Jul 24, 2018
Tax Policy Update
BILL OF THE WEEK: Tax Cuts 2.0
Credit: Dave Granlund
Well…it’s not going to be an actual bill: Ways and Means Chairman Kevin Brady (R-TX) will release an outline for Tax Cuts 2.0 before the House departs for August recess this week. House GOP tax writers are meeting one more time before the rollout.
The outline won’t have enough policy details to satisfy those who have been tracking developments in the past few months — it will simply validate the rumors that have been swirling around. The outline is expected to highlight the following objectives: (1) make permanent the 2017 tax law’s provisions for individuals and pass-through businesses, and (2) expand access to retirement savings accounts. Tax Cuts 2.0 will also contain a number of miscellaneous provisions to encourage innovation among startups. Of note, Rep. Devin Nunes’s (D-CA) proposal (H.R. 6444) to index capital gains to inflation has been catching a lot of buzz in recent weeks.
Chairman Brady, along with a select group of GOP tax writers, met with President Trump and his economic team last week to discuss the outline and timeline for legislative action. The goal is to hold a House vote in September, but chances of passage in the Senate are low given that the budget reconciliation procedure is not an option this year.
Programming Note: The Tax Policy Update will not publish during the August recess — we will be back in September. In the interim, be sure to check out our blog for timely updates.
Please Sir, I Want Some More (on Tax Cuts 2.0). It looks like Tax Cuts 2.0 will incorporate a part of the Senate’s Retirement Enhancement and Savings Act or RESA (S. 2526) — which, among other things, would make it easier for small businesses to join multiple employer plans; encourage workers to save for retirement; and provide a safe harbor for employers offering annuities. A staffer on the Ways and Means Committee recently assured that the retirement section of the package would not include “Rothification.”
Unlike Tax Cuts 2.0, RESA has strong bipartisan support in the Senate. Senate Finance Ranking Member Ron Wyden (D-OR) would like to see it enacted as a standalone bill this year. Ways and Means Ranking Member Richie Neal (D-MA) is also supportive of RESA. However, it’s unclear whether lawmakers would get the floor time needed to pass the bill.
Interestingly, Sens. Heidi Heitkamp (D-ND), Tom Cotton (R-AR), Cory Booker (D-NJ), and Todd Young (R-IN) introduced their own retirement related measures last week — some of which are reflected in RESA:
- S.3218 – the Strengthening Financial Security Through Short-Term Savings Accounts Act would help employers to set up “rainy day” savings accounts rel="noopener noreferrer" for workers.
- S. 3219 – the Small Business Employees Retirement Enhancement Act would make it easier for small businesses to join multiple employer plans.
- S. 3220 – the Refund to Rainy Day Savings Act would allow taxpayers to put away 20 percent of their tax refunds into a Refund Rainy Day Fund.
- S. 3221 – the Retirement Security Flexibility Act would encourage plan sponsors to use automatic enrollment and automatic escalation.
It remains to be seen whether the bill introductions are any indication of future Senate action on retirement — there appears to be a flicker of momentum to get a retirement package done this year.
Curbelo Carbon Tax. Rep. Carlos Curbelo (R-FL) is getting ready to drop a carbon tax bill. Based on a draft proposal that’s been in circulation, the measure would repeal the federal gas tax and put in place a $23-per-metric-ton tax on carbon emissions — the tax would be subject to a two-percent increase annually. The preliminary proposal also includes an automatic trigger for a $2-per-ton increase if emission reduction targets are not met. Much of the revenue from the tax would go towards the Highway Trust Fund.
Shuster Pulls a Dave Camp. On July 23, Rep. Bill Shuster (R-PA) introduced a proposal to increase the federal gas tax to fund the Highway Trust Fund until 2028. Part of the funding would come from a 15-cent per gallon tax increase on gasoline and a 20-cent per gallon tax increase on diesel —both of which would be phased in over three years. The tax would thereafter be indexed to inflation.
