Feb 7, 2017
Tax Policy Update
NUMBER OF THE WEEK: 39 percent
The percentage of registered voters who ranked comprehensive tax reform as
the most urgent priority for the new administration and the GOP-led
Congress. In a recent online survey conducted by Morning Consult and
POLITICO, voters were asked which of the GOP’s top three policy goals
should take priority. Coming in at second place is the repeal of Affordable Care Act (28 percent). Only 11 percent of survey
participants said the border wall should be the most important item.
Which brings us to this week’s…
Border Adjustment Tax to Face Extreme Vetting in the Senate.
The momentum for comprehensive tax reform has hit some speed bumps
recently. Congressional Republicans and the Trump Administration have
struggled to get on the same page on the border adjustment tax proposal
(“BAT”) — a key provision in the House GOP’s tax reform blueprint.
Criticisms for the BAT have put House Ways and Means Chairman Kevin Brady
(R-TX) and House Speaker Paul Ryan (R-WI) on the defensive.
In the past two weeks, Brady has been hitting the speech circuit in
Washington, visiting the U.S. Chamber of Commerce and various media outlets
to tout the benefits of the BAT. Brady explained that the current tax code
essentially imposes a tax on American manufacturing, which disadvantages
American companies and hurts the country’s global competitiveness. The
chairman has been forceful in his …
Senate Republicans Throw Cold Water on BAT, White House Still Confused.
Other Senate Republicans who have expressed skepticism for the BAT include:
Sen. John Cornyn (R-TX).
Cornyn has not been shy about his opinions on the BAT. The senator took
to Twitter recently to note that there are still “[m]any unanswered
questions about proposed ‘border adjustment’ tax.” Given the proposal’s
unknown impact on domestic prices, Cornyn believes the BAT needs
careful scrutiny. He has called on Senate Finance Chairman Orrin Hatch
to hold hearings on the topic.
Sens. Ben Sasse (R-NE) and Lindsey Graham (R-SC).
Graham and Sasse seem to consider the BAT as a form of tariff, which
Sen. Rob Portman (R-OH).
Portman does not want the BAT to cause “dislocation in the economy.” He
is also concerned that the tax may violate World Trade Organization
Cornyn has also noted that he has been getting mixed signals from the White
House on the BAT. This should not be a surprise, as White House Press
Secretary Sean Spicer has had to walk back the administration’s position on
the BAT several times already. At one point, it was too complicated; then,
the tax was going to be used to pay for the border wall; as of late, the
BAT became just one of many options to consider.
Come One, Come All, But Watch Yourself.
Various industry stakeholders have offered numerous possible carve-outs to
the BAT, but House GOP leaders are hesitant to go down that path. “One
carve-out becomes one hundred,” said one GOP committee chairman in an
off-record discussion. GOP tax staffers have been digging into whether the
BAT could be drafted in a different form to accomplish the same purpose but
perhaps with a softer impact on certain industries. Here are three ideas
under exploration …
House Democrats to Focus on the Middle Class.
While Republicans work to sort themselves out on the BAT, House Democrats
have been busy putting together a package of tax cuts for the middle class.
House Ways and Means Ranking Member Richard Neal (D-MA), along with Reps.
Lloyd Doggett (D-TX) and Rosa DeLauro (D-CT), introduced three bills to
expand the Earned Income Tax Credit (EITC), the American Opportunity Tax
Credit (AOTC), and Child Tax Credit (CTC).
“Democrats are focused on standing up for our nation’s middle class. We
must make sure that hardworking Americans – the lifeblood of our economy –
get the tax cuts they deserve and need for their families, enabling their
hard work to pay off and help them get ahead,” Neal said.
Here are short summaries of the bills:
Earned Income Tax Credit Improvement and Simplification Act
- Expand the EITC to individuals between ages 21 and 25 with no qualifying
children. Individuals cannot be full-time students.
- Allow families with children who do not have a valid Social Security
Number to qualify for tax credits similar to the EITC for individuals with
no qualifying children.
- Revise the credit eligibility rules relating to married individuals
living apart and qualifying children claimed by another family member.
- Repeal provisions that would deny the credit to taxpayers due to excess
Expand American Educational Opportunity Act
- Increase the portion of the credit that is refundable and allow Pell
Grant recipients to receive full benefit of the credit.
- Simplify the credit by eliminating the need for two separate higher
education credits, while increasing the credit’s lifetime maximum limit.
Child Tax Credit Improvement Act
- Index the value of the Child Tax Credit with inflation and increase the
value of the credit for families with young children under the age of 6 to
Hatch Disappointed in This Kind of Crap.
