Tax reform, perennially among the GOP's top priorities, has taken a back seat to other, more pressing priorities since an initial burst of interest caused by the Trump Administration's release of a one-page outline in April. The GOP plan had been to move forward with repeal and replace of the ACA under the FY17 reconciliation instructions before the end of the fiscal year and then utilize the FY18 budget reconciliation package to pass tax reform sometime thereafter. However, with Republican health care legislation proceeding slowly in the Senate, deadlines looming for Congress to address FY18 budget and appropriations and the debt limit (see below) and continued intra-Republican disagreement over the contents of a tax reform plan, the future of any legislation remains murky.
On May 17, National Economic Council Director Gary Cohn reported that the Trump Administration was drafting a tax plan and will deliver it to Congress when they return from the August recess, a significant delay from the Administration's initial promise that the plan would be approved by Congress before August. However, when asked for additional details of the plan, Treasury Secretary Steven Mnuchin told the Senate Finance Committee that there may not be a Trump Administration plan per se, but the Administration will work with Congress to "come up with a proposal that can pass the House and the Senate and be signed by the President."
House GOP leadership continues to insist that their proposed Border Adjustment Tax (BAT) be included in order to raise revenue to pay for lowering tax rates, while more conservative members of the House reject the BAT as a tax increase, calling for federal spending cuts or – in the case of the House Freedom Caucus Chairman Representative Mark Meadows (R-NC) – rejecting calls to make tax reform deficit neutral. There is also disagreement over whether the tax reform proposal will be coupled with infrastructure spending. President Trump has floated the idea of bringing the two items together to encourage Democrats to sign onto the package. However, Democrats remain united against the proposal and White House officials reportedly told conservative activists that the two proposals would not be linked. Congressional Republicans also remain divided over how long the tax changes should last, how deep rates will be cut and how business investments will be treated.
Takeaway: Tax reform remains a top priority for congressional Republicans, but its future is murky as both the timeline for its consideration and the contents of the bill remain unclear. While conversations about the proposal will continue to take place behind closed doors over the summer, do not expect to see any significant movement on the proposal until after Congress returns from its August recess.
