Politico

Big Six remain divided over basic elements of tax reform

Written by Lisa

The “Big Six” are deeply divided over how to rewrite the tax code, including how to finance long-promised cuts in individual and corporate rates.

Though House Republicans are promising to release a plan the week of Sept. 25, the top congressional and administration negotiators remain at loggerheads over a number of items, including plans to reduce a deduction for state and local taxes, as well as one for corporate interest expenses.

“Right now, the Senate and the House are pretty far apart,” said one Republican aide. “There’s serious frustration.”

Senate Finance Chairman Orrin Hatch (R-Utah), himself a member of the Big Six, fired a warning shot Thursday, saying his panel will not be a “rubber stamp” for whatever is proposed.

One major issue is whether to adopt a plan that would allow companies to immediately deduct the cost of their investments, sources say.

Known as “expensing,” it’s a top priority for House Republican leaders because many economists say it’s one of the best things lawmakers can do for economic growth. What’s more, House Speaker Paul Ryan has already compromised on one of his other top priorities, a now-discarded proposal to create a “border adjustable” business tax that would have hit import-reliant companies.

But the deduction is hugely expensive, and Senate Republicans believe it won’t fly in their chamber. The White House, not to mention many in the business community, is much more interested in cutting the corporate tax rate as deeply as possible, though that is also pricey at roughly $100 billion for each percentage point reduction.

The Big Six are also divided over how sharply to cut a long-standing deduction for corporate interest expenses. House Republicans have proposed ending it entirely, which would raise some $1 trillion, covering a big chunk of the cost of any plan. But the break is important to many companies, and other negotiators want to only reduce it.

The group is also at odds over eliminating a long-standing deduction that individuals can take for the state and local taxes they pay. Ryan has repeatedly called for eliminating it entirely, calling it a subsidy for state governments, but some are concerned over what that would mean for upper-middle class people.

Hatch, meanwhile, is pushing a so-called corporate integration plan that would shift some of corporations’ tax burden onto their shareholders. He believes that would be a more cost-effective way of reducing the tax burden companies actually pay, though the idea has not gotten much traction with House Republicans.

In a sign of the tensions, Hatch signaled Thursday that he would treat the long-promised tax framework only as a guidepost — not necessarily a binding commitment.

His tax-writing committee won’t be “anyone’s rubber stamp,” Hatch said Thursday.

“The group — some have deemed us the Big Six — will not dictate the direction we take in this committee,” he said.

“Any forthcoming documents may be viewed as guidance or potential signposts for drafting legislation,” he said. “But, at the end of the day, my goal is to produce a bill that can get through this committee.”

The Big Six negotiators have been working for months behind closed doors trying to get the House, Senate and White House on the same page regarding the overall contours of any tax rewrite. They are racing to muscle legislation through Congress by the end of this year, before next year’s midterm elections begin to loom.

The group is comprised of Senate Majority Leader Mitch McConnell (R-Ky.), Ryan, House Ways and Means Chairman Kevin Brady (R-Texas), Hatch, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn.

Aaron Lorenzo contributed to this report.

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