CONSISTENTLY DELIVERS

Oct 24, 2017

Tax Policy Update

TWEET OF THE WEEK:

It’s no secret that “Rothification” is on the table as a revenue raiser for tax reform: Republicans are considering capping pre-tax contributions for certain retirement accounts at $2,400. President Trump appears to have missed this memo when he declared via Twitter that the tax treatment of 401(k) plans will be protected.

When asked about Trump’s tweet, Ways and Means Chairman Kevin Brady (R-TX) simply said that “the ability to retain tax-free savings is critical” and that tax reform would give families more incentives to start saving.

Mixed messages from the president and congressional Republicans have become the norm, so it will be interesting to see who will win this particular battle. House GOP tax writers haven’t had a great track record thus far in terms protecting certain revenue raisers. Earlier this year, they retreated from the unpopular border adjustment tax proposal. And it looks like they may be backing away from the wholesale elimination of the state and local tax deduction. 

LEGISLATIVE LANDSCAPE

Senate Adopts Budget, House to Act This Week. The House is set to take up the Senate-approved FY 2018 budget resolution on Oct. 25. The plan is to quickly accept and pass the Senate version by Oct. 26, which would save both chambers the trouble of having to go to conference.

The Senate adopted its FY 2018 budget resolution in a 51-49 vote last Thursday — a critical step towards enacting tax reform under the reconciliation process. Sen. Rand Paul (R-KY) voted against the resolution, making him the only Republican member to do so.

Unlike previous budget votes in the Senate, members avoided an all-nighter by ending the dreaded “Vote-a-Rama” just a little after 9 p.m. Senators took up a total of 29 amendments, which is the lowest number of amendments ever taken up during Vote-a-Rama according to Budget Chairman Mike Enzi (R-WY).

In the end, only 11 amendments were successful — three of those were offered by Democrats. Of note, the Senate approved an amendment from Sen. Joe Donnelly (D-IN) that establishes a point of order …

Great, We Have a Budget. Now What? House Ways and Means Chairman Kevin Brady (R-TX) has said on multiple occasions that the committee will not release the actual tax reform legislation until Congress adopts the FY 2018 budget resolution. Tax policy watchers may not have to wait long as the House is expected to clear the budget by Oct. 26.

Once the budget is adopted, things are expected to move quickly. House tax-writers are reportedly looking to introduce tax reform legislation on …

REGULATORY WORLD

IRS Prioritizes “Burden Reducing” Projects. The IRS released its annual Priority Guidance Plan for 2017-2018 last week. Unlike previous guidance plans, the IRS has included additional sections to address President Trump’s executive orders concerning deregulation.

In addition to outlining the eight regulations that were previously identified pursuant to Executive Order 13789, the guidance plan identifies a number of projects that the IRS will take up to reduce regulatory burdens on taxpayers. The IRS indicated that action can be taken on these projects in the next eight months. 

The guidance projects include those implementing the partnership audit rules that were passed in the Bipartisan Budget Act of 2015.  The 2017-2018 plan also includes a list of guidance projects that are in line with the guidance plans from prior years. Comments are welcomed throughout the year as officials continue to update the plan.

IRS Withdraws Estate Tax Valuation Rules. On Oct. 17, The IRS formally withdrew controversial estate tax valuation rules. The proposed estate tax rules were proposed in Aug. 2016 and would have prevented the undervaluation of transferred assets by changing the valuation of interests in family-owned businesses for estate, gift, and generation-skipping transfer tax purposes. The rules were criticized by lawmakers and industry groups, including the National Association of Manufacturers and the Americans Institute of CPAs, as being too broad.

The estates tax rules were withdrawn as part of a recent Treasury Department effort to cull regulations that have been deemed unnecessary or unduly burdensome. The estate tax rules are one of eight regulations that are under review in response to President Trump’s Executive Order 13789, which directs the Treasury to identify and reduce tax regulatory burdens. The withdrawal guidance was published in the Federal Register on Oct. 20.

More IRS Notices to Come. In addition to revoking the estate tax rules, the Treasury Department and the IRS recently indicated that officials are also planning to eliminate the documentation requirements regarding anti-inversion rules issued under Section 385 of the tax code and replace them with more streamlined regulations.

The current rules outline the documentation requirements necessary to determine whether certain related-party corporate interests are debt or equity. Tax practitioners have criticized the rules as being overly complicated and imposing burdensome compliance requirements.

As for the other rules under Section 385 that allow the government to recast debt as equity in certain cases, the IRS is hopeful that tax reform may obviate the need to change the rules.

