Jul 21, 2015

Tax Policy Update

NUMBER OF THE WEEK: 10 percent

The amount by which Sen. Mark Warner (D-VA) said he wanted to reduce, or “haircut,” all of the 50-plus tax provisions known as extenders. Warner accurately predicted that his Senate Finance Committee colleagues wanted to keep the tax provisions shoulder length, so he did not introduce his haircut amendment. The tax-writing panel voted today to keep, and in some cases expand, all of the tax extender provisions for two years. Read more below.





Are We There Yet? Senate Readies Multiyear Highway Bill. Highway reauthorization is at the top of the Senate agenda this week, with Senate Majority Leader Mitch McConnell (R-KY) reaching across the aisle to shape a two or three-year deal with Senate Environment and Public Works Ranking Member Barbara Boxer (D-CA). The first hurdle is a procedural vote scheduled for this afternoon to invoke cloture, limiting debate on the motion to proceed to H.R. 22, the legislative vehicle for the highway bill.

Although the package’s pay-fors have yet to be officially unveiled, we expect to see the majority of the bill’s offsets coming from non-tax-related savings, along with a set of tax compliance measures similar to those included in the House’s recently passed short-term bill. Senate leaders are looking to secure a two or three-year reauthorization to keep the Highway Trust Fund solvent through the 2016 elections.

Even if a bipartisan multi-year deal is successful, a potential attempt to attach a renewal of the Export-Import Bank charter to the highway bill could further jeopardize highway funding, which is set to run dry in just 10 days. Many House Republicans are vehemently opposed to reviving the bank’s charter, and Senator Ted Cruz (R-TX) has also indicated he would set up procedural roadblocks if the Ex-Im renewal was attached to the highway bill.

Senate Finance Speeds through Tax Extender Markup. The Senate Finance Committee today passed a two-year package, by a vote of 23-3,extending more than 50 currently expired tax breaks for individuals and businesses for the 2015 and 2016 tax years. The $95 billion package includes the changes released this morning in the modified chairman’s mark, along with two amendments adopted during the markup. One amendment, introduced by Sens. Grassley (R-IA) and Cantwell (D-WA), allows a tax credit for domestic biodiesel producers, and the other amendment, offered by Sen. Stabenow (D-MI), makes technical changes to the Mortgage Forgiveness Tax Relief Act.

The modified chairman’s mark also includes an expansion of the Work Opportunity Tax Credit (WOTC) to include credits for hiring the long-term unemployed as well as a provision providing parity for excise taxes on liquefied natural gas (LNG) and propane, on an energy equivalent basis. It also modifies the business expensing limits under Section 179 by indexing them for inflation.

Most of the 105 amendments offered by members of the committee today were discussed by their sponsors and then quickly withdrawn in recognition of the need to pass the extenders package quickly—a top priority for Senate Majority Leader Mitch McConnell who wants controversies over tax extenders sidelined until after the 2016 elections. About 20 of the amendments offered sought to make some of the currently expired tax provisions permanent, including: the R&D credit, the expanded Section 179 expensing provision, bonus depreciation, the active financing exception from subpart F, and the Work Opportunity Tax Credit. Senators spoke in support of and, in some cases, in opposition to making certain provisions permanent, with the deepest divide manifesting over the wind production tax credit and bonus depreciation. At the outset of the markup, Chairman Orrin Hatch (R-UT) announced that all proposals to permanently extend these tax provisions would be deferred to a later time and considered non-germane for purposes of today’s markup. Sens. Enzi, Toomey and Coats voted against the package, emphasizing their preference to do away with some of the tax credits, which they view as wasteful.

It is unclear when the full Senate will vote on the extenders package and whether the House will opt to follow the Senate’s two-year approach, rather than holding fast to its preferred method of permanently extending a select few of the tax provisions.


Hatch Requests GAO to Prepare OECD Study. The Government Accountability Office will be preparing a study at the request of Hatch taking a look at how the BEPS action items would impact the U.S. economy and whether the IRS is capable of sharing sensitive tax information with foreign tax authorities. Finance Chairman Hatch aimed critiques at Treasury for actively negotiating on behalf of the U.S. government to reach consensus on the BEPS action items without the input or consent of Congress last week. On the Senate floor, Hatch expressed concern that certain positions already agreed to by Treasury could materially damage U.S. tax reform efforts, and that U.S. companies may face significant negative consequences. He urged Treasury to work more closely with Congress on this and not “tie our hands as we move toward tax reform by consenting to bad outcomes.”

IRS Delays Effective Date for Small Wind Investment Tax Credit. The IRS issued Notice 2015-51 extending the deadline for certain small wind energy property to December 31, 2015. Earlier this year, the IRS announced that small wind energy property acquired or placed in service after January 26, 2015 would have to meet certain requirements to be eligible for the investment tax credit. Treasury received letters stating that the capital market for small wind would come to a halt and that there would no longer be investors. Notice 2015-51 while delaying the effective date, does not ensure certainty given that the Section 48 investment tax credit is not permanent.


Relevant Congressional Activity

Tuesday, 7/21

Senate Small Business and Entrepreneurship Committee
The full committee holds a hearing on “Targeted Tax Reform: Solutions to Relieve the Tax Compliance Burden(s) for America’s Small Businesses.”

Wednesday, 7/22

House Small Business Committee
The full committee holds a hearing on “How Tax Compliance Obligations Hinder Small Business Growth.”

Thursday, 7/23

House Ways and Means Committee
The Subcommittee on Oversight holds a hearing on the IRS audit selection process and internal controls within the Tax Exempt and Government Entities division.

Other Activity

Thursday, 7/23

The Tax Council
The Tax Council hosts its 2015 Legislative Luncheon with special guest Senator Debbie Stabenow (D-MI). Read more here.