Additional funding would also come from a proposal to impose a 10-percent excise tax on electric vehicle batteries when sold. At this time, Shuster’s proposal is not expected to go anywhere in this session of Congress. That said, the proposal does provide a framework for any future legislation. Indeed, Rep. Peter DeFazio (D-OR) said that the proposal was Shuster’s “Dave Camp” moment before leaving Congress. To recall, former Rep. Camp introduced a tax reform bill before departing Congress in early 2015, which became the framework for the GOP’s 2017 tax law.
Anything You Can Do I Can Do Better. Senate Finance Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) have introduced their own version of the Taxpayer First Act (S. 3246) — a counterpart to the House bill (H.R. 5444) passed in April. Similar to the House measure, the Senate bill would update operations at the IRS to improve tax administration and taxpayer protections. Specifically, the bill would:
- Enhance whistleblower protections and reforms
- Update laws governing IRS employees
- Prevent identity theft and refund fraud
- Increase electronic filing of tax returns
- Strengthen taxpayer rights protections
Hatch and Wyden will now need to find some floor time to get the bill through the full Senate. Given that the House bill has already been approved, successful Senate action on S. 3246 will improve the chances of getting an IRS reform package through Congress this year. That said, there are notable differences between the two bills, and lawmakers may not be able to reconcile them in time.
The Senate Finance Committee has scheduled a subcommittee hearing for July 26 to discuss the bill and examine ways to improve operations at the IRS.
It’s Almost Recess. The House gets to enjoy a month-long recess after this week. But before going on vacation, here is what’s on the exit agenda:
- Key Votes – the House will consider a series of measures to expand and improve access to Health Savings Accounts – see the full list here. Other noteworthy bills to be debated this week include:
- H.R. 3500 – the Ensuring Integrity in the IRS Workforce Act would prohibit the IRS from rehiring any former employees that were terminated for misconduct.
- S. 1182 – a bill that would extend the National Flood Insurance Program through Nov. 30, 2018.
- H.R. 184 – a bill that would repeal the medical device tax.
- FY 2019 Defense Authorization (NDAA) – the NDAA conference report is expected to come this week. The House is likely to hold a vote before lawmakers depart.
On the Senate side, members will be busy with the second “minibus” spending bill for FY 2019. The chamber has taken up consideration of H.R. 6147, which includes funding for Financial Services, Interior-EPA, Agriculture, and Transportation-HUD.
Additionally, Senate GOP leaders will continue to sift through potential amendments to the 2018 FAA reauthorization bill. If members can come to a time agreement, the legislation could be taken up during the week of July 30.
In the Pipeline. Last week, the Federal Energy Regulatory Commission (FERC) finalized rules for natural gas pipelines relating to the 2017 tax bill benefits. Earlier this year, the FERC proposed that interstate pipelines are required to file a form estimating their return on equity due to the tax law changes. The final rules note that the form is still required but make certain adjustments: for example, how much accumulated deferred income tax is included in the calculation for cost of service. The form also requires an assessment on the rates based on the tax law changes. A copy of the final rules is available here.
Many thanks to McGuireWoods Consulting’s summer intern Derek Wu for his contribution below.
The Taxpayer Assistant is In. (By Derek Wu) – In December 2015, Congress authorized the IRS to begin using private collection agencies (PCAs) to collect outstanding federal tax debts. While proponents of the program assert that PCAs provide critical collection services to an understaffed and resource constrained IRS, critics, such as National Taxpayer Advocate Nina Olsen, contend that PCAs unfairly target low income taxpayers. According to critics, the program violates longstanding IRS principles which exempt low income individuals from certain tax obligations, in the event that fulfilling these obligations would leave taxpayers with inadequate means to provide for basic living expenses.
In a July 18 press release on July, charging Olsen for falsely characterizing the program as a discriminatory practice against low income taxpayers. A spokesperson for the coalition asserted that the Private Debt Collection Program is entirely voluntary and that contractors don’t target low income individuals.
