US Tax Efforts Still Moving Forward

The health care reform efforts have disappointed. The House version has been all but forgotten about as the focus has shifted to the Senate. The challenge in the House has been repeated in the Senate, namely that the differences between different parts of the coalition embodied in the Republican Party are preventing the emergence of a working majority.  

The strategy for addressing tax reform is considerably different. It appears the negotiations are being hammered out by a special committee of six men. From the House of Representatives, Speaker Ryan and Chair of the Ways and Means Committee Brady are joined by McConnell the Majority leader from the Senate and Hatch, the Chair of the Finance Committee. Representing the Trump Administration is Treasury Secretary Mnuchin and Chair of the National Economic Council Cohn.  

In late April Mnuchin and Cohn provided a brief overview in a one-page summary of the Administration’s main points. These were aspirational goals and negotiating points rather than a developed proposal. Mnuchin pushed against the Border Adjustment Tax (BAT). It is not thought to be workable in the Senate. Nevertheless, Ryan and Brady do not appear to have given up on it, though have modified and allowed for a phasing in on the tax on all imports and a tax break for exports. 

With the talks confined to the six officials, word on developments has been minimal. Judging from various press reports, there appears to have been an attempt to remind investors that progress is indeed being made. A more cynical assessment might see the purpose as partly a distraction from the health care morass and other less flattering news developments.

The first take away is that the proposal is a lighter version compared some of the aspirational notions. For example, reports suggest the corporate tax rate could be cut to 23%. Including state and local taxes, the current tax schedule puts the marginal tax rate near 39%, compared with a 24.8% on average in the OECD. This is not the 15% that had been previously suggested. Moreover, the effective tax rate, what is paid, is closer to 19.5%.