Prospects for Tax Reform in 2015 Published: May 5, 2015 Updated: May 27, 2015 National Journal Presentation Credits Producer: Tucker Doherty Director: Afzal Bari

Source: National Journal Research, 2015; Lori Montgomery, “Inside the Collapse of the Year’s Biggest Tax Deal,” Washington Post, December 11, Tax Reform Was Unworkable in 2014’s Divided Congress House Ways and Means Committee House of Representatives Senate Finance Committee U.S. Senate House Ways and Means Chair Dave Camp (R-MI) was an enthusiastic supporter of tax reform, and his tax reform proposal was intended to be a first step towards bipartisan compromise Legislative Process for Advancing Tax-Reform Proposal Proposal Enacted While House Republican leadership also supported overhauling the tax code in principle, they were ultimately unsupportive of Camp’s plan and chose not to consider the legislation in an election year With the departure of former Senate Finance Chairman Max Baucus (D-MT), the committee lost its principal advocate for tax reform, and his replacement Ron Wyden (D-OR) could not convince Democratic leadership to support his committee’s tax reform efforts Senate Democrats faced a tough election map in 2014, and Senate Majority Leader Harry Reid (R-NV) was largely unwilling to put controversial legislation up for a vote during an election year Analysis Despite a sustained effort by House Ways and Means Chairman Dave Camp (R-MI), comprehensive tax reform legislation was not passed in 2014 due to several factors that likely doomed the effort from the start Divided control of Congress – with Republicans controlling the House and Democrats controlling the Senate – made it difficult to reach an acceptable compromise and increased the number of lawmakers with effective veto power over any potential deal The timing of midterm elections in Fall 2014 also made reform less likely because leadership in both parties sought to avoid controversial votes and wanted to focus on other aspects of their platforms

Source: National Journal Research, 2015; Justin Sink, “Tax Reform, Highway Bill ‘Doable,’ Boehner Says,” The Hill, September 28, Tax Reform May Face Better Odds in 2015 Analysis In contrast with 2014, there are a number of factors that make comprehensive tax reform more possible in 2015 Because Congress was divided in 2014, tax reform legislation needed to be acceptable to majorities in both parties; with both chambers controlled by the GOP in 2015, tax reform legislation only needs to attract a handful of Democratic votes in the Senate Because 2015 is an off-election year, lawmakers are more comfortable taking controversial votes on tax reform Although House Speaker John Boehner (R-OH) has called tax reform “doable” this year, it remains to be seen if GOP leadership in both chambers will allow tax reform legislation to come to a vote Committees Attempting to Draft Bipartisan Reform? ✓✓ Unified Control of Congress? X ✓ Not an Election Year? X ✓ Congressional Leadership Supportive? X ? Key Factors Affecting Tax Reform Efforts, 2014 vs 2015

Source: National Journal Research, New Committee Leadership Heading Reform Efforts in Senate Analysis The Senate Finance Committee has a long history of bipartisanship; expect major pieces of legislation to be the result of negotiations between Chairman Orrin Hatch and Ranking Member Ron Wyden Hatch and Wyden’s predecessors, Senators Max Baucus (D-WY) and Chuck Grassley (R-IA), were known for their uncommonly close relationship throughout their tenure Wyden, however, is considered closer to his party and further to the left politically than his predecessor, which could make it more difficult to achieve compromise Chairman Orrin Hatch is known for being outspoken: if he is frustrated with the pace of progress on tax reform, he is more likely to speak up, so watch his public statements for hints of progress or frustration Since the working relationship between Hatch and Wyden is relatively new, early successes on issues such as trade could pave the way for a productive relationship Senate Finance Committee Leadership Chairman Orrin Hatch (R-UT)Ranking Member Ron Wyden (D-OR)

