The Prospects for Tax Reform in Trump Town

By Squire Patton Boggs, Lexology.

With the 115th Congress nearing the end of month two, tax reform continues to be a focal point of the political debate in Washington. Intent to move forward with their tax reform “Blueprint” released in June 2016, Speaker Paul Ryan (R-WI), House Ways and Means Committee Chairman Kevin Brady (R-TX), and other high-profile tax-writers have spent a significant amount of time and energy in recent weeks promoting their proposal, which would dramatically overhaul the U.S. tax system and make significant reforms to the Internal Revenue Service (IRS). Though initial expectations were that the text of the Blueprint might be available as early as March, Chairman Brady has since indicated that he now hopes to have the legislation released “during the first half of the year,” which likely means that the text of the bill will be finalized by June of this year.

Once the legislation is drafted, it will then be taken up and debated by the Ways and Means Committee – a process that will likely be contentious given the current political divide in Washington. That divide, however, is not solely a partisan one; signs of GOP discontent can be seen in the Senate (and, according to our sources, can also be seen even among House Ways and Means Republicans) and could potentially extend to the White House. The main issue dividing Republicans at the moment? The Blueprint’s Border Adjustable Tax (BAT), which would essentially: (1) disallow deductions for imports when calculating the cost of goods sold; and (2) exclude revenues earned from exporting goods from taxable income.

Though Senate Republicans have generally avoided opposing BAT outright, several influential Senators have either expressed concerns about the proposal or indicated that they have doubts and are thus withholding judgement. Perhaps the most vocal opponent of BAT to date has been Senator David Perdue (R-GA) who recently sent around a “Dear Colleague” letter arguing that the BAT is “regressive, hammers consumers, and shuts down economic growth.” Opposition in the Senate appears to be growing. In fact, concerned about the rhetoric coming out of the Senate on the BAT, Speaker Ryan recently began outreach to Republican Senators urging them to “keep their powder dry.” Reports suggest that his visits have not been well-received and are, at best, having minimal impact in the Upper Chamber. Notably, despite the most recent efforts by the Speaker, the skepticism in the Senate seems to be growing, with Senate Finance Committee Chairman Orrin Hatch (R-UT) just last week acknowledging he “[does not] see [BAT] happening, not the way the House has configured it.”