Republicans on the Senate Finance Committee voted, 14-0, to advance the
nominations of Steven Mnuchin (Treasury secretary nominee) and Rep. Tom
Price (HHS secretary nominee). The vote took place in spite of a boycott
mounted by the panel’s Democratic members who continue to have serious
concerns about both candidates.
The boycott enraged Chairman Hatch who did not mince words regarding his
counterparts’ behavior: “I’m very disappointed in this kind of crap. […]
This is the most pathetic thing I’ve seen in my whole time in the United
Without a Democratic member present, the committee lacked a quorum to
proceed to business. Consequently, Republicans moved to suspend the
committee rules, so that they could vote on the nominees without their
Democratic colleagues. Ranking Member Ron Wyden (D-OR) said the procedural
move was “deeply troubling,” calling out the Republicans for their
hypocrisy: “Boycotts of committee meetings are not unheard of — my
Republican colleagues, led by Chairman Hatch, took such a step just a few
The Senate is set to begin debating and confirming Price and Mnuchin this
Stabilizing the ACA.
Last week, Republicans held a flurry of hearings on the state of the Affordable Care Act. Of note was the Senate Health, Education,
Labor, and Pension Committee’s hearing on various bipartisan solutions that
might help stabilize the current situation. The witnesses testifying before
the panel stressed that Congress has a very narrow time window to act
before millions of Americans are left without coverage. With the April
deadline laid out by the panelists fast approaching, Senators were eager to
get feedback on various proposals that are floating around Capitol Hill.
Importantly, panelists urged lawmakers to continue cost-sharing subsidies,
“advance premium tax credits”, and full federal reinsurance payments,
warning that discontinuing these programs will upset any chance of a smooth
transition from the ACA to a new healthcare model.
Experts also urged Congress to consider passing the following market
stabilizing measures, including changes to ACA tax credit grace
Honor Thy Treaties.
This may be the latest tax commandment to be thrown out the window under
the House GOP plan to reform the U.S. tax code. The Republican
proposal to lower the tax rate and move towards a territorial
destination-based cash flow tax model may put U.S. tax treaties on the
chopping block. Currently, U.S. multinationals with business operations in
foreign countries rely on complex tax treaties in order to determine their
tax obligations, decide how taxes are withheld on cross-border payments,
make transfer pricing calculations, and prevent double taxation of income.
The provisions of these treaties also dictate …
Mr. Trump, Tear Down This Wall.
President Donald Trump is making good on another campaign promise –
“totally destroy[ing]” the Johnson Amendment that ensures the separation of
church and state. During the campaign, Trump openly criticized the 63-year
old ban that prohibits tax-exempt institutions from engaging in political
speech. During a prayer breakfast last week, Trump revived the dialogue,
noting that representatives of faith should be allowed to speak freely and
without fear of retribution.
Why is the wall there? The Johnson Amendment was created to ensure that
entities exempt from federal income tax cannot use their tax preference to
participate or intervene in any political campaign. Trump’s ban on the
amendment might be part of tax reform, though the likelihood of it passing
through both chambers is low.
Risky Business. As the director of the Consumer Financial Protection
Bureau, Richard Cordray, awaits a ruling from the U.S. Court of Appeals for
the D.C. Circuit on whether the president has the power to remove him from
office, allies of the Trump administration are growing impatient calling for
the president to oust Cordray. Those in favor of firing Cordray believe
Trump has a case to do so for
“inefficiency, neglect of duty, or malfeasance,” which are the only
conditions under which the director may be removed. Ejecting Cordray
however, is a risky …
A Tax Upon Your Houses.
Last week, European Commissioner Pierre Moscovici, announced plans for a
tax on sharing economy companies like Airbnb. According to Moscovici, the
EU plans to impose a technology tax to ensure that the “gig” economy pays
its fair share. If the tax is imposed on an EU-wide basis, it will also
help avoid tax fragmentation across Europe. The tech tax will likely be
unveiled later this year.
IRS Adds New Members to Key Committees.
The Internal Revenue Service Advisory Council (IRSAC) added
five new members
Phyllis Jo Kubey
Charles “Sandy” Macfarlane
The IRS also announced the following
seven new members
for the Information Reporting Program Advisory Committee (IRPAC), a forum
for IRS officials and members of the public to address information
The new members join 13 returning members to serve on the committee for
three-year terms beginning in 2017.
ROAD WORK AHEAD
House Authorizers Get in the Infrastructure Game.
