Mar 28, 2017
Tax Policy Update
HEADLINES OF THE WEEK:
Uh…That Was Awkward.
In case you were off the grid last week, here’s a quick recap of what
happened with the House GOP’s efforts to replace and repeal Obamacare. A
vote was scheduled for Friday. Then it was canceled. There, that’s it —
you’re all caught up on last week’s shenanigans.
On a more serious note, Friday was a tough one for House Republicans. As
the day dragged on, it became clear that the American Health Care Act (AHCA) was facing certain defeat. Speaker
Paul Ryan made a trip to the White House to deliver the bad news to
President Trump, whose threat to the caucus had failed to whip members in
line. The president instructed Ryan to pull the bill just before the
chamber was ready to vote.
“I will not sugarcoat this, this is a disappointing day for us. Doing big
things is hard. All of us. All of us, myself included, we will need time to
reflect on how we got to this moment, what we could have done to do it
better,” a somber Ryan said to reporters after the bill was withdrawn.
It did not take long for the finger-pointing to begin. All of the fingers
(and you can guess which particular finger) were pointed towards the House
Freedom Caucus and its recalcitrant members. Ryan’s failure to move the
bill across the finish line handed the president his first major
legislative defeat in 2017. And as expected, the Monday morning
quarterbacks have lined up to share their thoughts on the GOP’s botched
playbook, offering lessons for the next legislative battle: tax reform.
McGuireWoods’ tax policy team is avoiding the “woulda-coulda-shoulda” game.
Instead, we will take a look at some of the implications of the GOP’s
AHCA Pulled from Life Support — Now What?
We don’t want to be premature and conduct a “post-mortem” on the AHCA.
After all, there really isn’t a DNR order just yet. Let’s take a look at
some of the reasons why the AHCA failed as well as the options that
Republicans can take to salvage their street cred.
Like Bill Murray, Speaker Ryan seems trapped in a time warp of his own.
After seven years and over 60 attempts to repeal Obamacare, the House GOP’s
latest efforts culminated in the failure of the AHCA. After years of
rallying around repealing Obamacare, the question remains, why did the GOP
For starters, repealing Obamacare is not the same as replacing it. For
years, conservative ideology is partly defined by its hatred of Obamacare.
However, while most Republicans wanted to repeal the health care law, few
had detailed legislative …
DNR, CPR, AND?
While Obamacare might have cheated death, its future remains uncertain. For
months, insurance companies and industry experts have warned that the
individual market is in dire straits. Without action, the exchanges will
fail and leave millions without insurance or with unaffordable prices. The
GOP must now decide which approach to take:
Allow a Natural Death – Let Obamacare collapse and employ various
tactics to ensure that the law is unsuccessful
: As the dust settles, the GOP will have to decide whether to pour
resources into propping up a system it wants to take apart. If the GOP
wants to maintain Obamacare, it must stabilize the individual marketplace
by providing certainty to insurers.
In the coming months, insurance companies will have to negotiate with the
GOP on a variety of issues including the repeal of the Health Insurance Tax
(HIT) and relief through regulatory reform. Without certain reassurances,
insurance companies may not be willing to participate in the exchanges due
to the effect on their bottom line, driving up the number of uninsured.
In addition to showing a willingness to negotiate and recruit additional
insurance companies to the exchanges, the administration must also decide
whether to pursue a court ruling stating that Congress must approve
cost-sharing subsidies to help …
CPR – Work with moderate Democrats to fix Obamacare instead of
: Instead of unifying the various factions of the GOP, the administration
has indicated a willingness to work with moderate Democrats to improve the
2010 healthcare law. Fixes may include the addition of “copper plans,”
which would provide low-cost coverage for young adults to address the issue
of the exchanges being crowded with older and sicker individuals.
Bipartisan legislation may also consider fixing Medicaid by lowering the …
Do Not Resuscitate – Attempt to Repeal and Replace Obamacare on Party
: While GOP leadership has indicated that they are moving on to tax reform,
House Speaker Paul Ryan announced that he is still working on ways to
overhaul Obamacare. Though Ryan has not divulged additional details or a
timeline, his office issued a statement noting that the speaker intends to
keep his promises on health care.
There has also been speculation that the Senate may release its own
healthcare bill. However, according to one of our sources on Capitol Hill,
the upper chamber is unlikely to do so, especially since Congress is
shifting its attention to tax reform.
More Difficult to Enact Tax Reform in 2017?
After their haphazard handling of the healthcare vote, congressional
Republicans and the White House are desperate for a legislative “win.”
Policymakers and pundits quickly shifted the conversation towards
comprehensive tax reform. The failure of the AHCA prompted many to ask
whether it has made tax reform more difficult. The consensus is tilting
towards “yes” — just ask some of the top tax writers in the House and
Senate who have been around the block a time or two. But as Speaker Ryan
said, difficult does not mean impossible. There are two factors compounding
the GOP’s headache with tax reform. The first one …
Tax Reform via Budget Reconciliation or Bipartisanship?
