While health reform and a Supreme Court nomination may dominate the news cycle in the early days of the Trump administration, tax reform is already taking shape behind the scenes. With committee staff digging into the specifics of reform legislation, if you care about the impact of tax policy on your business, the time to engage is now.
We’re also seeing the early steps toward a major push to change financial-services and consumer-finance regulation.
Here’s what we expect to see in Washington as it affects business and the financial sector in the early days of 2017.
Congressional leadership plans to tackle tax reform after passing Affordable Care Act (ACA) reforms. The same committees now working on the ACA repeal – the House Ways & Means Committee and the Senate Finance Committee – will take the lead on a tax bill. Like the ACA repeal, a tax measure will be pursued through budget reconciliation, which allows measures to pass with only 51 votes in the Senate. Because no reconciliation bill passed in 2016, Congress can use that process twice in 2017: once to repeal the ACA and once to pass comprehensive tax reform.
Committee staff are, as mentioned, already at work on legislation that would overhaul much of the U.S. tax code, reducing the corporate tax rate to 20 percent or lower and eliminating or significantly curtailing the vast majority of common business and personal deductions. The basic outlines for the plan come from the Better Way Blueprint released last year by House Speaker Paul Ryan (R-WI).
But that plan will face many contentious debates, and not only from the minority party. Conservatives in the House and Senate, including Sen. Rand Paul (R-KY), are hesitant to support any budget reconciliation bill that won’t eventually produce a balanced budget. And you can count on every interest group to mount a determined fight to preserve the deductions that support their bottom line. For instance, the Ryan-Brady Blueprint calls for replacing the interest-payment deduction for businesses with a 100 percent deduction for capital expenditures and leaves the door open for a reformed mortgage-interest deduction. We expect many business interests, especially in the real estate industry, to carefully scrutinize those proposals.
Jeb Hensarling (R-TX), chairman of the House Financial Services Committee, remains committed to reforming, if not repealing, the Dodd-Frank Wall Street Reform and Consumer Protection Act. Mr. Trump campaigned on “dismantling” Dodd-Frank, though he has not yet articulated a strategy.
Absent a plan from the White House, or from treasury secretary nominee Steven Mnuchin (who likewise has voiced support for reforming Dodd-Frank without providing significant detail), the Dodd-Frank conversation will likely be driven by a proposal from Mr. Hensarling.
Mr. Hensarling’s Financial CHOICE Act provides for a comprehensive overhaul of financial services regulation. And while the bill is unlikely to pass as it stands, Mr. Hensarling’s committee staff has begun soliciting input on a new draft, which they’re calling Financial CHOICE 2.0. Still, we expect many of the broad principles outlined in the first iteration to endure, even if in slightly altered form. Those principles include:
The real battle over Dodd-Frank reform will be fought in the Senate. Because it cannot pass through reconciliation, it will be subjected to the 60-vote threshold (under current Senate rules). To pass it, Republicans will have to muster at least eight Democratic votes, no easy task with 18 Democrats facing reelection in 2018, including three on the Senate Banking Committee.
Senate Minority Leader Chuck Schumer has already declared that “We are not going to roll back Dodd-Frank.” Mike Crapo (R-ID) is in his first month as chairman of the Senate Banking Committee, where any legislation scaling back Dodd-Frank is likely to face stout opposition from Ranking Member Sherrod Brown (D-OH) and Sen. Elizabeth Warren (D-MA). Sen. Warren has been one of the most vocal defenders of the CFPB and will vigorously battle any attempt to curtail its power, as will Sen. Bernie Sanders (D-VT).
On January 11 the House passed the Regulatory Accountability Act, which repeals the Chevron deference standard and imposes several limitations on the power of federal agencies. If enacted, this would severely restrict agency interpretation of congressional intent and have the practical impact of restraining agency rulemakings.
We also expect Congress to quickly rescind many of the Obama administration’s final regulations through the Congressional Review Act, which allows Congress to reject recent executive regulations by a simple majority vote. Those actions are subject to a presidential veto, but President Trump is likely to approve any CRA actions sent to him by Congress.