In response, Olsen issued a lengthy post outlining five points of rebuttal. Most significantly, she argued that to low income taxpayers who lack financial savvy and technical knowledge, the program is neither voluntary nor transparent. According to Olsen, the fact that 43 percent of taxpayers who made payments to PCAs as of March 2018 have incomes below the Allowable Living Expense (ALE) standards demonstrates that some taxpayers are unaware that they may claim exemptions for financial hardship.
In April, the House overwhelmingly passed the Taxpayer First Act by a margin of 414-0, exempting taxpayers with incomes at or below 250 percent of the federal poverty level from PCA assignments. Olsen stated that she is hopeful that the Senate will soon follow suit.
- The House passed the JOBS and Investor Confidence Act by a strong bipartisan vote of 406-4. The bill is a compilation of House measures aimed at strengthening capital formation, small business investment, and investor protection.
- Democrats criticized Kathy Kraninger, CFPB director nominee, for her lack of managerial experience and knowledge of financial regulation at her confirmation hearing before the Senate Banking Committee last week. Senate Republicans are aiming to shepherd Kraninger quickly through the confirmation process. A floor vote may be possible in August.
- The Senate Finance Committee voted, 14-13, to advance the nomination of Charles Rettig to be the next IRS commissioner.
- Sen. John Barrasso (R-WY) introduced the Energy Security Cooperation with Allied Partners in Europe Act (or “ESCAPE Act”), a bill that would expedite the approval process for natural gas exports to NATO allies and mandate sanctions on Nord Stream II.
- The House passed, 220-180, a symbolic measure (H.Con.Res. 119) that expresses the sense of Congress that a carbon tax would be detrimental to the U.S. economy.
In the Queue
Senate Agriculture Committee
Hearings to examine the nominations of Dan Michael Berkovitz to be a Commissioner of the Commodity Futures Trading Commission, and James E. Hubbard to be Under Secretary of Agriculture for Natural Resources and Environment.
Senate Banking Committee
Hearings to examine the nominations of Elad L. Roisman to be a Member of the Securities and Exchange Commission, Michael R. Bright to be President, Government National Mortgage Association, and Rae Oliver to be Inspector General, both of the Department of Housing and Urban Development, and Dino Falaschetti to be Director, Office of Financial Research, Department of the Treasury.
House Ways and Means Committee
Subcommittee hearing on “Product Exclusion Process for Section 232 Tariffs on Steel and Aluminum.”
House Judiciary Committee
Hearing on the Wayfair decision and its ramifications for consumers and small businesses.
House Education and Workforce Committee
Hearing on H.R. 4219, Workflex in the 21st Century Act.
House Small Business Committee
Hearing on the tax law’s impact on Main Street.
Senate Finance Committee
Hearing to consider the nominations of Justin Muzinich to be deputy secretary of the Treasury and Michael Desmond to be chief counsel for the IRS and an assistant general counsel at the Department of the Treasury.
Senate Finance Committee
Subcommittee hearing on “Taxation and IRS Oversight: Improving Tax Administration Today.”
2018 Joint Mutual Forum with the Office of the Comptroller of the Currency. The intent of the forum is to promote the operations of mutual depository institutions and discuss industry trends. Attendees will have the opportunity to meet with executives from other mutual organizations, as well as hear from senior management of the FDIC and the OCC.
George Washington University
Join Professor Arthur E. Wilmarth, Jr. and Americans for Financial Reform for a symposium reflecting on the regulation of Wall Street in the 10 years since the 2008 financial crisis – featuring remarks from Sens. Sherrod Brown and Elizabeth Warren.
Discussion on Section 232 tariffs with keynote remarks by Sen. Ron Johnson (R-WI).
Discussion on whether cryptocurrencies should be regulated like securities.
Event entitled, “The Case for Free Trade.”
The Kavanaugh Hearing: A Battle of Two Constitutions.
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