As the tax debate intensifies on Capitol Hill, National Journal’s Alex Rogers sat down with Rohit Kumar, a tax expert at PricewaterhouseCoopers and former senior staffer for Senate Majority Leader Mitch McConnell, to assess the prospects for tax reform and how the bill’s success or failure may inform the midterm elections.
What do you expect to be the greatest challenge of getting tax reform done?
I think the greatest challenge is the intersection of the politics and the economics. The politics are clearly predominantly on the individual side. All of the coverage and all of the controversy is primarily on the individuals and what happens to the various adoption-tax credit or the itemized deduction for medical expenses or even state and local [tax deductions]—things where individuals can figure out, “This is what it means to me exactly.” Getting that to work well enough to be able to carry the business changes across the finish line, which is where the economics of tax reform are primarily driven—but the politics of business-tax reform are neutral to maybe even mildly negative just given the perceptions, really the misperceptions, about the business side of the code.
Do you expect it to get done this year?
Well, I expect something to get done this year; I don’t know if it’s a bill being signed into law. I do expect that the House is going to pass something this year, and I wouldn’t be surprised to see the Senate pass something this year. It’s an open question in my mind about whether they can get to a conference report this calendar year. I think a lot of that depends on [how] the Senate race in Alabama is shaping up.
Do you think that the Republicans will keep the House if they can’t pass tax reform?
I think it is hard to pin the outcome of 435 races on one piece of legislation specifically. I will say this, though: I think most elected Republicans—House and Senate—believe that if they don’t pass the tax bill, that the House is much more likely to be in jeopardy. And likewise they believe, if the tax bill passes, it will help ensure or solidify the majority because it will give them—and this part I absolutely agree with—it will give Republicans, House and Senate, something to talk about going into the midterm elections, to say to their voters: “You elected a Republican House, a Republican Senate, a guy who ran as a Republican as president, and this is what you got. We delivered something that is meaningful to you.”
With health care having not succeeded, if tax also fails, it gets harder for Republicans to have a message that they can run on in the midterm elections. Senate Republicans can maybe try to make an argument on judges, because they are confirming a lot of judges, and that might give them something.
Overall, what do you see as the major sticking points between the House and the Senate?
Well certainly SALT [the state and local tax deduction] appears to be shaping up to be one because the Senate can go bigger on SALT than the House seems being able to do based on the votes. Estate tax, I think, is likely to be a potential sticking point because it looks like the Senate is unlikely to do full repeal but maybe do some increase in the exemption amount. It would appear now that the anti-base-erosion rules are likely to be a point of difference because the Senate is taking a different approach and at least one provision of the House bill no longer raises very much money. So those are three areas in particular.
For you professionally, is this the most interesting tax debate in your career?
They’re all different in their own ways. This is certainly one of the larger, perhaps what may end up being one of the most significant, pieces of tax legislation to come across the finish line in my professional career. But the fiscal cliff was a fairly significant piece of tax legislation done under slightly different circumstances. … This is certainly shaping up to be on order of magnitude the largest tax bill in terms of degree of complexity and magnitude of change.
McConnell writes in his book that during the fiscal-cliff negotiations, President Obama said, “Rohit is being a real jerk about the spending offsets.” What was your response—and were you being a “real jerk?”
I don’t think I was being a jerk. The boss did ask me if I was being a jerk and I said, “I don’t think I am. I think I’m just coming up with spending offsets from their own budget.” But look, that was a tense time. It was tough. I didn’t particularly appreciate that characterization, but I understood why they might have felt that way.
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