The Window for Tax Reform Is Closing

If there’s no basic agreement on corporate-tax reform by July 31, there likely won’t be one in the 114th Congress.

May 18, 2015, 4:01 p.m.

Tax writers in Con­gress thought they had the rest of the year to put to­geth­er a new cor­por­ate-tax scheme for the coun­try, but now they have a new dead­line—Ju­ly 31. If ne­go­ti­at­ors don’t come up with some kind of rudi­ment­ary agree­ment by then, it will be al­most im­possible to im­ple­ment any­thing but a few routine ex­ten­sions of pop­u­lar tax breaks be­fore the 2016 elec­tion.

Staffers from both the House and the Sen­ate tax-writ­ing com­mit­tees said Monday that their pan­els haven’t giv­en up on put­ting to­geth­er a cor­por­ate-tax over­haul this year. The Fin­ance Com­mit­tee work­ing groups are ex­pec­ted to sub­mit their re­ports on pos­sible areas of agree­ment on tax changes at the end of the month, and they will try to draft those pos­sib­il­it­ies in­to le­gis­la­tion in June and Ju­ly.

But House GOP lead­ers last week punted at their first op­por­tun­ity to move the tax-re­form ball for­ward. Now, aides in­volved in the ef­fort say, the over­all task is harder.

If it doesn’t hap­pen this year, tax re­form in 2016 is vir­tu­ally out of the ques­tion. There are too many pres­id­en­tial can­did­ates in Con­gress who would be re­luct­ant to vote on a tax pack­age that dir­ectly im­pacts very few voters. In­di­vidu­al taxes aren’t ex­pec­ted to be part of the re­form bill, law­makers and ana­lysts agree.

Mean­while, Demo­crats are be­com­ing louder in their protest over link­ing any tax-re­form bill to a must-pass trans­port­a­tion bill. They ar­gue that short-term ex­ten­sions of High­way Trust Fund au­thor­ity can­not con­tin­ue with the car­rot-and-stick lure of tax re­form at the end of each post­pone­ment.

This week, Cap­it­ol Hill tax writers were sup­posed to have iden­ti­fied $8 to $10 bil­lion in rev­en­ue raisers to al­low the coun­try’s high­way and trans­it sys­tem to op­er­ate through the end of the year. That would have giv­en them six months to fig­ure out pos­sible changes on the cor­por­ate-tax front. That forth­com­ing tax pack­age, in the­ory, also was sup­posed to raise the re­quis­ite $89 bil­lion for a five- or six-year high­way bill that every­body wants.

But in­stead of pro­pos­ing a stop­gap bill for high­ways and trans­it through the end of the year, House Ways and Means Com­mit­tee Chair­man Paul Ry­an and Trans­port­a­tion and In­fra­struc­ture Com­mit­tee Chair­man Bill Shuster offered a two-month ex­ten­sion. One House aide said that was all they could man­age, giv­en the pres­sure from a few key law­makers who said they wanted to keep up the ur­gency for a big­ger high­way bill.

The House is slated to vote on the two-month high­way ex­ten­sion this week. The bill is ex­pec­ted to pass without too much trouble, al­though Demo­crats already are mak­ing noise about this be­ing the last stop­gap they will tol­er­ate. Rep. Earl Blumenauer, a Demo­crat from Ore­gon, wants to go as far as amend­ing the bill to state that there won’t be an­oth­er short-term high­way ex­ten­sion.

Yet aides for the GOP tax writers said Monday that they want to pass an­oth­er high­way ex­ten­sion in Ju­ly, this time with off­sets. An aide for the Ways and Means Com­mit­tee said it was still Ry­an’s plan to ex­tend high­way au­thor­ity through the end of the year and pass both a trans­port­a­tion and tax bill at that time.

Aaron Fobes, press sec­ret­ary for Sen­ate Fin­ance Com­mit­tee Chair­man Or­rin Hatch, said law­makers had made pro­gress on find­ing the off­sets for a longer-term high­way ex­ten­sion, but they needed more time to “work with our col­leagues on both sides of the aisle.”

This means tax writers must pull double duty for the next few months. First, they must find both the mon­et­ary off­sets and the polit­ic­al will for an­oth­er par­tial-year high­way ex­ten­sion by Ju­ly 31. Then they have to fig­ure out how they will fix the tax code with­in the few months they would buy if they man­age to pull off the first step. Staffers in­dic­ated that the Ju­ly 31 tax deal doesn’t have to be item­ized down to the last sec­tion of U.S. code, but it does need to of­fer a work­able path for­ward on agreed-upon tax items. And high­ways have to be taken care of no mat­ter what.

Sen. Thomas Carp­er, a Demo­crat from Delaware, is work­ing on a com­prom­ise meas­ure that would give tax writers time to come up with a cor­por­ate tax bill while also en­sur­ing a long-term high­way bill, ac­cord­ing to a Carp­er aide. He has been work­ing with Demo­crat­ic and Re­pub­lic­an col­leagues to as­semble a long-term strategy for in­fra­struc­ture that in­cludes al­tern­at­ive fund­ing ideas that would take ef­fect only if tax re­form doesn’t make it across the fin­ish line, the aide said.

De­tails about those al­tern­ate pay­ment mech­an­isms are still be­ing worked out be­cause Carp­er wants his com­prom­ise to be a bi­par­tis­an ef­fort. Still, Carp­er and those he is ne­go­ti­at­ing with would prefer a “pro-growth busi­ness tax re­form” bill that uses some of the rev­en­ues it raises for in­fra­struc­ture.

Both Carp­er and Sen­ate En­vir­on­ment and Pub­lic Works Com­mit­tee rank­ing Demo­crat Bar­bara Box­er also have been clear that they don’t want to con­tin­ue ex­tend­ing trans­port­a­tion au­thor­ity without a long-term end game. They in­tro­duced a two-month high­way ex­ten­sion last week, say­ing it was time for law­makers to face up to the hard choices of keep­ing the High­way Trust Fund solvent, even if it costs money. They in­dic­ated that an­oth­er short-term ex­ten­sion in Ju­ly would be prob­lem­at­ic.

EPW Com­mit­tee Chair­man James In­hofe also is in the camp of law­makers who don’t want to con­tin­ue the short high­way ex­ten­sions ad nauseam. He and Box­er plan to pass a long-term trans­port­a­tion bill in their com­mit­tee in June, even the fund­ing is­sue re­mains out­stand­ing. “That’s some­body else’s prob­lem,” In­hofe told Na­tion­al Journ­al re­cently when asked about the tax re­form/fund­ing conun­drum. “My ob­ses­sion is we’ve got to have the [high­way] bill, and we’ve got to pass the bill.”

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