Timing of tax reform
TAX ALERT |
One of the top priorities for President Trump and the Republican-controlled Congress is tax reform. President Trump made tax reform one of the key issues in his campaign, and although Senate Republicans have not released a comprehensive plan, House Republicans issued a comprehensive tax reform blueprint as part of their A Better Way proposal last June. President Trump recently said that he plans to issue a tax reform plan in the next two to three weeks. That proposal will play a critical role in the tax reform debate and may well turn the debate in one direction or another.
The most controversial proposal in the tax reform debate so far is the proposal in the House A Better Way blueprint to enact a border adjustment tax (also referred to as a destination-based cash flow tax). This has split the business community and members of Congress, including members of the Republican Party, who control both houses of Congress. The Trump administration has said it is “looking seriously” at the House proposal including the border adjustment proposal. At this point, it is impossible to predict what form final tax reform legislation will take, although there still seems to be a strong consensus to take up individual and business tax reform together.
In addition to the question of what will be contained in any final tax reform legislation, there is the question of the timing of the tax reform process. The decision by the president and Congressional Republicans to proceed with repealing and replacing the Affordable Care Act as the first order of business this year means that the timing of tax reform has been pushed back. The leadership in the House has said its goal is to produce a final tax reform bill by the end of July. That would mean that the Senate would take up tax reform when Congress returns in September from its August recess. It is unclear whether the Senate would conduct hearings on tax reform while the House is considering tax reform, which could speed the process along, or whether the Senate will wait until the House finishes its work. However, the Senate Finance Committee Chair recently said hearings on the border adjustment tax will not be held until the House’s proposal is in writing, which implies they may wait. If the Senate did not start its tax reform decision-making process until September, it likely will be November or December before we see final tax legislation passed by Congress and signed by the president. Adding to this uncertainty, Secretary of the Treasury Steven Mnuchin said in a recent interview that he would like to see Congress pass tax reform legislation before it leaves for its August recess. He also acknowledged that passage before the August Congressional recess was an “ambitious timeline” and that tax reform legislation could slip to later in the year.
The tax reform process is notoriously fluid and unpredictable but, as of now, it looks like the earliest tax reform legislation could work its way through Congress is late July. Given the differences among Republicans, the controversial nature of some of the proposals and the fact that the Treasury Department is not yet fully staffed, an August timeline seems to be optimistic. At this point, it seems likely that it may be late 2017 before we have final tax reform legislation.