprint, which raises more than $1 trillion over a decade, doesn't look to have a path in the Senate. And as The Wall Street Journal's Richard Rubin notes, the Senate also doesn't look very keen on the idea of totally scrapping the deduction for business interest - another 13-digit revenue raiser in the House plan.
Sen. John Thune (R-S.D.), a member of both the Finance Committee and GOP leadership, is set to roll out a bill that would make more modest changes to expensing rules than the House proposal, the WSJ also reports. (Thune's bill would make current bonus depreciation rules permanent, and expand Section 179 expensing limits generally aimed at smaller companies.)
So in short: Republicans are going to have to coalesce around more revenue raisers if they want revenue-neutral tax reform, something that was always going to be really, really hard.
SAY HEY TO WEDNESDAY. Today also marks 158 years since the codification of the rules for Australian Rules Football - yes, apparently there's some semblance of organization to all that chaos. Morning Tax also likes the referee game Down Under.
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WATCH LIVE AT 6 p.m. - An Audit on Tax Reform: Washington's Road Ahead: Join POLITICO for beers and conversation on the legislative possibilities for corporate tax reform, what an eventual tax reform bill might look like, and whether there's room for bipartisan collaboration. Speakers include: Rep. Kevin Brady (R-Texas); Jason Furman, Peterson Institute for International Economics; Maya MacGuineas, CRFB; James Pethokoukis, AEI. Livestream begins at 6 p.m.: here.
DID YOU SAY BAT? House Ways and Means Chairman Kevin Brady also announced a long-awaited, and long rumored, hearing on Tuesday about the border adjustment.
Brady has said he's open to modifying the border adjustment, but opponents don't really seem to believe there are any tweaks that can satisfy them. Retail executives met with Mnuchin on Tuesday, though POLITICO's Theodoric Meyer reports that the Treasury secretary didn't offer any "great clarity " about the administration's thinking. (To be fair, Mnuchin hasn't been sounding too enthused about the idea lately.) And Freedom Partners and Americans for Prosperity, a couple of groups with ties to the Koch brothers (more on them later), are also out with a new study this morning that found the manufacturing, energy, retail, financial and agricultural sectors would all face higher taxes from border adjustments. For instance, manufacturers could face an additional $67 billion in new taxes, even with a partial currency appreciation to blunt some of the impact of the import tax idea, the study said. And states whose economies rely heavily on manufacturing and the other four industries would certainly feel a sting, including Indiana, Iowa and Delaware.
Finally: Rank-and-file House Republicans haven't been too shy in questioning the border adjustment, even though it's in the blueprint rolled out by their leaders. But The Hill's Naomi Jagoda found some pretty deep-seated skepticism about the idea, with a strong majority of the 50 GOP lawmakers with a position either concerned or not ready to announce a position.
WALL STREET SCORNED: There was a time, and not so long ago, that investors felt overjoyed with the promise of tax cuts. But Wall Street has taken a sudden turn, Morning Money's Ben White reports , and is now not expecting Republicans to produce a revamp of the tax code this year. The main reason for the shift: Wall Street and corporations believe the distractions surrounding the Trump White House have gotten too big, while the legislative calendar for the year shrinks smaller by the day. Administration officials believe they can prove Wall Street wrong, but Ben reports that investors' main concern now is escaping a big fight over raising the debt ceiling in the coming months.
ON SECOND THOUGHT...: Quantria Strategies released a study this week, funded by Koch Industries, that questioned the wisdom of allowing businesses to immediately write off investments and suggested that policymakers would be better off cutting the corporate rate.
