Hatch Working to Find “Sweet Spot” on Tax Reform

Finance Committee Chair Says, “My goal in tax reform is to find the proverbial ‘sweet spot,’ that will maximize the growth potential of the final package without jeopardizing its prospects for passage.”

WASHINGTON – In remarks delivered today during the Bloomberg Global Transfer Pricing Conference at the National Press Club, Senate Finance Committee Chairman Orrin Hatch (R-Utah) discussed current efforts between Congress and the administration to unite behind a tax overhaul plan that will strengthen the economy, spur new job growth, and promote better opportunity for all Americans. Key excerpts follow:

On putting aside partisanship: “…Tax reform does not have to be a partisan exercise. Our current tax system imposes undue hardships on Republican and Democratic voters alike. Republicans and Democrats own businesses that they’d like to see grow and expand. Republican and Democrat workers would like to see their wages grow. Therefore, both Republicans and Democrats in Congress should be willing to relieve those hardships and improve the business conditions in our country, which is why members of both parties have been clamoring for tax reform in recent years.”

On shifting to a territorial system: “…We need to make major changes to our international tax system, which should include a conversion to a territorial system with safeguards in place to prevent base erosion…A territorial system will put us on par with other industrialized countries and allow our businesses to compete in the global marketplace.”

On lowering tax rates: “…Republicans in the Senate, the House and the White House are largely in agreement. In fact, I’d say that we agree on roughly 80 percent of the key issues…For example, we agree, by and large, on the need to provide significant tax relief for middle-class workers and families. We agree on the need to bring down tax rates on businesses – both corporations and pass-throughs – in order to create jobs and grow the economy.”

On revenue neutrality: “…People have differing definitions as to what constitutes revenue neutrality, and some tend to switch between them depending on what best makes their political case. As for me, I don’t believe an up-front commitment to revenue neutrality should be necessary in order to move forward on tax reform. However, we do have some budget hawks in our conference who will have a difficult time supporting a package that adds to the deficit, and we’ll have to take that into account…I don’t see a problem with a tax reform proposal that loses revenue in the short-term if we can show that it will help put our economy on a better growth path.”

The full speech as prepared for delivery is below:

Thank you for that kind introduction and for having me here today. I appreciate the opportunity to talk about the ongoing effort to reform our nation’s tax code.

In case it’s not 100 percent clear, let me state the obvious: We’re not done with tax reform just yet. But, we are getting closer. While the media loves to tell stories about divisions among Republicans, the truth is that, on tax reform, Republicans in the Senate, the House, and the White House are largely in agreement. In fact, I’d say that we agree on roughly 80 percent of the key issues.

For example, we agree, by and large, on the need to provide significant tax relief for middle-class workers and families. We agree on the need to bring down tax rates on businesses – both corporations and pass-throughs – in order to create jobs and grow the economy.

And, we agree on the need to fix our international tax system in order to make our nation more competitive while also preventing base erosion. Now, I won’t go into specifics today, but there are some high-profile items in the remaining 20 percent. And, there are some differences of opinion regarding most of those items.

Bridging that gap and finding the path forward is going to take some serious discussion and compromise, and those talks are ongoing. My hope is that people will be willing to adjust their expectations and bend on their preferences in order to make our larger shared goals a success.

Speaking for myself, I can say that I am willing to do so, and I have confidence my colleagues who will also be playing leadership roles in this effort are similarly willing. And, perhaps most importantly, I believe the president and his advisors in the administration are willing to make the necessary compromises to finally make tax reform a success.

That’s what’s been missing in the tax reform debate.

I’ve been beating the drum on tax reform for six years now. Throughout that time, I’ve argued that tax reform, if it’s going to be successful, will require presidential leadership. And, just to be clear, I wasn’t being political when I said that. I wasn’t simply urging the election of a Republican president. On the contrary, I repeatedly implored President Obama to engage with Congress on tax reform, but to no avail.

Now, we finally have a president who is willing to lead in this effort. And, no matter where anyone stands with regard to President Trump or the specifics of his tax plan, the fact that he is willing to meaningfully engage with Congress and the public on these issues should be viewed as a welcome sign for all tax reform advocates, regardless of their party affiliation.

Of course, not everyone sees it that way. Some of my friends on the other side of the aisle have already begun to describe the “Republican tax plan” in the worst possible terms, even though all they have right now are a few public outlines of reform principles, and not a detailed plan.

Still, as has become customary, some Democrats, along with various tax commentators and think tanks, have taken the liberty of filling in the details – ignoring what leaders in Congress and the administration have actually said on tax reform – and claiming that Republicans are intent on blowing a hole in the deficit in order to give a massive tax cut to the very rich. Of course, this is what they say about every Republican tax proposal – or about any tax proposal that isn’t mostly directed at raising additional revenue. But, while it’s not unexpected, it is a little odd to hear sweeping pronouncements made about plans that have not yet been made public.

Ultimately, this is just par for the course for Democrats under the current administration. Many of my friends on the other side have made the political calculation that it is better to simply oppose President Trump on all fronts than to try and find any common ground, even if the actual policy differences are relatively small.

Whether it’s tax reform, nominations, or whatever, a significant number of my Democratic colleagues are already thinking about the 2018 mid-term elections rather than focusing on what we might be able to accomplish if we work together and, most importantly, what we can do for the American people.

In case that sounds overly pessimistic, let me make something clear: I am still hoping that tax reform can be bipartisan. Most Republicans are ready and willing to work with the president to get tax reform done. And, at the end of the day, we should have the procedural tools in place that will allow us to pass tax reform even if the Democrats, at the end of the day, are unwilling to work with us.

