Prospects for Tax Reform in 2015Published: May 5, 2015Updated: May 27, 2015National Journal Presentation Credits

Producer: Tucker DohertyDirector: Afzal Bari

Source: National Journal Research, 2015; Lori Montgomery, “Inside the Collapse of the Year’s Biggest Tax Deal,” Washington Post, December 11, 2014.

Tax Reform Was Unworkable in 2014’s Divided Congress

House Ways and Means

Committee

House of Representatives

Senate Finance

Committee

U.S. Senat

e

House Ways and Means Chair Dave

Camp (R-MI) was an enthusiastic supporter of tax reform, and his tax reform proposal was intended to be a

first step towards bipartisan compromise

Legislative Process for Advancing Tax-Reform Proposal

Proposal Enacted

While House Republican leadership also

supported overhauling the tax code in

principle, they were ultimately unsupportive

of Camp’s plan and chose not to consider the legislation in an

election year

With the departure of former Senate Finance Chairman Max Baucus (D-MT), the

committee lost its principal advocate for tax reform, and his replacement Ron Wyden (D-OR) could not convince Democratic leadership to

support his committee’s tax reform efforts

Senate Democrats faced a tough election

map in 2014, and Senate Majority

Leader Harry Reid (R-NV) was largely unwilling to put controversial

legislation up for a vote during an election year

Analysis•Despite a sustained effort by House Ways and Means Chairman Dave Camp (R-MI), comprehensive tax reform legislation was not passed in 2014 due to several factors that likely doomed the effort from the start•Divided control of Congress – with Republicans controlling the House and Democrats controlling the Senate – made it difficult to reach an acceptable compromise and increased the number of lawmakers with effective veto power over any potential deal•The timing of midterm elections in Fall 2014 also made reform less likely because leadership in both parties sought to avoid controversial votes and wanted to focus on other aspects of their platforms

Source: National Journal Research, 2015; Justin Sink, “Tax Reform, Highway Bill ‘Doable,’ Boehner Says,” The Hill, September 28, 2014.

Tax Reform May Face Better Odds in 2015

Analysis•In contrast with 2014, there are a number of factors that make comprehensive tax reform more possible in 2015•Because Congress was divided in 2014, tax reform legislation needed to be acceptable to majorities in both parties; with both chambers controlled by the GOP in 2015, tax reform legislation only needs to attract a handful of Democratic votes in the Senate•Because 2015 is an off-election year, lawmakers are more comfortable taking controversial votes on tax reform•Although House Speaker John Boehner (R-OH) has called tax reform “doable” this year, it remains to be seen if GOP leadership in both chambers will allow tax reform legislation to come to a vote

2014 2015

Committees Attempting to Draft Bipartisan Reform?

✓ ✓

Unified Control of Congress? X ✓

Not an Election Year? X ✓

Congressional Leadership Supportive? X ?

Key Factors Affecting Tax Reform Efforts, 2014 vs 2015

Source: National Journal Research, 2015.

New Committee Leadership Heading Reform Efforts in Senate

Analysis•The Senate Finance Committee has a long history of bipartisanship; expect major pieces of legislation to be the result of negotiations between Chairman Orrin Hatch and Ranking Member Ron Wyden •Hatch and Wyden’s predecessors, Senators Max Baucus (D-WY) and Chuck Grassley (R-IA), were known for their uncommonly close relationship throughout their tenure•Wyden, however, is considered closer to his party and further to the left politically than his predecessor, which could make it more difficult to achieve compromise•Chairman Orrin Hatch is known for being outspoken: if he is frustrated with the pace of progress on tax reform, he is more likely to speak up, so watch his public statements for hints of progress or frustration•Since the working relationship between Hatch and Wyden is relatively new, early successes on issues such as trade could pave the way for a productive relationship

Senate Finance Committee Leadership

Chairman Orrin Hatch (R-UT) Ranking Member Ron Wyden (D-OR)

Source: National Journal Research, 2015; Senate Committee on Finance.

