Aug 29, 2017
Where Things Stand: Review of Key Issues Facing Congress This Fall
We hope everyone has had a chance to relax over August recess because things are about to heat up again on Capitol Hill. McGuireWoods’ tax policy team has put together a quick refresher below to help our readers ease their way back into work.
Congress returns Sept. 5 with a dizzying legislative agenda:
- Debt ceiling – Sept. 29
- Government funding for FY 2018 – Sept. 30
- Children’s Health Insurance Program (CHIP) reauthorization – Sept. 30
- Federal Aviation Administration (FAA) reauthorization – Sept. 30
- National Flood Insurance Program reauthorization – Sept. 30
If the past serves as any guide, Congress will likely confront most of these deadlines with short-term extensions.
Then there’s also the matter of tax reform. House Ways and Means Chairman Kevin Brady (R-TX) and Speaker Paul Ryan (R-WI) are still gunning for the finish line in 2017. However, Treasury Secretary Steven Mnuchin recently cast doubt on whether lawmakers can actually meet the 2017 deadline, noting that tax writers “will continue to revisit” the timing question. It seems Mnuchin may have learned his lesson when making prognostications about tax reform. Earlier this year, the Treasury secretary predicted that it would be done by August.
The “Big Six”* is planning to unveil a three- to five-page “unified” framework for tax reform by mid-September. The framework will provide an outline for reform, but it will not be accompanied by legislative text, which may not come until the end of September at the earliest. National Economic Council Director Gary Cohn told Financial Times on Aug. 25 that the Ways and Means Committee is expected to write a tax bill in the next three to four weeks. As Republicans shifts into high gear for tax reform, President Trump is set to travel the country to drum up public support for tax reform — his first stop will be in Springfield, MO on Aug. 30.
On July 27, the Big Six released a joint statement on tax reform after several months of discussions. The statement reaffirmed that the Big Six is committed to tax reform and plans to work together to achieve a common vision. In addition, the statement included several policy goals for tax reform:
Above all, the mission of the committees is to protect American jobs and make taxes simpler, fairer, and lower for hard-working American families. 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.
On the heels of this statement, the White House expressed a desire to have a tax reform bill introduced by Sept. 1 and passed by Thanksgiving. Senate Majority Leader Mitch McConnell (R-KY), independently noted that the Senate has only 14 legislative days in September and tax legislation is not on the agenda. Subsequently, House Speaker Paul Ryan expressed confidence that the House would introduce a bill in September and tax reform passed by the end of the year.
Taken together, the flurry of statements and activity at the beginning of the August recess indicates that tax reform remains extremely important to the Republican agenda for the fall of 2017. The staff of the Big Six continue to meet and try to reach agreement on actual policy, not just policy goals. There is increased pressure to succeed with a tax bill given the difficulties that Republicans have had with repealing the Affordable Care Act (ACA).
There are several other important issues that Congress must face in the fall before serious consideration will be given to tax reform. Those issues include: (1) increasing the debt limit, which Treasury has indicated must be done by the end of September; (2) passing a fiscal year 2018 budget, which is critical because it includes reconciliation instructions that will allow Republicans to pass a tax reform bill with only 51 votes; and (3) extending the current FAA authorization bill, which expires at the end of September. For Republicans, each of these bills poses significant hurdles that must be met before moving on to tax reform.
Nearly a month after a failed vote to repeal Obamacare and replace it with a “skinny bill,” the GOP has moved on to other priorities, including bipartisan efforts to stabilize the ACA’s individual markets.
In the Senate, HELP Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) have announced hearings on market stabilization on Sept. 6 and 7. The hearings are expected to feature testimony from state insurance commissioners and governors on how to reduce premiums and increase insurance options in the Obamacare markets for 2018.
The stabilization bill will likely be aimed at lowering premiums and providing increased flexibility for states. Key senators, including Senate Majority Leader Mitch McConnell (R-KY) and Lindsey Graham (R-SC) have indicated that they will not sign off on a bill that does not reform the health care system. To that end, Sen. Alexander will likely ask for enhanced state waivers during negotiations with Sen. Murray (D-WA).
A Senate Finance Committee hearing on the Children’s Health Insurance Program (CHIP) reauthorization will likely be scheduled for the same week. The Sept. 30 deadline for Congress to reauthorize the program is fast approaching. Republicans will need Democratic support in order to pass this legislation. If Republicans attempt to revive a repeal of the ACA before the end of the year, this may complicate CHIP’s reauthorization.
