The BAT Is Dead: The “Big Six” Releases Much Anticipated “Framework” on Tax Reform

July 27, 2017
Today, House Speaker Paul Ryan (R-WI), Senate Majority Leader Mitch McConnell (R-KY), Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Finance Committee Chairman Orrin Hatch (R-UT), and House Ways and Means Committee Chairman Kevin Brady (R-TX) (the “Big Six”) issued a joint statement on tax reform.  The statement explicitly “set[s] aside” the border adjustment tax and declines to pursue a transition to a “new domestic consumption-based tax system.”  Other than the long suspected demise of BAT, the framework contains few details.  But it appears that the following could be key points in reform: favorable treatment of small businesses, capital expensing (or accelerated depreciation), permanence (potentially implying some focus on revenue neutrality), and a movement toward a territorial-type of system.

The key paragraph of the joint statement is the following:
“We have always been in agreement that tax relief for American families should be at the heart of our plan.  We also believe there should be a lower tax rate for small businesses so they can compete with larger ones, and lower rates for all American businesses so they can compete with foreign ones.  The goal is a plan that reduces tax rates as much as possible, allows unprecedented capital expensing, places a priority on permanence, and creates a system that encourages American companies to bring back jobs and profits trapped overseas.  And we are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.  While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform.”