The United States Senate Committee on Finance (the "Committee") will hold hearings on July 18, 2017 to discuss options for overhauling the tax code and to consider the nomination of David J. Kautter as U.S. Treasury Assistant Secretary for Tax Policy.
The first hearing will focus on catalyzing economic growth, competitiveness and job creation. Senate Finance Committee Chair Orrin Hatch (R-UT) explained that the purpose of the hearing will be to give committee members the opportunity to explore how Congress can "act to implement a simpler, fairer tax system."
Following the hearing on tax reform, the Committee will consider the nomination of David J. Kautter to serve as U.S. Treasury Assistant Secretary for Tax Policy. Currently, Mr. Kautter serves as Partner-in-Charge at RSM US, an audit, tax and consulting firm in Washington, D.C.
Commentary / Mark Howe
There are four possible outcomes for the Trump tax reform.
One is so-called "transformational" tax reform, which would cut rates substantially (more so for businesses than individuals), reduce or eliminate many deductions, and tax only income from operations in the United States. To pay for this "transformational" reform (i.e., large tax cuts and the shrinkage of the U.S. tax base), House Speaker Paul Ryan and House Ways and Means Chair Kevin Brady have proposed the so-called border adjustment tax ("BAT"). Absent support for the BAT, Speaker Ryan and Chair Brady must find other supportable and innovative revenue sources like a carbon tax and/or national sales tax, minimum tax on worldwide earnings of U.S. companies, or tie tax reform to entitlement reform.
If they fail, outcome two would be "transformational" in the sense that the substantial tax cuts would not be funded by new revenue sources or by entitlement reform, but rather by the hope for substantial economic growth triggered by the tax cuts themselves. Given the financial backgrounds of NEC Chair Gary Cohn and Treasury Secretary Steven Mnuchin, they will be challenged to offer a credible rationale for how this will work against a fiscal backdrop of chronic federal deficits and an unprecedented level of national debt.
The third outcome would be non-transformational: scaled-back tax cuts with a hodge-podge of revenue-raisers like (i) eliminating the deduction for state and local taxes, (ii) substantial curtailment of the interest deduction, and (iii) tacking on some form of carried interest legislation (see Camp and Levin proposals) or mark-to-market legislation for derivatives (see Camp and Wyden proposals), as well as other revenue-raising items.
The last outcome is nothing.
Kautter's confirmation hearing will provide public clues as to whether the big issues embedded in the first two outcomes are being addressed in current discussions among the Senate, House, and White House. If those issues are not addressed, the probability of the last two outcomes goes up.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
