What is a realistic time frame for tax reform to be considered by Congress, and will the public have a chance to comment on tax reform bills as they make their way through Congress?
Comprehensive tax reform is a complex process and will take time and political capital for enactment into law. The House Ways and Means Committee has made considerable progress in drafting a bill, but more work remains at the Committee level before it will be scheduled for consideration. Once draft legislation is completed, meetings and formal hearings with stakeholders will take place. The new Administration will be involved in the process in the run-up to a Committee vote. I believe this Committee vote could happen as soon as the summer months if there is agreement among Republican members of the Ways and Means Committee. Of course, for tax reform to be enacted into law, the Senate and Administration must be in agreement with the House. Getting to enactment could take considerably longer, perhaps two to three years at a minimum. Much depends on the day-to-day involvement of the Administration and the political capital spent by the President and his team. Throughout this process the public and all stakeholders will have multiple opportunities for comment on tax reform bills. Public input and acceptance are critically important for successful reform.
Given that some of the tax reform proposals currently being circulated will significantly reduce revenue, will Congress broaden the base? If so, does Congress have the political capital to pursue a broader base?
Broadening the base is certainly under consideration. Dynamic scoring of the bill will also be used. Dynamic scoring will better reflect the economic and revenue impact of tax reform. Congress will have the political capital at the outset, and political capital spent by the President and his team will be essential to enacting a final reform bill. Without presidential involvement it will not happen.
Presently, U.S. persons are required to pay taxes to the U.S. government on their worldwide income under the current tax regime (i.e., worldwide taxation). Do you believe this will change during this round of tax reform? If so, what might that U.S. international tax regime look like?
Under current law, U.S. corporations are subject to the U.S. corporate tax rate of 35 percent on earnings abroad upon repatriation of those earnings into the U.S., offset by any relevant foreign tax credits. This puts U.S. headquartered corporations at a disadvantage relative to foreign competitors. U.S. earnings remain trapped overseas to avoid double taxation and taxation at the highest rate in the industrialized world. Tax reform will change this by moving from a system of worldwide taxation to a territorial system whereby taxes are owed only in the jurisdiction where the revenues were earned. This will be coupled with a significant reduction in the U.S. corporate tax rate. These changes will make U.S. companies much more competitive by leveling the playing field. It will also free restrictions on the use of capital and make the U.S. a more competitive destination for investment.
What is a realistic time frame for repeal and replacement of Affordable Care Act (ACA) and will it be necessary and feasible to coordinate ACA repeal with tax reform?
The repeal and replacement of ACA will be difficult and fraught with pitfalls. Steps can be taken under budget reconciliation coupled with executive orders and regulatory changes. There is danger in coverage disruption and higher premiums if care is not taken with the steps and sequencing of those steps. Further complicating this is the fact that Republicans have not come to agreement among themselves on what is offered in replacement and the timing of replacement. While there are new taxes that are part of ACA, I don’t believe extensive coordination between ACA repeal and comprehensive tax reform is necessary. The ACA taxes will generally be treated separately.
What key elements are likely to be included in a replacement for the ACA, and what features from ACA are likely to be retained?
Replacement will likely include expanded health savings accounts, association health plans for small business, relaxation of restrictions on health insurance products, and elimination of the individual and employer mandates. Features retained will include allowing dependent children under age 26 to stay on the parent’s health plan, prohibition on insurance companies from denying coverage because of preexisting conditions, and elimination of lifetime caps on coverage.
Given that reductions to the corporate tax rate appear to be a strong agenda item, do you believe that a corresponding rate reduction for pass-through entities is an equally strong and feasible agenda item?
Yes. The corporate tax rate cannot be reduced while leaving tax rates for individuals and pass-through entities significantly higher. There will be fewer tax brackets, and the rates will be lower for individuals. Capital gains and dividends will also be taxed at a lower rate.
Where do you see the estate, gift, and generation-skipping tax regimes at the end of tax reform?
In the House of Representatives I believe the estate tax will be repealed. There will likely be revised limits on the gift tax, but details remain to be determined. It is not clear as of now what, if any, changes will be made to the generation-skipping tax regime. I am not certain of the views held in the Senate on these items.
About Dr. Charles Boustany, Jr.
Dr. Charles Boustany, Jr., served as Louisiana’s Third Congressional District Representative. A heart surgeon with 20 years of experience, Boustany is a trusted voice on tax, healthcare, energy, agriculture, and infrastructure policy. Boustany, a former member of the House Ways and Means Committee, served as Chairman of the Tax Policy Subcommittee and was the only Louisiana Member to serve on a tax-writing committee.