Economist's Insights

Trying to Build Consensus on Tax Reform

Aug 22, 2017

A Tuesday morning Politico report moved tax reform to the forefront of Tuesday’s trading session. The report, citing multiple informed sources, indicated there may be a consensus building around several options for reforming the U.S. tax code. After the scrapping of the BAT proposal several weeks ago imperiled the hopes for significant reforms, the “Big 6” – the group of heavy-hitting White House aides and congressmen heading the tax reform charge – is searching for how to pay for the desired tax cuts. The report from Politico indicated a potential agreement among the group’s members on several possible options: (1) capping the mortgage interest deduction, (2) doing away with the deduction for state and local taxes, and (3) replacing the business interest deduction with a phased-in full expensing of capital expenditures. The report indicated a realistic corporate rate would likely fall between 22% and 25%, north of President Trump’s desired 15% corporate rate. The likelihood of a one-time repatriation holiday was also mentioned. Moreover, Senate Minority Leader Schumer reiterated on Monday two conditions to gain the support of Democrats on any tax reform.  He said, “We believe strongly that not one penny go to the top 1 percent and that any tax reform must be deficit neutral. … When Republicans figure out what they want to do, we’d be happy to work with them if they can agree on these broadly supported principles.”  Tax reform is expected to be the focus this fall and any twists and turns have the potential to create market volatility.