Source: National Journal Research, 2015; Senate Committee on Finance. Senate Finance Committee Aims to Create Bipartisan Tax Blueprint Analysis In 2014, Democrats argued that Rep. Camp’s tax reform plan was drafted without enough input from Congressional Democrats To address these concerns, Chairman Hatch and Ranking Member Wyden agreed to form five working groups in the Senate Finance Committee focused on different aspects of the tax code The committee hopes to compile a report by the end of May based on the working groups’ findings, which will ideally serve as a bipartisan blueprint for tax reform efforts this year Individual Income Tax Co-Chair Chuck Grassley (R-IA) Co-Chair Debbie Stabenow (D-MI) Co-Chair Mike Enzi (R-WY)Chuck Schumer (D-NY) Mike Crapo (R-ID)Bill Nelson (D-FL) John Cornyn (R-TX)Bob Menendez (D-NJ) Pat Toomey (R-PA)Michael Bennet (D-CO) Business Income Tax Co-Chair John Thune (R-SD) Co-Chair Benjamin Cardin (D-MD) Pat Roberts (R-KS)Debbie Stabenow (D-MI) Richard Burr (R-NC)Tom Carper (D-DE) Johnny Isakson (R-GA)Bob Casey (D-PA) Rob Portman (R-OH)Mark Warner (D-VA) Pat Toomey (R-PA)Bob Menendez (D-NJ) Dan Coats (R-IN)Bill Nelson (D-FL) Savings and Investment Co-Chair Mike Crapo (R-ID) Co-Chair Sherrod Brown (D-OH) Richard Burr (R-NC)Benjamin Cardin (D-MD) Johnny Isakson (R-GA)Bob Casey (D-PA) Dean Heller (R-NV)Mark Warner (D-VA) Tim Scott (R-SC)Bob Menendez (D-NJ) International Tax Co-Chair Rob Portman (R-OH) Co-Chair Chuck Schumer (D-NY) Pat Roberts (R-KS) Sherrod Brown (D-OH) Mike Enzi (R-WY) Tom Carper (D-DE) John Cornyn (R-TX) Mark Warner (D-VA) Community Development & Infrastructure Co-Chair Dean Heller (R-NV) Co-Chair Michael Bennet (D-CO) Dan Coats (R-IN)Maria Cantwell (D-WA) Tim Scott (R-SC)Bill Nelson (D-FL) Senate Finance Committee Tax Reform Working Groups

Source: National Journal Research, 2015; Eric Pianin, “How Tax Reform Could Help Save U.S. Infrastructure,” The Fiscal Times, February 17, Highway Trust Fund Shortfall Could Create Avenue for Tax Reform Analysis While the Highway Trust Fund issue might appear unrelated to tax reform efforts, the need to find new revenues for the fund could incentivize cooperation between Republicans and Democrats House Ways and Means Chairman Paul Ryan (R-WI) sought an extension of the Highway Trust Fund until the end of the year to provide lawmakers with time to draft tax reform proposals, but advocates for a more permanent extension balked, leading to a compromise two month extension The Obama administration has suggested paying for a long term extension with a repatriation holiday, which would encourage U.S. companies to bring foreign earnings back to the U.S. and pay taxes on them at a temporary lower rate Chairman Ryan stated that a repatriation holiday would need to be part of a larger comprehensive tax reform package Highway Trust Fund Extension: Scenarios and Outcome House Ways and Means Chairman Paul Ryan wants an extension until the end of the year to give lawmakers time to draft tax reform proposals Transportation advocates desire much longer term funding for the Highway Trust Fund Facing a stalemate, lawmakers enacted a two month extension Chairman Ryan’s Proposal Alternate Proposals Legislative Outcome May 31July 31Dec 31

Source: National Journal Research, More Comprehensive Reforms Less Likely Than Targeted Changes Analysis A deal that relies on tax reform to extend the Highway Trust Fund is the most plausible path to comprehensive tax reform in 2015 If Congress uses tax reform to fund the Highway Trust Fund, a repatriation holiday (or some other change to the international tax system) is very likely to be included in the reform package It is somewhat likely that other provisions, such as closing certain loopholes and moderately lowering corporate rates, would be included in the reform package While not impossible, the least likely outcome is a much larger, truly comprehensive reform of both the individual and corporate sides of the tax code, which would likely require both parties to make significant concessions and would involve many politically difficult votes Likelihood of Hypothetical Tax Reform Packages Repatriation tax holiday, or other international tax reforms More Likely Less Likely Repatriation tax holiday, or other international tax reforms A few bipartisan tax reform provisions, e.g. closing certain tax loopholes Repatriation tax holiday, or other international tax reforms A comprehensive overhaul of the corporate tax code A comprehensive overhaul of the individual tax code + ++