Back in our January post, “Tax Reform is Dead! Long Live Tax Reform!” we predicted that the President’s approach to tax reform as outlined in his State of the Union speech was so fundamentally incompatible with the approach of congressional Republicans that comprehensive tax reform legislation was highly unlikely to make meaningful headway during this Congress.
Last week, in a widely reported and commented-on interview with Morning Consult, Senate Majority Leader Mitch McConnell (R-KY) confirmed our earlier prediction. In outlining the Senate’s upcoming schedule, Senator McConnell said “we’re certainly not going to be able to be doing big, comprehensive tax reform with this president. The president is not interested in revenue neutrality, and he’s not interested in treating all taxpayers the same, so I don’t think we’ll get there on comprehensive.”
The White House swiftly responded saying that it still hoped to make progress on tax reform. And it is important to note that Senator McConnell left the door open to progress on some aspects of tax reform. He only slammed the door on comprehensive reform. Thus, he did not foreclose reform of international taxation, which was the focus of comments this week by House Ways & Means Committee Chairman Paul Ryan (R-WI).
International tax reform has been in play for much of the year as a means to pay for a new, long-term highway-funding bill, although that approach has many opponents in Congress. And, it is the one area in which there is impetus for reform on policy grounds as well — all sides agree it makes no sense to have a tax code that discourages American companies from repatriating foreign earnings.
Although the prospects for any significant tax reform legislation to move forward before the 2016 presidential election are very small, Congress continues to invest a great deal of time and effort on the issue. The Senate Finance Committee chairman, Senator Orrin Hatch (R-UT), has established working groups to study different aspects of the tax system. These working groups are scheduled to report back to the committee by June 26. The House, too, is working on tax reform under Ways & Means Chairman Ryan. As part of their efforts, the committees will project the effects of various proposals by computer modeling.
In light of the ongoing efforts by the committees of jurisdiction in each chamber, the point we made in our prior post and in our December 2014, “Tax Reform is Already on the Table,” remains true. Comprehensive tax reform legislation may not get to the floor of the Senate or House between now and the 2016 presidential election, but decisions will be made during that period that, once made, become very difficult to change. One reasons is that revenue-neutral formulations require that, for every change that potentially produces less revenue, a concomitant increase must be achieved elsewhere. Anyone with any interest in the tax code, therefore, must be in the game now or risk being left behind when the inevitable eventually does occur and comprehensive tax reform is enacted.