On the House side, there are multiple groups working on an ACA stabilization bill in the House. Earlier this month, the Problem Solvers Caucus, a bipartisan group of 43 lawmakers, released a bipartisan proposal to stabilize the individual market. Similar to a proposal by Sens. Graham and Bill Cassidy (R-LA), it includes funding for cost-sharing reduction payments, an elimination of the medical device tax, and more flexibility for the states.
Despite a flurry of congressional activity to stabilize the market, President Trump has continued to push Republicans to repeal Obamacare, threatening to let the marketplace implode by discontinuing cost-sharing subsidy payments. So far, the president has been all bark, as the administration did greenlight August subsidy payments. However, the lack of certainty has insurers scrambling and could result in major premium hikes in 2018. With the Sept. 27 deadline for insurers to sign final contracts for 2018 participation in the exchanges fast approaching, all eyes are on Congress and the administration to see whether they will act in time to prevent further market destabilization.
Since his days on the campaign trail, President Trump has promised to invest in a broad range of American infrastructure. Specifically, Trump has proposed an investment of $1 trillion in America’s infrastructure over 10 years, which would include a combination of public and private funds. Although the administration chose to pursue healthcare reform first, infrastructure investment has remained one of the president’s top three priorities — ranking third behind healthcare and tax reform). With the Affordable Care Act continuing as the law of the land, a door may be opening for other presidential legislative pursuits, including infrastructure investment.
To date, the White House has put forth very little detail on what the administration envisions for its “big dig” but here is some of what we do know:
- Trump hopes to unleash private sector capital and expertise to rebuild our nation’s cities and states, expecting public-private partnerships to represent 80% of the total investment amount (propelled by tax incentives that may arrive on his desk via tax reform).
- The remaining 20% of his envisioned investment plan will take the form of $200 billion of direct federal funding, including $25 billion for rural infrastructure, $15 billion for transformative projects, and $100 billion for local prioritization of infrastructure needs.
- Trump has placed an emphasis on reducing regulatory burdens to expedite project delivery, hoping to lower the average permit time from 10 years to two and decrease the overall cost of projects.
With regard to timing, our crystal ball is getting slightly clear. On Aug. 15, Gary Cohn, director of the National Economic Council, told reporters that infrastructure will come on the heels of tax reform and may occur before the end of this year. However, if we’re waiting for Congress to conclude efforts on tax reform before diving into infrastructure, this year seems awfully ambitious.
President Trump even put Senate Majority Leader Mitch McConnell in the hot seat (yet again) when it comes to infrastructure, proclaiming that infrastructure should be an easy lift for the leader and that a failure to achieve this “easy” feat could put McConnell’s job in jeopardy.
But Trump isn’t entirely waiting on Congress to fulfill this campaign promise. On August 15, the President issued an executive order titled "Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects," seeking to streamline the approval process for infrastructure projects and unify the participation of various federal agencies. If the timeframes and processes set forth in the order are followed, then infrastructure projects, particularly those requiring an Environmental Impact Statement, could see an improved federal permitting process.
The order reiterated President Trump's view that large portions of American infrastructure languish in “poor condition,” requiring overhauls to strengthen the economy, improve efficiency, enhance global competiveness and increase domestic job opportunities and wages. The order cited inefficiencies in the environmental review and permitting process as sources of delay and increased project costs. It sets forth, among other policies, a goal to complete, on a per-project basis, all federally-required environmental reviews, and authorization decisions within a two-year timeframe. The goal broadly encompasses licensing, permitting, findings or determinations, approvals and other administrative decisions by federal departments or agencies. While not a $1 trillion investment, this executive order aims to have a positive impact on infrastructure projects across the country. And, best of all, does not require an act of Congress. The full text of the order is available on the White House website.
Here’s the bottom line: Infrastructure investment remains a priority for the president despite the fact that the administration has provided little detail or direction for Congress to translate his goals into a full-fledged legislative proposal. The White House will likely keep pressure on Congress, which could potentially move an infrastructure package with bipartisan support ahead of the 2018 midterm elections. There is also a chance that the Texas GOP congressional delegation — which generally has prioritized tax reform over infrastructure — may seek simultaneous action on infrastructure given the damage caused by Hurricane Harvey.
Budget & Appropriations
Before departing for recess, the House Budget Committee approved the FY2018 budget resolution in a party-line vote of 22 to 14. However, the resolution was not ready for floor action, as moderate lawmakers opposed the steep spending cuts proposed in the resolution. Members of the House Freedom Caucus also demanded to see an outline for tax reform before they vote on the measure.
