ILMA Compoundings April 2017 - 43

WASHINGTON LANDSCAPE

Prospects for Tax Reform
By Daniel Bryant

ouse Speaker Paul Ryan
(R-Wis.), shortly after President
Trump's inauguration, said that
he expected tax-reform legislation -
both corporate and individual - to
start moving on Capitol Hill this summer. Enacting tax reform is hard work
for lawmakers, in part because changes
to the tax laws can create new sets of
"winners and losers" and alter the competitive landscapes in many industries.
Simply put, a tax reform package must
be politically palatable.
Most legislation in the Senate requires 60 votes to overcome a filibuster. At an event recently hosted by the
U.S. Chamber of Commerce, Senate
Finance Committee Chairman Orrin
Hatch (R-Utah) suggested that it was
increasingly likely that Republicans
would be unable to garner any support
from the Democrats in their efforts to
overhaul the U.S. tax code.
This makes it necessary to move any
tax reforms via a reconciliation bill,
something that was created by the
Congressional Budget Act of 1974 to
allow for streamlined and expedited
consideration of tax, spending and
debt legislation.
Most importantly, bills considered
under that process are not subject to potential filibusters in the Senate and only
need a simple majority vote to pass. The
Democrats used the process to pass the
Affordable Care Act in 2010, and the
Republicans appear poised to attempt to
use it in 2017 for tax reform.
A drawback of the reconciliation
mechanism is that it cannot create a
deficit beyond the "10-year window"
of the specific budget authorization.
In other words, it is highly likely that
if reconciliation is used to move tax
reform, any revisions would likely sunset and require express reauthorization
after the 10-year period ends. This
happened with the "Bush tax cuts."

Additionally, if negotiations proceed
with no Democratic support, it will
be imperative for any proposal to have
near-universal Republican support.
Given that Republicans currently have
52 seats in the Senate, a few defections
could derail the entire effort.
So, what is being discussed? Many
of the current proposals are familiar
and have been debated extensively
in years past, including lowering the
corporate tax rate (potentially to 20
percent) to make the United States a
more desirable corporate home and
to prevent more corporate inversions.
Additionally, lowering the individual
rate is paramount for many small
businesses that are set up as passthrough entities (e.g., LLCs). House
Republicans have proposed three new
individual tax brackets of 12 percent,
25 percent and 33 percent.
Other tax proposals being considered would allow companies to completely write off business investments
in the first year the expenses were
incurred, and the elimination of the
estate tax has been discussed.
The House has been looking to
move the U.S. tax system closer to a
consumption-based tax system. The
border adjustment tax plan is the
best example of this, and it would
allow U.S. companies to avoid paying
taxes on any goods sold abroad, but
businesses would then not be allowed
to get a tax deduction for the cost of
imported goods. This proposal is contentious, and the leadership of Target,
Home Depot, Wal-Mart, Nike and
other large corporations that import
a high volume of goods into the U.S.
have unified in opposition to such a
plan. If the House Republicans drop
the border tax provision, they will
need to find other revenues to offset
the tax rate cuts.

Another consideration that compounds an already difficult issue is
that any tax deal will likely involve
financing President Trump's proposed $1 trillion investment in U.S.
infrastructure. While there is virtually
unanimous support for such improvements, there is little agreement on how
to pay for the projects.

The House has
been looking to
move the U.S. tax system
closer to a consumption
-based tax system."
There have been extensive discussions regarding increasing the gas tax
to pay for the infrastructure package.
However, Republicans are weary of
those proposals, and the federal gas tax
has not been increased since 1993.
Despite near-universal consensus that
the tax code is outdated and needs reforms, in practice changing the complex
system is immensely difficult. There is
a reason it has not been significantly
amended since the 1980s. There are so
many competing interests involved that
it is impossible to placate everyone.
Nevertheless, there are steps ILMA
members can take to prepare for possible tax reform, such as following tax
reform proposals and developments
(including reports from ILMA); assessing how the proposals might affect
the business and themselves; including
possible tax law changes in any longrange planning; and communicating
concerns to members of Congress.
Bryant serves as regulatory
counsel to ILMA through
Bassman, Mitchell, Alfano &
Leiter Chtd. He may be
reached at 202-386-7670 or dbryant@bmalaw.net.

ILMA Compoundings April 2017

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