Republican Tax Overhaul Likely to Touch on Individual Provisions

Republican tax experts say there is an opening for individual tax provisions that align with President-elect Donald Trump’s populist rhetoric, even though pre-election discussions focused primarily on corporate rates.

Individual and corporate taxes are intertwined, and Republicans need to address individual changes because they’re aiming to help businesses that are taxed as individuals.

“You can’t really do corporate tax reform without doing the individual side,” former GOP tax aide Michael Steel said in an interview Tuesday.

Trump promised a child care tax deduction and credit as well as lower rates for everyone. The House GOP’s proposal released earlier this year calls for beefing up the child tax credit and standard deduction. It also proposes cutting the top individual rate from 39.6 percent down to 33 percent. According to a July analysis by the conservative Tax Foundation, individual income tax revenue would shrink by $981 billion over 10 years under the GOP proposal.

For Republicans now, the key message is growth. “The smart way to talk about tax reform, whether it’s on the individual or corporate side … is to talk about economic growth and jobs, and that’s very much the way the president-elect talks about it. That’s also the way virtually every Republican talks about it,” said Steel, who’s now a managing director at Hamilton Place Strategies in Washington. “The economic benefits from replacing an outdated, antiquated tax code are the real selling point.”

It’s unclear how taxwriters will handle Trump’s individual proposals when corporate reform drives the agenda. “Mr. Trump is clearly going to be interested in pushing something that deals with the individual side, and does so in a way that provides meaningful tax policy and tax relief, particularly for working families,” former Rep. Phil English (R-Pa.), a seven-term congressman who served on the House Ways and Means Committee, said in a Dec. 13 interview.

“A lot of the core issues are going to be around the business side,” added English, who’s co-chairman of the government relations practice at Arent Fox LLP in Washington. “It’s going to be driven heavily by business taxes, competitiveness concerns and also international taxes.”

It’s a misconception that corporate changes are lawmakers’ only priority, according to Steel. The unified GOP government puts more options are on the table. “I think the greater focus on corporate was kind of a reasonable thing to say before Secretary Clinton lost,” Steel said.

The challenge will be drawing up a growth-oriented package that doesn’t increase the deficit.

“How to pitch that to a populist audience is something that I suspect Mr. Trump has specific skill sets to do,” English said. “There are also Republicans like Paul Ryan, who, in his case, has virtually built a career around pitching tax reform to working-class families.”

Democrats are dubious.”Take a look at [Trump’s] cabinet and ask whether there’s any strain of populism there,” said former three-term Sen. Byron Dorgan (D-N.D.), who also worked on the Ways and Means Committee during his 12 years in the House. The corporate focus may not play well with voters, Dorgan added in a Dec. 13 interview. “Individuals will say, ‘Hey, we’re over here.'”

Dorgan is the other co-chairman of Arent Fox’s government relations practice.

Democrats will likely criticize the final GOP tax plan that emerges as being beneficial to the wealthy. The response, according to English, is that job growth will be a long-term effect, but the initial distribution effects will favor the wealthy. “How to square that is going to be a very interesting proposal,” he said.

The office of Ways and Means Committee Chairman Kevin Brady (R-Texas) did not respond to a request for comment.

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House Speaker Paul Ryan (R-Wis.) said the failure of the American Health Care Act is a setback for major GOP priorities like tax reform. “This does make tax reform more difficult, but it does not in any way make it impossible,” he said. “We will proceed with tax reform, we will continue with tax reform.” Ryan said Republican members have “even more agreement” on tax reform compared to health care.

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