CONSISTENTLY DELIVERS

Feb 14, 2017

Tax Policy Update

QUOTE OF THE WEEK

“We’re going to be announcing something I would say over the two or three weeks that will be phenomenal in terms of tax.” – President Donald Trump


In a meeting with U.S. airline executives last week, President Trump revealed that the White House is planning to unveil its own tax reform plan soon — one that would be “incentive-based” to lower “the overall tax burden of American businesses, big league.” The off-the-cuff remark is yet another plot twist in the GOP’s efforts to enact tax reform this year. Trump’s comments reportedly caught House tax writers by surprise.

White House Press Secretary Sean Spicer confirmed on Feb. 9 that the administration would be releasing an outline of its own tax reform plan in the coming weeks. He also signaled that the administration would utilize the budget reconciliation process to enact the tax overhaul legislation.

House Ways and Means Chairman Kevin Brady (R-TX) seemed confident that the administration’s plan would be similar to the House GOP tax blueprint. Based on a previous meeting with the White House, Brady believes that there is a lot of common ground and that the discussions are going in the right direction. But as House GOP leaders struggle to fend off criticisms for the border adjustment tax (“BAT”), the White House has yet to stake out a firm position on the controversial proposal.

Gary Cohn, the head of the National Economic Council, is reportedly the point man for the administration’s tax plan. Cohn said that the administration’s plan is focused on cutting taxes for both businesses and individuals. Cohn also appears to support the idea of using revenues generated through repatriation to pay for certain infrastructure programs.

LEGISLATIVE LANDSCAPE

Kick ‘Em While They’re Down. The House GOP’s border adjustment tax proposal did not have a good week. Senate Finance Chairman Orrin Hatch’s (R-UT) and Sen. John Cornyn’s (R-TX) skepticism for the BAT opened the floodgate of criticisms in the Senate. Sen. David Perdue (R-GA) has lodged the strongest complaint against the proposal to date, calling the BAT a “bad idea” outright. His concerns are three-fold: (1) the BAT could lead to an increase in prices for goods and services; (2) the price increase would hurt demand; and (3) increasing prices and decreasing demand could hurt job creation.

Sen. Perdue’s attack on the BAT was flanked by Sen. Mike Rounds (R-SD), who warned …

Don’t You (Forget About Passthroughs). That was essentially Rep. Vern Buchanan’s (R-FL) message at the Bipartisan Policy Center last week. The Florida Republican discussed the challenges of passthroughs in the overall tax reform debate, reiterating his support for parity between C-corporations and passthroughs. In addition to the passthrough question, GOP tax writers are also looking at ways to make room for both full expensing and interest deductibility.

Like Brady, Buchanan is confident that Congress will pass a tax reform bill this year and that draft legislative language will come before the August recess. Buchanan also confirmed that tax reform will be enacted via a single piece of legislation rather than via separate bills as suggested previously by Stephen Moore of the Heritage Foundation. The lawmaker added that he would prefer to get tax reform done in a bipartisan fashion through regular order — this would help ensure the longevity of reform.

What Chu Talking ‘Bout, Judy? Rep. Judy Chu (D-CA) is the newest Democratic member to join the House Ways and Means Committee, taking the seat left behind by Rep. Xavier Becerra. Becerra resigned in December 2016 to step in as California’s new attorney general. Prior to joining Congress, Chu served on a state tax commission that regulates tobacco, fuel, and alcohol taxes.

Republicans will have to find a replacement for Rep. Tom Price who was recently confirmed to be the secretary of the Department of Health and Human Services. The tax-writing panel will see a flight of Republican departures in the next couple of years: Reps. Lynn Jenkins (R-KS) and Sam Johnson (R-TX) are retiring; Reps. Pat Tiberi (R-OH), Jim Renacci (R-OH), Diane Black (R-TN), and Kristi Noem (R-SD) all have the ambition to run for other offices.

Mr. Price Goes to HHS. After surviving the confirmation process on a party-line vote, Rep. Tom Price is now the secretary of the Department of Health and Human Services — the public face of the Affordable Care Act repeal effort. He must act as the conduit between Congress and the Trump administration, bearing the burden of transitioning the U.S. healthcare system to whatever the GOP has in mind to replace the ACA. Of course, the Trump Administration has vastly different goals for a new healthcare system than main street Republicans. The success of the GOP, including Trump, will hinge on Price’s ability to unite GOP lawmakers behind a solution. Of course, it’s no small feat, considering that no Republican has been up to the task in the past seven years.

Price will have to hit the ground running as the stakes are high — insurers have warned Congress that a failure to act by April will result in …

Big Wheel Keep on Turnin’. This week, the House is set to continue its rollback of a number of Obama-era regulations through the Congressional Review Act. The following disapproving resolutions are ready for action:

  • H.J. Res 42 – to disapprove the Labor Department’s rule related to drug testing of unemployment compensation applicants.
  • H.J. Res 43 – to disapprove the final rule submitted by Secretary of Health and Human Services related to compliance with title X requirements by project recipients in selecting subrecipients.
  • H.J. Res. 66 – to disapprove the Labor Department’s rule related to savings arrangements established by States for non-governmental employees.
  • H.J. Res. 67 – to disapprove the Labor Department’s rule related to savings arrangements established by qualified state political subdivisions for non-governmental employees.
  • H.J. Res. 69 – to disapprove the Interior Department’s rule related to Non-Subsistence Take of Wildlife on National Wildlife Refuges in Alaska.