But, tax reform does not have to be a partisan exercise. Our current tax system imposes undue hardships on Republican and Democratic voters alike. Republicans and Democrats own businesses that they’d like to see grow and expand. Republican and Democrat workers would like to see their wages grow.

Therefore, both Republicans and Democrats in Congress should be willing to relieve those hardships and improve the business conditions in our country, which is why members of both parties have been clamoring for tax reform in recent years.

So, while I do find the rhetoric we’re hearing from some of the louder voices on the other side a little discouraging, I am going to keep working at it.

As of right now, leaders in both chambers of Congress and the White House are meeting regularly to discuss the ongoing tax reform effort, and I think we’re making some serious headway toward a workable framework. Like I said before, there are some unresolved issues, but, in my view, they are far from insurmountable.

I get asked about some of these unresolved issues all the time. And, I’m sure many of you have similar questions. So, let me make a few additional points just so we’re clear about where I stand on some key issues.

First, as far as I’m concerned, virtually any potential offset for reduced tax rates should be on the table, and that includes the Border Adjustment Tax from the House tax reform blueprint. Now, I don’t need to tell you about the resistance that we’re seeing with regard to the BAT. Some industries are downright apoplectic about it. And, some senators have expressed some pretty pointed opinions regarding the proposal.

I don’t think I’m making any news when I say that, given the small margin of error we have in the Senate and the number of senators who oppose the very concept of a BAT, the proposal will have a difficult time becoming law. That said, I want to see the specifics of the proposal and find out if it works like its proponents say it will. Until then, I’m not going to publicly rule anything out. Thus far, all we have is the blueprint, which isn’t enough.

Second, as chairman of the Senate’s tax-writing committee, I’m not committed to any specific rate targets. I’m constantly asked if I want to get corporate rates down to 15 percent or 20 percent or where specifically I think the top individual rate should be set. But, until we perform the surgery and start eliminating preferences and credits in order to bring down rates – and get official feedback from the Joint Committee on Taxation – we can’t speak definitively on the rate targets. And, of course, we have to see just where our members are going to object to the removal of certain tax provisions because, once again, our margin of error with regard to the vote total is very slim.

All of that is going to take some time. Of course, we’ve been at this for a number of years and we do have some idea as to where things will shake out, but there are other factors – including some political factors – that we’ll need to take into account.

Now, I know that the House blueprint and the president’s tax proposal included some specific rate targets, which is fine by me. But, I also think that both the House leadership and the administration are willing to compromise and move off of their specific targets if it means getting a bill passed. At the end of the day, I think we all share the same goal, which is to get rates as low as possible under the circumstances.

Third, we need to make major changes to our international tax system, which should include a conversion to a territorial system with safeguards in place to prevent base erosion. I know that’s a very general position, but there has been some question on where members come down on that specific target. My position has, I believe, remained clear: A territorial system will put us on par with other industrialized countries and allow our businesses to compete in the global marketplace.

Finally, there is the question of revenue neutrality. This is a touchy subject for some. In fact, recently, some of my friends on the other side of the aisle have suggested that, if tax reform is not revenue neutral, they will refuse to vote to raise the debt limit.

Setting aside the fact that, under the previous administration, Democrats argued that even the mere mention of adding conditions to a debt limit increase made Republicans “economic terrorists,” this particular condition, if my colleagues go through with it, would go far beyond anything demanded of President Obama. It’s also a vague demand that would just beg my colleagues to constantly move the goalposts.

When I heard that this possibility had been raised, a number of questions came to mind. For example, if the specifics of the tax reform package are not finalized before the need for a debt-limit increase arises, how will they make this demand in advance? A verbal agreement? A handshake?

Also, how will they define revenue neutrality? Will it require a static analysis from JCT? Will they accept any macroeconomic scoring of any kind, as they did, approvingly, when immigration reform was under consideration?

That’s precisely the problem with demands for revenue neutrality under any circumstances: People have differing definitions as to what constitutes revenue neutrality, and some tend to switch between them depending on what best makes their political case.

As for me, I don’t believe an up-front commitment to revenue neutrality should be necessary in order to move forward on tax reform. However, we do have some budget hawks in our conference who will have a difficult time supporting a package that adds to the deficit, and we’ll have to take that into account, because, once again, we can’t afford to lose too many votes. Personally, I don’t see a problem with a tax reform proposal that loses revenue in the short-term if we can show that it will help put our economy on a better growth path. But, like I said, we’ll need to see where the votes are.

Regarding all of these issues, it is important to keep in mind – and I’m speaking to the experts here in this room, to my colleagues, and to stakeholders throughout the country – that this process, if it’s going to be successful, needs to be about the art of the doable.

We all have our wish-lists for what we’d like to see in tax reform. And, currently our odds for success in this effort are better than they’ve been in roughly 30 years. As a result, some will assuredly want to swing for the fences on this exercise. But, while I believe we should be ambitious, we must also be realistic. At the end of the day, any bill or proposal that can’t get 51 votes in the Senate and 218 votes in the House is, not to put too fine a point on it, a waste of time.

My goal in tax reform is to find the proverbial “sweet spot,” that will maximize the growth potential of the final package without jeopardizing its prospects for passage. To that end, I am in constant contact with the administration and the leaders in the House, as well as the Senate leadership, in an ongoing effort to find that balance.

I think we can do it. And, I hope that we’ll have your help along the way. Thank you, once again, for having me here today. Thank you for listening. God bless you all.

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