There’s a better than even chance that we’ll know the outline of tax reform by the end of May, and it’s more likely than not that there will be a bill for President Trump to sign before the August recess, according to former congressman and U.S. Senate candidate Rick Lazio.
Lazio, senior vice president of alliantgroup, made the prediction despite the enormous amount of legislative action on the horizon.
“The Supreme Court nomination has to be acted on, there are a number of sub-cabinet appointees that haven’t been confirmed, a budget resolution has to be done, they have to approve a budget for the 2017-2018 fiscal year, a debt limit vote will happen in late summer, and repeal and replace of the [Affordable Care Act] are all on the table,” he said. “There are so many things to get done that a lot of people think there is no way they will make the timetable for tax reform, but I still think that it will all get done before the August recess.”
“This is the best opportunity for us to have a major tax overhaul in a generation,” he said. “Trump campaigned on it, and in order for it to be passed and signed into law, it’s critical that the president devote political capital to its passage. That’s because both Republicans and Democrats are impacted by special interest groups. These groups will often fight harder for the current breaks they have but are at risk of losing than they will fight for the provisions that might benefit them in the future.”
Brady (left) and Hatch are working on the landscape of tax reform.
Historically, presidential engagement has been crucial, according to Lazio. “In 1986 President Reagan was personally engaged with member of Congress, twisting arms, cajoling and encouraging. They had 300 people in the tax reform war room that worked on it,” he said. “A president often has to overcome not only partisan differences but geographic differences and industry concerns. So it’s important that President Trump ran on comprehensive tax reform, and now has his sights set on what could be the most significant legislative victory, at least in his first year in office. There’s a lot of work that has been done, but there is still a lot that needs to be done to get a bill signed into law before the August recess.”
The House has the most robust blueprint for a tax overhaul, according to Lazio. They have been working on it for some time and have developed an infrastructure for tax reform. And Paul Ryan has a major investment in tax reform himself,” he said. “We’ve probably never had a Speaker of the House that’s more knowledgeable or familiar with the Tax Code than Ryan, because he previously served as chairman of the tax-writing committee [the Ways and Means Committee].”
Lazio recently spoke to Ryan about tax reform, and reported that, “His intention is to get a bill to the president by August.”
“The Senate has more work to do. They’ve taken the position that they will be more deliberative about tax reform,” he explained. “Chairman [Orrin Hatch, R-Utah] and Chairman [Kevin Brady, R-Texas] have been meeting, so they know where there is general agreement and where there is risk, but if you look at where the House and the president are, and where I believe the Senate is, there seems to be broad agreement.”
“The first area of agreement is collapsing seven brackets into three. Both the House and the Senate are trying to simplify tax reporting and filing for the average citizen, and so they both are proposing significant increases in the standard deduction,” Lazio said. “The importance of this is that for many filers that now are claiming itemized deductions, they will likely find they will be better off by taking a much larger standard deduction than going through the process of itemizing.”
One of the reasons the emphasis is on getting tax reform “done” by the August recess is that political capital is optimal in a president’s first year in office, according to Lazio. “And next year, as elections get closer, the more susceptible members of Congress will be to political pressure,” he said. “They don’t want to go home and be beaten in town halls by interest groups if they can eliminate that. It’s going to take a strong move by leadership from the president on down to get it done by then. It has to get scored, and that can take time, so the risks are a busy calendar and the time it takes to score, especially the provisions that are evolving.”
One provision that Lazio sees as potentially ripe for expansion in tax reform is the R&D credit. “It was made permanent in 2015 after 30 plus years as a temporary provision,” he observed. “It has bipartisan support in both the House and the Senate. Tax reform offers the opportunity to enhance the credit in ways that would add to U.S. employment.”
Roger Russell is senior editor for tax with Accounting Today, and a tax attorney and a legal and accounting journalist.