CONSISTENTLY DELIVERS

Jan 31, 2017

Tax Policy Update

QUOTE OF THE WEEK:

“I have concerns about it. I want to make sure we know what the consequences are going to be and exactly how this would work […]. We’re getting mixed signals from the administration on it. I think we need to pin that down.”

- Sen. John Cornyn (R-TX) on the House GOP’s border adjustment tax proposal

Sen. John Cornyn has expressed skepticism for the House GOP’s border adjustment tax (“BAT”) proposal. Cornyn’s concerns are understandable given that Texas is home to a large number of oil refiners, and the BAT’s potential impact on refiners and domestic gas prices remains an open question.

Cornyn’s remarks and related tweets over the weekend are noteworthy, as Senate Republicans have largely kept quiet about the House’s proposal to tax imports while exempting exports. But Republicans in the Senate are beginning to wade into this debate. Although Senate Finance Chairman Orrin Hatch’s (R-UT) corporate integration proposal has more or less fallen by the wayside, the chairman doesn’t appear to be fully on board with the BAT. Meanwhile, Sen. Mike Lee (R-UT) has proposed an alternative plan that calls for the complete elimination of the corporate tax. Others like Sens. Lindsey Graham (R-SC) and Ben Sasse (R-NE) seem to consider the BAT as a form of tariff, which they oppose.

Cornyn’s concerns could potentially put him at odds with House Ways and Means Chairman Kevin Brady, a fellow Texan, who spent the greater part of last week selling the border adjustment tax around Washington. Brady defended the proposal in a speech at the U.S. Chamber of Commerce, telling U.S. companies to get on board and engage constructively with congressional tax writers. The chairman explained that the border adjustment provision goes hand-in-hand with the proposal to reduce the corporate tax rate. According to Brady, tossing out the border adjustment tax provision would mean that “tax rates on businesses would have to increase significantly from the proposed 15% and 20% rates.”

LEGISLATIVE LANDSCAPE

Batter Up: Congressional Review Act in Play. The Congressional Review Act (“CRA”) is the star of the show this week on the House floor. House Republicans are expected to pass a series of disapproving resolutions that would void certain regulations issued by the Obama Administration. Among the regulations in the crosshairs this week, the following rules may be of interest to our tax and energy policy clients:

  • Stream Protection Rule (Interior Department)
  • Disclosure of Payments by Resource Extraction Issuers (SEC)
  • Waste Prevention Rule (Bureau of Land Management)

Lawmakers can use the CRA to …

GOP Annual Retreat: Unity on the Outside, Divisions on the Inside. At a POLITICO event last Friday, House Speaker Paul Ryan said congressional Republicans emerged from their annual retreat united. Ryan laid out the GOP’s legislative agenda for the first 200 days, and it’s an ambitious one — the 200-day plan includes the repeal and replacement of the Affordable Care Act (“ACA”), the construction of a wall along the Southern border, and the enactment of tax reform legislation. Republicans are aiming to repeal Obamacare via …

Did You Hear the One About a Random Woman Sneaking into the GOP Retreat? On Thursday, leaked audio recordings of the annual Republican Congressional retreat reveal a party deeply divided on how to proceed on the repeal and replacement of the Affordable Care Act.

Several lawmakers expressed concerns with the current strategy of immediate repeal and replacement. Republicans worried that if they failed to slow down and carefully think through a replacement plan, a few years down the line they would be confronted with a mess.

Others brought up promises made by the Republican Party to its constituents, including assurances that a repeal would not leave people without coverage. “We’re telling those people that we’re not going to pull the rug out from under them, and if we do this too fast, we are in fact going to pull the rug out from under them,” said Tom MacArthur (R-TX).

It is clear that Republicans are far from coalescing around a solution. One popular Republican solution has focused on …

Koskinen May Not Make It After All. Internal Revenue Service Commissioner John Koskinen is being targeted once again by a group of House Republican lawmakers. This time around, it’s the Republican Study Committee (“RSC”), whose members are calling on President Trump to dismiss the commissioner before his term expires in November 2017. Members of the RSC reportedly raised the issue with Vice President Mike Pence at the GOP’s annual retreat in Philadelphia last week. Senate Majority Leader Mitch McConnell (R-KY) appears to support the push for Koskinen’s dismissal. “I think he’s been a disaster and I’d be shocked if we don’t have a new [commissioner],” McConnell said.

