The Path to Tax Reform Will Go Through Massachusetts

By: Anthony DeMaio

Washington is working overtime this week to characterize the president’s first 100 days following the April 29th milestone. With the spotlight on the White House, it is easy to ignore Capitol Hill. As the 115th Congress reconvenes after a two-week recess, many Members will be smarting from tough town halls and other public appearances back in their districts. Pressure on Speaker Paul Ryan and Majority Leader Mitch McConnell to pass legislation is mounting. With the president having outlined his vision for tax reform, it looks like a much-anticipated tax bill will be the next policy item on Congress’ agenda.

If the goal of re-writing the federal tax code seems ambitious, it’s because it is. The last time a tax reform bill was enacted was 1986 – three days before the ball rolled through Buckner’s legs – a lifetime ago (in both politics and sport). Despite a divided government then, Washington was less polarized. Democrats in the House including Speaker Tip O’Neill and Ways and Means Chairman Dan Rostenkowski worked with Republicans like Senate Majority Leader Bob Dole, Finance Chairman Bob Packwood, and President Ronald Reagan to pass the first comprehensive changes to the tax bill code in 32 years.

There is no doubt that politics is more partisan today than during the Reagan-O’Neill era. And with Republicans in control of Congress and the White House, one would expect the Democrats’ role to be insignificant. But as we learned during the recent attempt to repeal and replace the Affordable Care Act, House Republicans are deeply divided. So if congressional leadership is serious about passing a tax bill, they will need rank and file Democrats to support it, especially Congressman Richard Neal of Massachusetts.

Mr. Neal has served on the House Ways and Means Committee, which has jurisdiction over the tax code, for over 20 years. He is now the top or Ranking Democrat on the panel. It will be up to Mr. Neal and Chairman Kevin Brady (R-Texas) to hash out the details of a viable tax bill.

Among President Trump’s campaign promises and early proposals was a border adjustment tax, or BAT, which would impose a steep tax on goods coming into the United States from abroad. In theory, the BAT would encourage corporate investment at home and create jobs in the manufacturing sector. But as the president found out, tax proposals often make strange bedfellows and while the BAT has some bipartisan support, it also has bipartisan opposition. It appears that the vocal opposition from key Republican senators prompted Trump to shelve the BAT proposal. As other suggestions are considered and tweaked, Mr. Neal will be responsible for determining their viability within his caucus.

In recent history, the medical device tax has been the key tax issue for Massachusetts, thanks to the booming medtech industry. But with a comprehensive bill up for consideration, and a critical seat at the table, Massachusetts interests will play a more central role. Changes to the corporate tax rate will not only affect the 13 Fortune 500 companies based in Massachusetts, but the thousands of small businesses and startups in bio, tech, and other sectors. Consolidating tax brackets and changing eligible deductions should get the attention of the state’s growing millionaire class and the thriving middle class alike. And if Congress is serious about paying for lower taxes by creating savings in the healthcare system, Massachusetts’ research facilities and its dominant healthcare sector will need to sit up and take notice.

While not the low-hanging legislative fruit that would count as an easy win, tax reform is certainly high on Speaker Ryan’s agenda. As the focus turns to legislative action, and the Speaker seeks a win after an early failure on healthcare, we expect to see a tax bill move. There is a narrow political path for the legislation to tread, and it goes right though the Commonwealth.