On February 1, 2017 the House Transportation and Infrastructure Committee
held its first hearing of the new Congress focused on building a 21st
century American infrastructure. Participating in the hearing were a number
of business and labor representatives, including the President and Chief
Executive Officer of FedEx Corporation Frederick Smith and AFL-CIO
President Richard Trumpka. The committee convened with the purpose of
seeking input regarding the challenges facing our nation’s current
transportation infrastructure and what could be done to make it the
G.O.A.T. (greatest of all time)… just like Tom Brady.
While he had the ball, the committee’s quarterback Chairman Bill Shuster
(R-PA) laid out his vision for building a 21st century
infrastructure for America, which is summarized
. The Democratic defense, led by the committee’s Ranking Member Peter
DeFazio (D-OR), provided a broad outline of their response, which centers
around the use of expanded user fees to pay for infrastructure projects,
which differs from the plan loosely articulated by President Trump, who
hopes to provide tax incentives to the private sector that will spur
massive investment in the form of public-private partnerships.
While the hearing did not create any momentous surprises (like a
second-half comeback), it did make clear that there is bipartisan and
bicameral support for advancing a major infrastructure package through
Congress. However, the plays being called are proposing very different
strategies for winning the game. It’s yet to be seen whether the lack of
consensus between parties, and even between Congress and the White House,
will concuss a Trump touchdown on this key priority for the Administration.
A recording of the House Transportation and Infrastructure Committee
Hearing can be found
- President Donald Trump signed a presidential memo directing the Labor
Department to conduct an economic and legal analysis of the fiduciary
rule. The rule may be rescinded or revised if the department finds it
to be inconsistent with administration policy. SPOILER ALERT: The
department will likely find it to be “inconsistent” with administration
- The president also signed an executive order directing the Treasury
secretary to produce a plan to revise any Dodd-Frank rules issued by
the Obama Administration. The secretary will have 120 days to complete
and send a report to the White House.
- In a rare moment of bipartisan agreement, the Senate voted, 93-6, to
confirm Elaine Chao as secretary of transportation. The chamber also
confirmed Rex Tillerson to be secretary of state in a 56-43 vote.
- A group of centrists on Capitol Hill, led by Reps. Terri Sewell (D-AL),
Don Beyer (D-VA), and Brad Schneider (D-IL), are teaming up to draft
proposals that will modernize the tax code to create U.S. jobs, foster
innovation, and support middle class families.
- The U.S. Conference of Mayors have launched a formal campaign to
preserve the tax deduction for those who invest in municipal bonds. The
group is currently allying itself with key players on Capitol Hill, noting
that they have support from the Trump Administration for preserving the tax
- The Joint Committee on Taxation recently released
a publication explaining tax legislation enacted in 2016. The publication
includes a discussion of the following bills: (1)Trade Facilitation and Trade Enforcement Act of 2015;
(2) Airport and Airway Extensions; (3) Recovering missing Children Act;
(4)U.S. Appreciation for Olympians and Paralympians Act of 2016; (5)21st Century Cures Act; and
(6) Combat-Injured Veterans Tax Fairness Act of 2016.
House Financial Services Committee
The committee meets to organize for the 115th Congress.
House Ways and Means Committee
The Social Security and Oversight Subcommittees will hold a joint hearing
on “Social Security’s Representative Payee Program.”
CNN Town Hall
CNN holds a town hall debate with Sens. Bernie Sanders and Ted Cruz on the
future of the Affordable Care Act agenda.
Bloomberg hosts its annual Tax Outlook event where tax policy experts will
dissect the legislation in the works as well as changes down the road to
help you gain insight into the tax policy landscape.
The institution holds a forum on “Identifying a Fiscally Responsible
Approach to Funding Infrastructure.”
Bipartisan Policy Center
The Bipartisan Policy Center (BPC) holds a discussion on "Are Pass-Through
Businesses the Key to Tax Reform?" Focusing on congressional Republicans
blueprint to create a new structure for taxing the business income from
entities such as S corporations, partnerships, and LLCs.
The institution holds a “Fintech: How can government promote the good and
protect against the bad,” focusing on how well the regulatory regime can
adapt to promote the benefits of financial technology.
National Economists Club
The club holds a lunch discussion with Keith Hall, director of the CBO, on
the budget and economic outlook for the next ten years.
The institution will hold a discussion on “What Worked and What Didn’t in
Obamacare Insurance Markets.”
For listings of all the week’s tax and financial services happenings, read below to find out how you can become a subscriber.
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