Back in December 2016, the House rejected a resolution to impeach Koskinen. The impeachment measure had been an obsession of the House Freedom Caucus, which accused Koskinen of obstructing a congressional investigation into the IRS’s targeting of conservative nonprofit groups and for lying under oath.

The Trump Administration has not revealed its plans for Koskinen, but it’s worth noting that President Trump does consider Koskinen to be a personal friend.

Apple CEO Cozies Up to GOP-led Congress. Apple CEO Tim Cook paid a visit to Capitol Hill last week to discuss tax reform with Sens. Orrin Hatch, Rob Portman (R-OH), and Mark Warner (D-VA). Tax reform is a major issue for the tech giant, especially due to the large sum of money the company has abroad. A potential repatriation tax would allow the company to bring profits back home without paying harsh penalties. However, other parts of the House GOP and Trump tax plan could be problematic for Apple. If the administration follows through with promises to penalize firms that ship production overseas, Apple could stand to suffer major financial losses, as many of its products are manufactured in China. In addition to meeting with congressional lawmakers, Cook also met with President Trump’s son-in-law and senior adviser, Jared Kushner, and Ivanka Trump to discuss tax reform and other issues affecting the company.

REGULATORY WORLD

Vestager Prepares for Face Off With Irish Parliament. European Union Commissioner for Competition, Margrethe Vestager, is scheduled to appear before the Irish parliament’s finance committee on Jan. 31. Vestager will defend an August decision by the European Commission ordering Ireland to collect €13 billion in unpaid taxes from Apple. The decision caused major political ripples in Ireland, splitting the country into two camps — one that supports the penalty and one that is wary of the EU trying to force the country to reform its tax code. One of Ireland’s main attractions for major corporations is its 12.5 percent tax rate. Tax reform may hurt the nation’s ability to compete with its more powerful neighbors. Irish lawmakers have already expressed their displeasure with the EU’s consolidated tax base proposal.

ROAD WORK AHEAD

Smooth Sailing for Trump’s Transportation Secretary. The Senate is scheduled to vote today on the confirmation of Elaine Chao to serve as Transportation secretary. While several of President Trump’s nominees are likely to be held up (on Capitol Hill, not at an airport…) due to the travel ban implemented through a recent executive order, Chao is expected to be confirmed without hitting any bumps in the road. Last week, the Senate Commerce Committee approved Chao’s nomination by voice vote without drawing any concerns and even Senate Minority Leader Chuck Schumer (D-NY) has omitted Chao from a list of Trump nominees he intends to oppose.

Trump Puts Priority Projects on the Fast Track. Last week, President Trump signed an executive order designed to speed up environmental reviews for designated high-priority projects. This is the first major step taken by the president to fulfill his promise to spur massive infrastructure investment across the country. While this action may provide some help for accelerating the construction of new roads, transmission lines, or pipelines, it remains fairly limited in scope and may be followed with additional legislative, regulatory and/or executive actions aimed at cutting additional red tape and expediting project delivery.

Democrats Propose $1 trillion Infrastructure Investment Plan. Last week, Senate Democrats released their “ Blueprint to Rebuild America’s Infrastructure.” The blueprint included a wish list of proposed spending programs that would rival a seven-year-old’s letter to Santa. Unlike Santa, President Trump and Republicans in Congress are likely to ignore Democrats’ request. In contrast with the Trump infrastructure plan, which is still mostly a mystery, Democrats have loaded their stockings with massive spending at the federal level. As previously reported in our Tax Policy Update, Trump’s plan is more likely to deliver gifts to the private sector in the form of tax credits and incentives to spur public-private partnerships with some selective federal investment sprinkled on top. Here are the details on the Democratic blueprint …

COMMANDER-IN-TWEET

In response to President Trump’s executive order to ban certain refugees and immigrants from entering the United States, congressional Democrats held a vigil in front of the Supreme Court on Jan. 31.

