By Ryan Ellis
A long-awaited statement came out today from the “Big Six” negotiating comprehensive tax reform (House Speaker Paul Ryan, House Ways and Means Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, Treasury Secretary Steve Mnuchin, and White House NEC Chairman Gary Cohen).
The big news is that the highly controversial “border adjustment tax” (BAT) is dead:
The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas. And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base. While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform.
There are a few key elements from this statement:
Rate reduction has become the first priority–not the tax base. That may or may not be the best news for growth depending on which rates they have in mind.
“Full business expensing” has been replaced with “unprecedented capital expensing,” an indication that the death of a BAT and pushback on limiting interest deductibility has meant scaling back plans for a consumed income tax on the business side. Expect to see bonus depreciation or another half-measure instead.
Permanence is the priority. No quick fix temporary tax cut. However, just because something is a priority doesn’t mean that everything is going to be permanent. Some non-crucial elements (for instance, AMT repeal) may not be permanent
Deemed repatriation is definitely on the table, presumably as a bridge to a territorial system paired with tax base erosion measures similar to those seen in former Ways and Means Chairman Dave Camp’s “Option C.” This is what is meant by “a viable approach for ensuring a level playing field between American and foreign companies and workers.”
No value added tax or anything that resembles one (“without transitioning to a new domestic consumption based tax system”). After the BAT debacle, I doubt very much that a border adjustable consumption tax will be proposed anytime soon.
Later in the document the timetable of fall is advanced, along with regular order (the committees will be writing it).
Read more here.