That's also all well and good, but Quantria was singing something of a different tune not even two years ago. It released a study for the CRANE Coalition, a group whose acronym makes it pretty clear where it stands on expensing (Cost Recovery Advances the Nation's Economy), in September 2015 that was far more bullish on expensing. Greg Leiserson of the Washington Center for Equitable Growth, who worked on the Council of Economic Advisers under former President Barack Obama, tweeted out one contrast between the two studies. The 2015 study for the CRANE Coalition also said that "proposals to curtail accelerated depreciation for new investment will have widely different effects across industry groups and may have unintended consequences for long term economic growth." Morning Tax and Quantria's John O'Hare played phone tag on Tuesday, but we'll update you with any explanation.
Respectfully disagree: In any event, Brady made it clear Tuesday that he didn't agree with Quantria's latest findings, telling reporters that "full and unlimited expensing may be the single most pro-growth provision in tax reform because it is all about driving productivity and investment, which really drives wages in the U.S. economy," as our Aaron Lorenzo reports . Evan Alexander director of business development at Koch, in a separate appearance on Capitol Hill, shed some light on why his company might be lukewarm about full expensing - the difference between that and the current depreciation schedules doesn't do much for Koch's bottom line, unlike a rate cut.
2020, RIGHT AROUND THE CORNER: Rep. Pat Tiberi of Ohio, a senior Republican on the House Ways and Means Committee, is saying "no" to a potential challenge to Sen. Sherrod Brown, Campaign Pro's Daniel Strauss reports. Tiberi, who lost the Ways and Means gavel to Brady in 2015, said in a statement that he wouldn't be able to give a Senate bid the attention it needed with all the work Congress has on health care and taxes. His decision keeps Ways and Means from losing another senior member, while the committee's top GOP slot is scheduled to open again at the end of 2020.
INTERNATIONAL UPDATE -
THAT'S A LOT OF KRONER: The Danish government is investigating just how its tax department lost around $15 billion (100 billion kroner) through years of fraud and sloppy management, Bloomberg reports. Denmark's tax collector has faced staff cuts and has fallen short in efforts to boost its technology, leaving Prime Minister Lars Lokke Rasmussen to note that it could be difficult for the agency to regain taxpayer trust. Political parties outside the Danish government have pointed to reports stating that the government might only be able to get back about 20 percent of the forgone money.
THE CELTIC TIGER'S WATCHFUL EYE: Dublin should be closely monitoring the U.S. tax reform debate, according to a new report from Moody's, which found that Ireland looks to be set up pretty well for future growth. However, there are two potential hiccups: the United Kingdom's departure from the European Union and a U.S. tax overhaul. "The corporate tax reforms currently under discussion in the U.S. could potentially be a further negative development for Ireland, given that around half of all foreign direct investment originates from the U.S. and Ireland's low corporate tax rate has been a key driver - albeit not the only one - for the large presence of multinationals," said Kathrin Muehlbronner, who wrote the Moody's report.
STATE NEWS -
YUP, NOPE: Louisiana lawmakers, seeking to close a budget gap, nonetheless voted down a measure that would permanently end exemptions in the state sales tax that are currently in place on a temporary basis, the Associated Press reports. The House "vote raises questions about whether the majority-Republican chamber will take any actions this session to make a dent in the more than $1 billion budget gap that hits in mid-2018, when temporary sales taxes passed by lawmakers expire," the AP added.
- Moody's chief economist Mark Zandi, via Bloomberg: Bigger standard deduction renders mortgage interest deduction close to worthless.
- Democrats go back to the well on Trump tax returns.
- The U.K. Labor Party has £48.6 billion in spending pledges, to be paid for in new taxes.
- Massachusetts lawmakers consider tax on Airbnb rentals.
DID YOU KNOW?
The word Aztec is Nahuatl for "near the cranes."
** A message from Intuit Tax and Financial Center: In our series - Talking Tax with Intuit - we interview experts with diverse experiences and backgrounds in tax policy and administration. Our goal for this forum is to foster an informed dialogue on important topics and create a platform for expert insights into tax policy. This video discusses the challenges to retirement savings and how tax reform can help alleviate savings hurdles for future generations. Watch: http://bit.ly/2q8Vi5O **
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