Concord Policy Primer, Volume 3

The game is – finally, and officially – afoot. Months of anticipation and buildup culminated on September 27 when White House and GOP congressional leaders released their tax reform blueprint: Unified Framework for Fixing Broken Tax Code. The framework has helped to coalesce congressional Republicans (at least for the moment) behind the effort and, by the first week of November, we could see the passage of a budget resolution that will ease the procedural hurdles necessary to pass comprehensive tax reform. In this edition of the Concord Policy Primer, we will explore the next steps for Congress and the Trump Administration.

Prime Insight. The tax reform framework released by the Big 6 has been well received (generally) by Republicans in Washington. However, in what we anticipate will be a continuing theme, as detailed proposals on specific provisions are trickled out the difficulty of the task ahead will become more apparent. Leading GOP tax writers, who already have zero margin for error, will be faced with myriad challenges between now and final passage – any one of which could scuttle the entire deal. Piecing together a reform package that can receive a majority vote in both the House and Senate will be a drama on the level of Shakespeare’s greatest.

What We’re Seeing. Following the release of the tax reform framework, the House and Senate quickly went to work on moving their budget resolutions, which are necessary to ease the procedural hurdles necessary to pass comprehensive reform. Congress is on track to pass a joint budget resolution in early November (potentially as early as November 3), which will enable House and Senate tax writers to release their tax reform proposals and begin the committee markup process.

The Senate budget resolution sets a target of November 13 for the Senate Finance Committee to report a draft tax bill. While the date is non-binding, it does infer the speed at which Republican leadership wants to move on tax reform. Under the Senate budget, the Finance Committee could produce a bill that provides for as much as $1.5 trillion in deficit-funded tax cuts, though the final package could be much larger when factoring in the elimination of tax breaks and other revenue-raising measures. We anticipate the final budget resolution passed jointly by the House and Senate will more closely mirror the Senate package.

Democrats have remained largely united in their skepticism of the blueprint released by the Big 6. Should a handful of Republican Senators ultimately oppose the tax reform package, several Democrats may be needed to achieve final passage. In a process that thus far has been – and will remain – highly partisan, the ability of GOP leaders to successful court moderate Senate Democrats could prove instrumental at the end of the day.

The Horizon. The most ambitious forecasting models predict President Trump will sign a tax reform bill before the end of December, but few believe an agreement will be concluded in this timeframe. A more likely scenario is the completion at some point in the first quarter of 2018. In either case, one must assume a tax reform deal will get through both chambers of Congress and meet the principals outlined by the White House, which remains a 50-50 proposition.

The difficult work – which has been done in the preceding months behind closed doors and among senior GOP leaders – now will be undertaken under the harsh glare of the public spotlight. The release of specific tax reform proposals will lead (quickly) to hearings and votes in the various committees, and prompt aggressive advocacy efforts by stakeholder groups and their allies in Congress.

To judge the tough road facing Congress one must look no further than the possibility left open by tax writers of doing away with the deduction for state and local taxes. This proposal has generated tremendous controversy and could undermine congressional support by dividing Congress not solely on partisan lines, but regionally. On the flip side, GOP leaders are counting on the revenue generated by eliminating the state and local deduction to offset (“pay-for”) the revenue impact of significantly lowering corporate tax rates, which is necessary to corral Republican fiscal hawks wary of ballooning deficits. The debate over the state and local tax deduction is a microcosm of the broader give-and-take we will witness in the months ahead. The real sausage-making will be on full display.

Prospects for Section 179D. Congressional advocates of Section 179D remain at work generating additional supporters for the provision. As we reported earlier, House legislation permanently extending the deduction has been introduced, with a Senate version in the works. These efforts will help identify the extension of Section 179D as a bipartisan effort and one worthy of consideration.

With a thin resume of success in 2017 following unified GOP control, the motivation of the Trump Administration and GOP congressional leadership to achieve a win on tax policy is tremendous. Many are speculating that if tax reform falls short the administration quickly will pivot to a less-ambitious, theoretically easier-to-pass package of tax breaks. The possibility of moving a tax extenders package – including 179D – through Congress also has taken on greater significance, with prospects dim for full reform before the end of the year.

Engagement. No matter which scenario ultimately plays out, the advocates of Section 179D will need to be alert for opportunities and agile in the collective approach to Congress, and making the constituent connection will be imperative. Companies interested in extending the Section 179D deduction should consider engaging congressional offices where the company has a business footprint. Here is a list of House and Senate members serving on congressional tax-writing committees, along with the name and contact information for tax staff in each office.

Concord will be working to coordinate outreach to Capitol Hill; please contact Concord should your company be interested in advocating support for Section 179D.