REGULATORY WORLD

Mo’ Money, No Problems? The Internal Revenue Service is laying the foundation to try to get more funding from Congress. This time, the IRS may rely on President Trump’s executive order calling for agency officials to head up cybersecurity efforts at their respective departments. The draft order, which Trump still has not signed, indicates that unmet budgetary needs may be addressed as part of a cybersecurity upgrade. If the order is signed, the IRS can use this during budgetary discussions to make the case that additional funding can help the agency make cybersecurity improvements and stop tax refund fraud. Congress has cut funding for the agency by over $900 million since 2010 leading to shortfalls and cutbacks on taxpayer services.

Say What?!? In a strange twist of events, former secretary of state James Baker, led a delegation of Republicans to advocate for the creation of a revenue neutral carbon tax. Baker’s group has proposed a $40-per-ton carbon tax that would be distributed back to the public on a quarterly basis. In exchange for the carbon tax, the proposal calls for the Environmental Protection Agency to eliminate most of its carbon emission regulations. Baker met with Gary Cohn, Donald Trump’s chief economic adviser, along with senior adviser Jared Kushner and Ivanka Trump. Baker noted that while he remains a climate change skeptic, “the risks remain too great to ignore.” Baker added that a carbon tax would, in his opinion, “make America great again.”

ROAD WORK AHEAD

Commerce Committee Chairman Takes the Wheel on Driverless Cars . On Feb. 13, Senate Commerce Chairman John Thune (R-SD) announced that he would be working with Sen. Gary Peters (D-MI) on a joint effort to advance autonomous vehicle technology as part of a major congressional effort to speed up the deployment of self-driving cars. This effort will likely lead to the introduction of legislation this spring focused on steering driverless regulations and standards in the right direction.

In their joint statement the senators pointed to Federal Motor Vehicle Safety Standards which explicitly require human controls and the presence of a human driver — standards that don’t conform easily to self-driving cars. Another issue likely to come up is the increasing concern over states advancing …

COMMANDER-IN-TWEET

The Senate confirmed, 53-47, Steven Mnuchin to be Treasury secretary. Linda McMahon, nominee to be the administrator of the Small Business Administration, will get her confirmation vote on Tuesday.

LINE ITEMS

  1. House Financial Services Chairman Jeb Hensarling (R-TX) is expected to reintroduce the Financial CHOICE Act in the coming weeks. The so-called “CHOICE Act 2.0” includes the GOP’s revamped approach to reforming the Consumer Financial Protection Bureau (CFPB). Under the new bill, the bureau and its single directorship structure would be retained. However, the bill would make the director removable by the president at-will.
  2. Rep. Gohmert (R-TX) introduced a bill (H.R. 928) to clarify that a state has the sole authority to regulate hydraulic fracturing on federal land within the boundaries of the state.
  3. Public Citizen, the Natural Resources Defense Council, and the Communications Workers of America sued the Trump administration over the president’s Jan. 20 executive order requiring agencies to repeal two regulations for each new one adopted. The suit claims that the president’s order will force the repeal of regulations necessary to protect health, safety, and the environment.

LOOKING AHEAD

Congressional Activity

Tuesday, 2/14

House Ways and Means Committee
Full committee meeting to organize for the 115th Congress. Agenda: Adoption of Ways and Means Committee Authorization and Oversight Plan and views and estimates on the FY2018 budget.

Senate Banking Committee
Full committee hearing on “The Semiannual Monetary Policy Report to Congress.” Fed Chair Janet Yellen will testify.

Wednesday, 2/15

House Financial Services Committee
Full committee hearing on “Monetary Policy and the State of the Economy.”

House Small Business Committee
Full committee hearing on “Start-ups Stalling? The Tax Code as a Barrier to Entrepreneurship.”

Senate Committee on Aging
Full committee hearing on “Stopping Senior Scams: Developments in Financial Fraud Affecting Seniors.”

Thursday, 2/16

Senate Finance Committee
Full committee hearing on Seema Verma, nominee to be the administrator of the Centers for Medicare and Medicaid Services.

Senate HELP Committee
Full committee hearing for Andy Puzder, nominee to be the Labor secretary.

House Judiciary Committee
Subcommittee hearing on H.R. 372, the Competitive Health Insurance Reform Act of 2017.

Agency Activity

Wednesday, 2/15

SEC
Advisory Committee on Small and Emerging Companies holds a meeting to discuss matters relating to rules and regulations affecting small and emerging companies under the federal securities laws.

Other Activity

Monday, 2/13

Bipartisan Policy Center
Discussion on “Infrastructure 2017,” focusing on whether policymakers reconcile their varying priorities in a bipartisan infrastructure package.

Thursday, 2/16

Bloomberg Government
Webinar on “Tackling the Budget: 2017 Resolutions and 2018 Submission,” focusing on Trump’s first budget request.

National Economists Club
Luncheon discussion on “Destination-Based Cash Flow Taxation.”

Ripon Society
Discussion on the Republican strategy to replace Obamacare.


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The McGuireWoods’ Tax & Financial Services Policy Group assists clients in understanding how the latest legislative and regulatory proposals and decisions may impact their business and industry. To learn more about how our team can help you monitor, analyze, and navigate all relevant legislative and regulatory developments, please contact any of our attorneys and consultants below at (202) 857-1700. For more information on how to subscribe to our weekly Tax Policy Update and tax news alerts, please contact Radha Mohan, , (202) 857-2944.

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