Tax reform in the 114th Congress was always a remote possibility.
But now it looks like business and analysts are ready to move beyond the reform effort and on to other tax legislative items after Senate Majority Leader Mitch McConnell appeared to discount the possibility of a broad deal being reached in an interview published over the weekend.
“We’re certainly not going to be able to be doing big, comprehensive tax reform with this president,” McConnell said in an interview with the publication Morning Consult posted online Sunday.
While Republicans and President Obama have said throughout the year that they are working on a tax reform plan, the path to a bipartisan agreement has always been narrow and treacherous.
The two sides are too far apart on tax rates on high incomes to reach an accord on individual tax rates, so the Obama administration has sought a deal on just the business side of the tax code. Both the White House and Republicans favor lowering the U.S. corporate tax rate, the highest among developed nations at 35 percent, and broadening the tax base by eliminating credits and deductions. The two sides also agree on using some of the proceeds from repatriation of the $2 trillion-plus in U.S. corporate earnings overseas to finance infrastructure projects.
That effort was plagued, most of all, by questions regarding the tax treatment of the millions of companies that file taxes through the individual tax code.
Nevertheless, businesses have pushed hard for reform, and representatives of large companies said Monday that it was too early to give up on the process.
“Not passing tax reform this year is a mistake,” said Randall Stephenson, chairman and CEO of AT&T and the chairman of the Business Roundtable, an association of business chief executives.
“You just cannot sit here in this competitive environment with the highest tax rate in the developed world and think it’s not going to have an impact on U.S. economic growth,” Stephenson said in a press call Monday.
Other congressional Republicans involved in tax legislation have not yet quit working on business tax reform.
A spokesman for Senate Finance Committee Chairman Sen. Orrin Hatch, R-Utah, said Hatch is “hopeful that the administration comes to the table and shows real leadership on forging bipartisan compromise.” The Finance Committee has broken into bipartisan working groups dedicated to crafting legislation on different aspects of the tax code, and that work will go on, Hatch’s office said.
In the House, Ways and Means Committee Chairman Paul Ryan, R-Wis., said last week that he has continued to work on business tax reform even as other items, such as trade legislation, have dominated the agenda.
“We’re chewing gum and walking at the same time,” Ryan told reporters in his office in the Capitol, noting that he works on four to five different legislative areas every day.
McConnell’s remarks were not intended to cut off those efforts. A McConnell spokesman clarified Monday that the senator was answering a question about comprehensive tax reform, not a business-only plan, and stating the problem with Obama’s demands for tax increases.
Nevertheless, it was interpreted by some observers as the end of any tax agreement during the Obama years.
“When it comes to big tax legislation, take two aspirin and call me in 2017,” wrote the nonprofit Tax Policy Center’s Howard Gleckman in a blog post Monday.
Stephenson suggested that the business group might shift its focus to ensuring that a raft of temporary corporate tax breaks, known as “extenders” because they are routinely extended, would be made permanent this year.
“I think we’re going to get to the end of this year and we’re going to have to evaluate: are we prepared to see all those extenders go away without line of sight to tax reform?” Stephenson said.
The House has been working on passing individual extenders. Taken together, all the extenders that have been re-upped in recent years provide the better part of a trillion dollars in tax cuts over a 10-year time frame.
Frank Clemente, executive director of Americans for Tax Fairness and a critic of the business push for lower tax rates, said that his attention would shift to extenders and the possibility of a smaller package on international taxation of businesses tied to must-pass funding for the highway trust fund, set to be exhausted by the end of July. “I’ve always thought that tax reform writ large is a very tough sell,” Clemente said.
Ryan Ellis, tax policy director at the low-tax proponent group Americans for Tax Reform, also said that the highway trust fund, along with extenders, would be the likely focus of Congress in the months ahead. His group’s priority is renewing the corporate extenders and avoiding a gas tax increase to pay for highway spending, or any other net tax increases. “In divided government, that’s sometimes the best tax reform of all,” Ellis told the Washington Examiner.