The IRS is in the process of going through all regulations identified in its Oct. 2 report for elimination or change.  The Section 103 rules pertaining to the definition of a “political subdivision” eligible to issue tax-exempt bonds for governmental purposes may also be revoked in the coming days.

You Won’t Feel a Thing. According to IRS Commissioner John Koskinen, the Equifax data breach won’t affect taxpayers in any significant way during next year’s filing season. Instead, the breach is an “important reminder to the public” that taxpayers should take every possible measure to protect personal information, Koskinen said during an Oct. 17 news briefing.

Since the Equifax data breach, the IRS has been under fire for awarding a short-term contract to the company last month. The contract was suspended Oct. 12 after reports of another cybersecurity breach. The IRS has been trying to …

ROAD WORK AHEAD

Paving or Paying the Way for Infrastructure Investment. President Trump continues to view infrastructure investment as a key priority for his administration. However, his view on how to make such an investment — specifically who will pay for it — has evolved greatly since his days on the campaign trail.

As dedicated readers of Tax Policy Update may recall, the Trump’s original plan was to rely wholly or largely on the private sector to invest $1 trillion in America’s infrastructure. Overtime, that has evolved to a reliance on public-private partnerships (PPPs) to make up a majority of that investment plan (incentivized through tax credits and regulatory reforms); additionally, the federal government would also provide a modest amount of discretionary funding.

Now it appears that Trump has reconsidered the role PPPs will play in his overall plan, which continues to lack substantive details. Trump recently disclosed his opposition to PPPs, citing their lack of viability in the country’s more rural regions.

Regardless of the role PPPs will play in a future investment proposal, any incentives or direct federal funding will require pay-fors. Until last week, it was unclear where the administration would find the money to pay for a vaguely defined infrastructure plan. Trump has been telling skeptical lawmakers that tax reform will yield enough money to pay for infrastructure. Adding an infrastructure offset to the tax plan wish list is a tall order, especially in light of the Trump’s tweets on changes to 401(k)s and negotiations over the state and local tax deduction. In all likelihood, infrastructure revenue will not be a focus of a potential tax plan this year.

LINE ITEMS

  1. 1. Rep. Pat Tiberi (R-OH), a senior member of the House Ways and Means Committee, announced that he would leave Congress by Jan. 31, 2018 to take over as president of the Ohio Business Roundtable.
  2. The Senate is expected to approve the $36.5 billion disaster assistance bill (H.R. 2266) that has already cleared the House. The supplemental appropriations bill includes funds for wildfire victims, FEMA, and debt relief for the national flood insurance program.

IN THE QUEUE

Congressional Activity

Tuesday, 10/24

House Financial Services Committee
Subcommittee hearing on “The Federal Government’s Role in the Insurance Industry.”

Senate Banking Committee
Hearing on the nominations of David Ryder to be director of the U.S. Mint; and Hester Peirce and Robert Jackson Jr., each to be a member of the Securities and Exchange Commission.

Wednesday, 10/25

Joint Economic Committee
Hearing on the Future of American Economic Growth with Kevin Hassett, chairman of the Council of Economic Advisers.

House Oversight Committee
Subcommittee hearing on “Ongoing Management Challenges at IRS”

House Financial Services Committee
Continuation of hearing on the Equifax data breach.

House Financial Services Committee
Subcommittee hearing on “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform.”

Thursday, 10/26

Senate Banking Committee
Hearing on the following nominations: Brian D. Montgomery to be Assistant Secretary for Housing – Federal Housing Commissioner, U.S. Department of Housing and Urban Development; Robert Hunter Kurtz to be Assistant Secretary for Public and Indian Housing, U.S. Department of Housing and Urban Development; and Suzanne Israel Tufts to be Assistant Secretary for Administration, U.S. Department of Housing and Urban Development.

Other Activity

Monday, 10/23

SIFMA
The Capital Markets Conference, Oct. 23-24. The annual meeting will include discussions with the foremost policymakers, regulators, and financial market experts. Guest speakers include House Ways and Means Chairman Kevin Brady, SEC Chair Jay Clayton, and OMB Director Mick Mulvaney, among others.

Tuesday, 10/24

Heritage Foundation
A discussion titled, “Business Perspective and the Cost of Doing Nothing on Tax Reform.” Speakers include Sen. David Perdue (R-GA) and Joshua Bolten, the president and CEO of the Business Roundtable.

Wednesday, 10/25

Brookings Institution
Discussion on how Congress governs the Federal Reserve.

The Hill
Newsmaker series, “The Future of Housing,” featuring HUD Secretary Ben Carson.

Thursday, 10/26

CATO Institute
Discussion on tax reform with Grover Norquist.


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