House GOP leaders are hoping to bring the budget blueprint to the floor for consideration in the second week of September. As readers may recall, the House budget blueprint sets overall discretionary spending for FY2018 at $1.1 trillion. More importantly, the budget contains reconciliation instructions for 11 committees to produce at least $203 billion in mandatory savings and reforms. Specifically, the House Ways and Means Committee is directed to produce $52 billion in savings — Republicans will use these instructions to pursue deficit-neutral tax reform. Although the measure is expected to pass, the House budget will face opposition in the Senate given the size of the proposed cuts. The Senate Budget Committee is planning to offer its own resolution in the fall.
On the appropriations front, the House approved a “minibus” (H.R. 3219) in July containing appropriations for (1) Defense, (2) Legislative Branch, (3) Energy-Water, and (4) Milcon-VA. Over August recess, the House Rules Committee posted H.R. 3354, the GOP’s second minibus package, which includes the text of the other eight appropriations bills. There have been talks of combining the four-bill minibus with the eight-bill minibus to produce one giant omnibus spending package to send over to the Senate. Whichever route Republicans choose to take, it will take a while for Congress to pass a government funding bill to cover the full 2018 fiscal year. Consequently, lawmakers will likely have to make do with a short-term continuing resolution or “CR” to keep the government running beyond Sept. 30.
The Trump Administration’s deregulatory efforts have been chugging along steadily. In accordance to the executive orders issued in the first half of 2017, major regulatory agencies have formed taskforces, opened comment periods, and published various reports and notices, carrying out a comprehensive review of existing regulations. In July, the administration published its first Unified Agenda for Regulatory and Deregulatory Actions (“Unified Agenda”), a semiannual report on actions that the regulatory agencies plan to issue in the near and long term. The purpose of the report is to give the public a better sense of the executive branch’s regulatory focus for the next 12 months.
On the tax policy front, Treasury Secretary Steven Mnuchin is expected to submit a final report by Sept. 18, identifying significant tax regulations issued in 2016 that impose an undue financial burden on U.S. taxpayers. As a refresher, the Treasury Department issued an interim report in June that lists eight tax regulations that are under review. The interim report does not provide details as to whether those eight rules should be eliminated, modified, or clarified. It remains to be seen whether Mnuchin’s final report to the president will contain more specific, actionable recommendations.
The Treasury has also been busy reviewing regulations in the financial services industry. Due out in September are two reports on the regulations impacting capital markets and asset managers. These reports are in response to the administration’s executive order on “Core Principles for Regulating the U.S. Financial System,” which instructs the Treasury secretary to identify any existing regulations, guidance, and laws that may inhibit economic growth, among other things. The September reports are a follow-up to the Treasury’s first report on depository institutions. A fourth and final report covering regulations related to nonbank institutions and fintech will be released in October.
Despite the deregulatory activities, not many major rulemakings from the Obama-era have landed solidly on the chopping block (not counting ones overturned by Congress, of course). Repealing rules takes time as agencies must undergo a notice-and-comment period under the Administrative Procedure Act if they wish to modify or eliminate a rule. Additionally, major deregulatory actions have been slow-going due to the administration’s struggle to fill key vacancies and replace holdovers from the Obama Administration.
It remains to be seen how Trump administration officials will measure progress in terms of implementing these recommendations. At a June SIFMA conference, Craig Phillips, counselor to the Treasury secretary, dismissed the idea of using a “report card” to track the department’s success in its deregulatory work. All this leads policy observers and industry stakeholders to wonder whether these reports will be little more than a bureaucratic exercise.
Before the Senate departed for recess, the upper chamber confirmed a series of nominations by unanimous consent. Of note, the following Treasury officials finally got the thumbs-up:
- David Malpass to be an Under Secretary of the Treasury.
- Brent James McIntosh to be General Counsel for the Department of the Treasury.
- Andrew K. Maloney to be a Deputy Under Secretary of the Treasury.
- David J. Kautter to be an Assistant Secretary of the Treasury.
- Christopher Campbell to be an Assistant Secretary of the Treasury.
With Assistant Secretary David Kautter finally in position, look for him to fill these key tax policy positions, which do not require Senate confirmation:
- Deputy Assistant Secretary for Tax Policy — Dana Trier has been installed in this position with little fanfare.
- Deputy Assistant Secretary for International Tax Affairs
- Deputy Assistant Secretary for Tax Analysis
Over at the IRS, Commissioner John Koskinen’s term is set to expire on Nov. 12, 2017. It is still unclear whether President Trump intends to replace or keep Koskinen — there has been little talk of who the potential replacement may be if the president decides to let Koskinen go.
*The “Big Six” on tax reform includes Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, House Speaker Paul Ryan, House Ways and Means Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, and Senate Finance Chairman Orrin Hatch.
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