- The Washington Times - Thursday, July 27, 2017

House Republicans gave up their months-long drive to impose a controversial new border tax as they, the White House and Senate leaders announced principles for a massive tax overhaul Thursday, insisting they can get it moving by the fall.

In a joint statement, administration and congressional leaders said they will focus on lowering taxes for the middle class and small-business owners — which likely means they’ll also have to cut taxes for wealthy individuals, in order to reach those small-business owners.

“We have always been in agreement that tax relief for American families should be at the heart of our plan,” the leaders said. “We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones.”

The statement was signed by House Speaker Paul D. Ryan, Senate Majority Leader Mitch McConnell, House Ways and Means Chairman Kevin Brady, Senate Finance Chairman Orrin G. Hatch, Treasury Secretary Steven Mnuchin, and National Economic Council Director Gary Cohn.

Critics said the statement was devoid of specifics, and said much more needs to be worked out before Congress will be ready to debate any legislation.

The leaders say they still plan on passing tax reform in 2017, despite a loaded fall calendar where lawmakers will also have to pass legislation to fund the government past Sept. 30 and raise the country’s debt limit.

But in order to pass a permanent overhaul to the tax code, Republicans likely need to pass a package that doesn’t add to the deficit in the long run, and axing the border tax means there’s about $1 trillion to make up elsewhere.

The statement also touted “unprecedented” capital expensing, which lets companies write off their capital costs but currently requires them to do it over a number of years.

One concrete outcome of Thursday’s announcement was the end of Mr. Ryan’s and Mr. Brady’s push for a border adjustment tax, which would have imposed a levy on imports. It was estimated to raise about $1 trillion.

Proponents also said it would help broaden the overall tax base by incentivizing U.S. manufacturing and keeping companies from moving overseas. But it had drawn fierce opposition from retailers who said consumers would face soaring prices.

“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,” the six leaders said in their statement.

On the business side, President Trump has said he wants to lower the U.S. corporate tax rate from 35 percent to 15 percent, while House Republicans had suggested a 20 percent corporate rate in their blueprint from last year.

But lawmakers also have to figure out how to treat small mom-and-pop shops that file their taxes as individuals.

The House GOP suggested a 25 percent rate for such “pass-through” entities that pay individual taxes on their dividends, but analysts caution that offering those businesses special treatment means larger companies, and even other wealthier individuals subject to the top marginal rate of 39.6 percent, would rush to restructure their finances to fall under the lower rate.

Appearing before the Senate Banking Committee in May, Mr. Mnuchin said they would not allow everyone to get the lower rate and that it would be limited to small- and medium-sized companies.

Mr. Trump also told The Wall Street Journal earlier this week that cutting taxes for the wealthy isn’t necessarily a focus of his.

“The people I care most about are the middle-income people in this country, who have gotten screwed,” Mr. Trump said. “And if there’s upward revision it’s going to be on high-income people.”

Rep. Mark Meadows, North Carolina Republican and chairman of the conservative Freedom Caucus, said many unanswered questions remain after Thursday’s statement.

“What are we going to do with expensing? What are we going to do with interest deductions and interest expensing? What’s the rate going to be?” he said. “We’ve got to get those kind of clear indications of where we’re going to be, but this is a step in the right direction.”

Democrats, meanwhile, said Republicans really just want to hand out tax breaks for the wealthy. “Republicans will ransack the education and health care of hard-working Americans to fund deficit-busting tax breaks for billionaires,” said House Minority Leader Nancy Pelosi, California Democrat.

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