This is what the president has to say about the public show of solidarity:

LINE ITEMS

  1. Making good on his campaign promise to ease the federal regulatory burden, President Trump signed an executive order on Jan. 30 stipulating that for every new federal regulation finalized, two regulations must be rescinded. This executive order will likely delay the IRS’s partnership audit rules. Until the administration clarifies whether the executive order applies to regulations that are mandated by statute, the IRS will have to postpone finalizing the rules.
  2. On Jan. 31, the House Oversight Committee will mark up the first tax-related legislation of the 115th Congress. The Tax Accountability Act of 2017 ( H.R. 396 ) would prohibit the award of a contract to a potential contractor or grant application with a “seriously delinquent tax debt” and would prohibit individuals with seriously delinquent tax debts from federal employment.
  3. The ghost of the ACA past continues to call people in an effort to promote HealthCare.gov as open enrollment draws to a close for this year. After the Trump administration withdrew $5 million in ads as part of an effort to cut costs, they reversed their position, with officials from the Department of Health and Human Services stating that automatic phone calls and other online and digital outreach would continue through the Jan. 31, the deadline for obtaining coverage.
  4. The mortgage interest deduction and charitable deductions may be safe under the GOP’s tax overhaul, according to Treasury secretary nominee Steven Mnuchin’s written responses to the Senate Finance Committee’s questionnaire.
  5. German Chancellor Angela Merkel has made cracking down on corporate tax avoidance a key part of her bid for a fourth term this fall. Over the weekend, Merkel attacked Starbucks, accusing them of employing tax avoidance strategies. The company is an easy target due to an EU ruling ordering the coffee giant to pay €30 million in back taxes.
  6. In a major shift in policy, online retail giant, Amazon.com, continues to go out of its way to collect sales tax, even in jurisdictions where it does not have a physical presence. While this ensures more revenue for the states, for online sales companies it signifies the importance of Congress passing online sales tax legislation.
  7. The Organization on Economic Cooperation and Development (OECD) recently revised its international guidance on transfer pricing. This could translate to a small administrative cost for the IRS, in addition to additional compliance costs for multinational companies. A GAO report was sent to Sen. Orrin Hatch, explaining the consequences of the latest round of OECD guidance.
  8. Elon Musk, the founder of Tesla, introduced the idea of the Trump Administration backing a carbon tax. Musk has openly supported former Exxon CEO Rex Tillerson to be secretary in state, partially because of his openness to a carbon tax.

LOOKING AHEAD

Congressional Activity

Tuesday, 1/31

Senate Finance Committee
The full committee meets to vote on the nominations of Rep. Tom Price to be the secretary of the Department of Health and Human Services and Steven Mnuchin to be Treasury secretary.

House Oversight and Government Reform Committee
The Healthcare Subcommittee will hold a hearing on “Fraud, Waste, and Abuse under the Affordable Care Act.” The full committee will also meet to markup the Tax Accountability Act of 2017.

Wednesday, 2/1

Senate Budget Committee
The full committee holds a hearing on “The Congressional Budget Office’s Budget and Economic Outlook for FY2017-2027”

Senate HELP Committee
The full committee holds a hearing on “Obamacare Emergency: Stabilizing the Individual Health Insurance Market.”

House Education and Workforce Committee
The full committee holds a hearing on “Rescuing Americans from the Failed Health Care Law and Advancing Patient-Centered Solutions.”

Thursday, 2/2

House Budget Committee
The full committee holds a hearing on the CBO’s budget and economic outlook.

Agency Activity

Tuesday, 1/31

Department of the Treasury
The Departmental Offices (DEPO) will hold a closed meeting of the Debt Management Advisory Committee on discussions and debates of the issues presented to the Committee by the Secretary of the Treasury and the making of recommendations of the Committee to the Secretary.

Other Activity

Tuesday, 1/31

Committee for a Responsible Federal Budget
The Committee for a Responsible Federal Budget (CRFB) and the Kaiser Family Foundation (KFF) hold a forum on “Major Considerations for Repealing and Replacing the Affordable Care Act.”

Washington DC Economic Partnership
The Washington D.C. Economic Partnership holds a discussion on “Breakfast Breakdown: Team Trump on Taxes,” focusing on what Trump's proposed tax cuts means for economic development for Washington, D.C.

Wednesday, 2/1

Peterson Institute for International Economics
The IIE holds a conference on “Border Tax Adjustment and Corporate Tax Reforms.”

Center for Strategic and International Studies
CSIS holds a discussion on “BP Energy Outlook,” focusing on the key issues that will shape energy supply and demand through 2035 and explores possible alternative outcomes.

Thursday, 2/2

Cato Institute
Cato holds a discussion on “Everything You Wanted to Know about Border Adjustability But Were Afraid to Ask.”


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