Senate Finance Committee Aims to Create Bipartisan Tax Blueprint

Analysis•In 2014, Democrats argued that Rep. Camp’s tax reform plan was drafted without enough input from Congressional Democrats•To address these concerns, Chairman Hatch and Ranking Member Wyden agreed to form five working groups in the Senate Finance Committee focused on different aspects of the tax code•The committee hopes to compile a report by the end of May based on the working groups’ findings, which will ideally serve as a bipartisan blueprint for tax reform efforts this year

Individual Income Tax

Co-Chair Chuck Grassley(R-IA)

Co-Chair Debbie Stabenow(D-MI)

Co-Chair Mike Enzi (R-WY)

Chuck Schumer (D-NY)

Mike Crapo (R-ID) Bill Nelson (D-FL)

John Cornyn (R-TX) Bob Menendez (D-NJ)

Pat Toomey (R-PA) Michael Bennet (D-CO)

Business Income Tax

Co-Chair John Thune(R-SD)

Co-Chair Benjamin Cardin (D-MD)

Pat Roberts (R-KS) Debbie Stabenow (D-MI)

Richard Burr (R-NC) Tom Carper (D-DE)

Johnny Isakson (R-GA) Bob Casey (D-PA)

Rob Portman (R-OH) Mark Warner (D-VA)

Pat Toomey (R-PA) Bob Menendez (D-NJ)

Dan Coats (R-IN) Bill Nelson (D-FL)

Savings and Investment

Co-Chair Mike Crapo(R-ID)

Co-Chair Sherrod Brown (D-OH)

Richard Burr (R-NC) Benjamin Cardin (D-MD)

Johnny Isakson (R-GA) Bob Casey (D-PA)

Dean Heller (R-NV) Mark Warner (D-VA)

Tim Scott (R-SC) Bob Menendez (D-NJ)

International Tax

Co-Chair Rob Portman(R-OH)

Co-Chair Chuck Schumer(D-NY)

Pat Roberts(R-KS)

Sherrod Brown (D-OH)

Mike Enzi(R-WY)

Tom Carper(D-DE)

John Cornyn(R-TX)

Mark Warner(D-VA)

Community Development & Infrastructure

Co-Chair Dean Heller(R-NV)

Co-Chair Michael Bennet(D-CO)

Dan Coats (R-IN) Maria Cantwell (D-WA)

Tim Scott (R-SC) Bill Nelson (D-FL)

Senate Finance Committee Tax Reform Working Groups

Source: National Journal Research, 2015; Eric Pianin, “How Tax Reform Could Help Save U.S. Infrastructure,” The Fiscal Times, February 17, 2015.

Highway Trust Fund Shortfall Could Create Avenue for Tax Reform

Analysis•While the Highway Trust Fund issue might appear unrelated to tax reform efforts, the need to find new revenues for the fund could incentivize cooperation between Republicans and Democrats•House Ways and Means Chairman Paul Ryan (R-WI) sought an extension of the Highway Trust Fund until the end of the year to provide lawmakers with time to draft tax reform proposals, but advocates for a more permanent extension balked, leading to a compromise two month extension •The Obama administration has suggested paying for a long term extension with a repatriation holiday, which would encourage U.S. companies to bring foreign earnings back to the U.S. and pay taxes on them at a temporary lower rate•Chairman Ryan stated that a repatriation holiday would need to be part of a larger comprehensive tax reform package

Highway Trust Fund Extension: Scenarios and Outcome

House Ways and Means Chairman Paul Ryan wants an extension until the end of the year to give lawmakers time to draft tax reform proposals

Transportation advocates desire much longer term funding for the Highway Trust Fund

Facing a stalemate, lawmakers enacted a two month extension

Chairman Ryan’s

Proposal

AlternateProposals

Legislative Outcome

May 31 July 31 Dec 31

Source: National Journal Research, 2015.

More Comprehensive Reforms Less Likely Than Targeted Changes

Analysis•A deal that relies on tax reform to extend the Highway Trust Fund is the most plausible path to comprehensive tax reform in 2015•If Congress uses tax reform to fund the Highway Trust Fund, a repatriation holiday (or some other change to the international tax system) is very likely to be included in the reform package•It is somewhat likely that other provisions, such as closing certain loopholes and moderately lowering corporate rates, would be included in the reform package•While not impossible, the least likely outcome is a much larger, truly comprehensive reform of both the individual and corporate sides of the tax code, which would likely require both parties to make significant concessions and would involve many politically difficult votes

Likelihood of Hypothetical Tax Reform Packages

Repatriation tax holiday, or

other international tax reforms

More Likely

Less Likely

Repatriation tax holiday, or

other international tax reforms

A few bipartisan tax reform provisions, e.g.

closing certain tax loopholes

Repatriation tax holiday, or

other international tax reforms

A comprehensive overhaul of the corporate

tax code

A comprehensive overhaul of the individual

tax code

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