Sen. Charles Grassley, R-Iowa, told reporters Wednesday he expects the tax reform bill to be on the floor in the House of Representatives in October and sent to President Donald Trump's desk by Christmas.
House Speaker Paul Ryan, R-Wis., told the National Association of Manufacturers on June 20 that he expects tax reform will be done in 2017.
I asked Grassley about the tax plan and how the offsets would be covered. "Broadening the tax base, closing loopholes, doing away with deductions," the senator said.
Regarding the optimistic timing, I pointed out to the senator that it took President Ronald Reagan nearly three years to complete a tax-reform bill and his plan was far more methodical and detailed than the one-page primer released by the Trump administration in April. http://www.cnbc.com/…
Grassley was confident enough legwork had been done over the years that Congress understands what needs to be done.
"We've had a lot of meetings and there's a lot of work going on at the staff level, the Treasury Department, the House Ways and Means Committee, the Senate committee -- at the staff level. My staff person is in meetings every week on this whole issue and the White House promised to be more detailed than the one page they gave us in May," Grassley said.
Yet, as the New York Times reported on Wednesday, there's a "mammoth legislative logjam" awaiting lawmakers when they return next week. The Senate is trying to pass its version of health-care legislation, there's still a 2018 budget that needs to be passed in both chambers of Congress, then there is a debate over the next debt ceiling as well. All of that would come before a tax-reform bill. https://www.nytimes.com/…
Still, there is a major battle over offsets for the tax cuts and the concept of dynamic scoring. Dynamic scoring implies that changes made in tax policy would lead to other positive repercussions in the economy so the impact of lost federal revenue would be far less than what it seems. It's an optimistic projection of trickle-down economics.
For instance, the Tax Foundation released a report exactly one year ago stating that the House tax plan would reduce federal revenue by $2.4 trillion over the first ten years. Yet, "due to the larger economy and the broader tax base, the plan would reduce revenue by $191 billion over the first decade."
That's a big dynamic change to show that an average $240 billion a year in tax cuts would really only affect the Treasury by an average of $19.1 billion. https://taxfoundation.org/…
In terms of broadening the tax base, the House is looking at doing away with deductibility of interest expenses. Eliminating the deductibility of interest would apply to new loans. Old debt would be grand-fathered in at the time the tax law is passed. Grassley said that eliminating interest deductibility would harm farmers' ability to lower taxable income.
"If you did away with interest deduction in agriculture, it wouldn't be the right thing to do," Grassley said. "It would hurt agriculture."
According to the Tax Foundation, disallowing interest deduction on new loans would boost federal revenue by $1.19 trillion over 10 years. Yet, another proposal would allow full expensing of capital investments by businesses, which would cut taxes $2.24 trillion over ten years as well.
One priority for Grassley is eliminating the estate tax.
"Since this is a program for agricultural listeners, I would suggest doing away with the estate tax would be something I would want to have accomplished," Grassley said.
Getting rid of the estate tax is often declared as a major reform needed to save the family farm from one generation to the next. But farms made up about 2.6% of all assets declared by estates that paid the tax in 2015, the last year of available data. All real estate and partnerships assets made up about 9% of all assets claimed in estates that paid the tax. The bulk of assets involved in estate taxes are stocks or bonds held by the deceased.
Another unanswered question when it comes to the estate tax is what happens to basis on inherited assets? Under the House plan rolled out last year, capital gains would be taxed essentially at half the rate of ordinary income. If the top tax rate were 33%, then the top capital gains rate would be 16.5% on all gains. That essentially makes the estate tax-basis issue a wash because the average estate tax generally comes to just under 17% of the total asset value.
While the House also has been mulling over the idea of a border adjustment tax, Grassley said such a plan would have no support in the Senate at this point. The Tax Foundation last year pegged a border tax as generating over $1 trillion in revenue over 10 years, which would depend greatly on the rate set for that border tax.
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