Gary Cohn: the ambitious tax reform schedule is likely to raise eyebrows on Capitol Hill
Gary Cohn: 'Starting next week, the president’s agenda and calendar is going to revolve around tax reform' © Bloomberg

Donald Trump will launch a major push on tax reform next week with a speech in Missouri, as the president shifts focus to fiscal policy in an effort to secure a badly needed first big legislative victory by the end of the year. 

Gary Cohn, head of the White House national economic council, told the Financial Times that the speech, which officials said was planned for Wednesday, would be the first in a series of addresses designed to convince the US public about the need to revamp a tax system that has remained largely unchanged for three decades.

“Starting next week, the president’s agenda and calendar is going to revolve around tax reform,” Mr Cohn said in an interview. “He will start being on the road making major addresses justifying the reasoning for tax reform and why we need it in the US.”

The Missouri speech will come just before Congress returns from its summer recess. Mr Cohn said the key Republicans on Capitol Hill — House Speaker Paul Ryan; Senate majority leader Mitch McConnell; and Kevin Brady and Orrin Hatch, the heads of the congressional tax-writing committees — had agreed a framework that would serve as the basis for a bill that will be hammered out over coming weeks. 

The ambitious schedule is likely to raise eyebrows on Capitol Hill where the details of tax reform remain contentious and the decision to rely on the two committees to craft the details appears to be a partial shift on the part of the Trump administration.

Earlier this year Steven Mnuchin, Treasury secretary, told the Financial Times that the White House had hoped to have a plan in place by August that it would then discuss with lawmakers.

“The ‘big six’ have been meeting and have come up with an outline . . . and we have a good skeleton that we have agreed,” Mr Cohn said in a reference to the lawmakers, himself and Mr Mnuchin. “Now it is Chairman Brady’s time to get the [House] ways and means committee together to put flesh and bone on it, and they will do it next week when the House comes back into session.”

Mr Cohn said he hoped that the ways and means committee, the House panel that initiates tax legislation, would draft a bill over the next three to four weeks. He believed Congress would pass legislation this year.

Mr Cohn, who declined to comment on speculation that he is a candidate to succeed Janet Yellen as chair of the Federal Reserve, denied that the timetable was overly ambitious, saying the committees had been working on tax for years. But sceptics say tax reform will be more complicated than healthcare reform, which the Republicans could not pull off despite talking for seven years about their goal of repealing Obamacare.

“They have been holding hearings [on tax] for years . . . It’s not like they are just starting the process now,” Mr Cohn said. “I do think it can pass both of the tax committees and both chambers in 2017.”

Some Republicans have questioned why Mr Trump has been attacking Mr McConnell and Mr Ryan — blaming them on Thursday for creating a debt ceiling “mess”— when they are crucial to passing tax legislation. Mr Cohn played down the tensions, saying Mr Trump and the lawmakers agreed that reform was needed to raise growth.

“We have been working very closely with Speaker Ryan and leader McConnell,” he said. “We work well together and we have made a massive amount of progress. We released a statement at the end of July saying we were united in a framework that we intend to move through the legislative process, and I have no doubt they will work with us to do that because they know how important tax reform is for the country.”

Mr Cohn also pushed back against the idea that tax reform would be complicated by other legislative priorities: Congress must pass a budget to keep the government running beyond September and lawmakers must raise the debt ceiling to ensure that the US does not have to default on its debt.

Mr Trump has said a shutdown may be needed to ensure he gets funding for his US-Mexico border wall. Meanwhile, ultra-conservative Republicans want any bill increasing the debt ceiling to contain measures to reduce the deficit — a pledge Mr Trump made during the election campaign.

“At the end of the day, Congress has to increase the debt ceiling — that is just the reality . . . We cannot be put in a position where we default,” Mr Cohn stressed. “The debt ceiling stuff will be in September, so before [tax legislation].”

Mr Cohn indicated that the White House does not have a fixed or detailed plan for tax reform; instead it is asking the committees to negotiate the details. He would not say if the White House wanted a corporate tax rate of 15 per cent — which Mr Trump previously insisted on — simply saying that he wanted the rate “as low as possible so that businesses want to create jobs here”.

He said the plan would preserve three of the biggest deductions for individuals: on charitable donations, mortgage interest payments and retirement savings. It would raise the standard deduction cap that applies to most tax filers, but would eradicate many other personal deductions, he said, adding that the White House also wanted to get rid of “death taxes”, Republican terminology for estate taxes, which will face resistance from Democrats.

Mr Cohn said the White House would be “excited” if Democrats worked with Republicans on a bipartisan bill. But he said the administration would use a process called reconciliation — which prevents a filibuster in the Senate where the Republicans have a thin 52-48 majority — that would allow tax reform to pass with a simple majority, but only if the legislation is revenue-neutral within 10 years.

This revenue-neutral forecast is likely to be achieved almost entirely with dynamic scoring, a calculation that presumes an acceleration in the revenue base from strong future growth. Critics have questioned the assumption that it would produce enough economic growth to ensure a revenue-neutral package over 10 years.

Mr Cohn said the administration also wanted to implement a territorial system that would eliminate the need for US companies to pay additional taxes when they repatriate profits. “Today, they often have to pay extra taxes for bringing profits back to the US, which is why they keep the money offshore rather than reinvesting it back here in this country,” said Mr Cohn.

The administration wanted to impose a one-time tax on overseas profits to encourage companies to bring money home, he said, but he declined to confirm that it would be the 10 per cent floated by Mr Trump.

“This is a big base-broadening exercise,” Mr Cohn said about the overall plan. “Revenue may decline in the medium term, but it will then explode for the government. When we grow the economy we will see substantial growth in revenue.”

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