Among other things, the AHCA episode revealed deep fractures within the
House GOP conference. The dysfunction is particularly glaring when the GOP
has a 237-seat majority. Republicans may only need 51 votes in the Senate
to pass tax reform via budget reconciliation, but what would happen if
Republicans once again failed to secure a simple majority in the House for
their own bill?
The vote-wrangling during the AHCA debate also reaffirmed the unreliability
of the House Freedom Caucus. If Republicans cannot count on their own
members, it means that they will have to …
Who is in the Driver’s Seat?
President Trump gave House Republicans free rein over the AHCA and did not
intervene until things started to go south. It appears that the White House
may have learned its lesson. Press Secretary Sean Spicer has already come
out to say that the president will be “driving the train” on tax reform.
In February, the president told reporters that his team will soon unveil
its own proposal on tax reform, but nothing has materialized yet. The White
House can certainly do more than offer its own plan. Given the emerging
disagreements between the House and Senate on key tax provisions such as
the BAT, there is a real opportunity for the president to step in and serve
as a mediator between the two chambers. The House is expected …
As a refresher, recall that Republicans wanted to use the reconciliation
instructions in the FY2017 budget to pass healthcare. They were also
planning to insert instructions in the FY2018 budget for tax reform. But
the healthcare fallout has complicated the GOP’s plan to pass a FY2018
budget resolution. House GOP leaders do not appear to have the appetite to
engage in a protracted spending fight with its House Freedom Caucus
members. To avoid that battle, House leaders are reportedly looking at
using the reconciliation instructions in the FY2017 budget resolution for …
Let’s Get Uncomfortable.
“It has to be uncomfortable, frankly, for us to go this bold […],” House
Ways and Means Chairman Kevin Brady said about tax reform — the statement
was made just a few days before the House GOP’s healthcare bill imploded.
Brady remains committed to marking up a tax bill before the end of spring.
However, the White House’s forthcoming tax reform proposal may frustrate
the chairman’s timeline — especially if the administration’s plan deviates
significantly from the House blueprint. Brady is perhaps already wary of
such potential delays. In an interview with Fox News on March 26,
Brady said it didn’t make much sense for the administration to put out a
separate plan: “Why not take the basis of the House plan?”
Although both Speaker Ryan and Chairman Brady have conceded that the GOP’s
failure to pass its healthcare bill will make tax reform more difficult,
Treasury Secretary Steven Mnuchin dismissed this notion, noting that the
two issues are “very different” and that tax reform, in some ways, is “a
lot simpler.” Mnuchin’s comments should raise some eyebrows. Even if tax
reform is “simpler,” it’s still no walk in the park. The last time Congress
succeeded in enacting comprehensive tax reform was in 1986.
Though tax policy watchers have yet to see anything concrete from the
administration, Mnuchin has recently dropped some hints regarding what the
administration is thinking. Broadly speaking, the Trump team is looking to
cut taxes for middle class, simplify the code, and make U.S. business
competitive again. And unlike the House proposal, the administration’s plan
may not eliminate the net interest income deduction outright. The
administration also appears inclined to tax carried interest as ordinary
Lax Procedures at the IRS.
According to a recently released TIGTA
report, the Internal Revenue Service did not immediately deactivate an Identity
Protection Personal Identification Numbers (IP PIN) tool after a security
breach in May 2015. Despite repeated requests by TIGTA asking the agency to
temporarily take the tool offline, the IRS allowed the application to
remain active, subjecting taxpayers to heightened risk of fraud.
Specifically, the IRS’s failure to immediately deactivate the IP PIN tool
may have impacted 24 percent of tax returns with refunds totaling $26
million. The IRS eventually disabled the application in March 2016 and
didn’t reactivate it until July 2016.
The IRS initially started issuing IP PINs to eligible taxpayers in 2011. An
IP PIN is a six-digit number assigned to taxpayers that allows their tax
returns/refunds to be processed without delay and helps prevent the misuse
of their Social Security Numbers (SSN) on fraudulent Federal income tax
returns. In Processing Year 2016, the IRS issued approximately 2.7 million
IP PINs to taxpayers for use in filing their tax returns.
ROAD WORK AHEAD
What does the AHCA failure mean for infrastructure investment?
Well, that is the trillion dollar question. With Obamacare repeal and
replacement serving up a disappointing failure for the Trump Administration
in its first 100 days, some are speculating that the president will set his
sights on other key priorities such as tax reform and infrastructure
investment (or even a combination of the two). While the healthcare process
largely ignored Democrats, something like infrastructure investment could
yield a significant opportunity for Republican leadership to deliver a win
to the White House with bipartisan support.
Before a decision had even been made over whom to blame for ACA, Treasury
Secretary Steven Mnuchin brought attention to infrastructure investment
(perhaps confirming its place atop the priority list or even within the tax
reform process). In remarks he made Monday, Secretary Mnuchin alluded to …
FAA Clears the Way for Flying Drones over People.
Federal Aviation Administrator Michael Huerta announced this week the
formation of a new Aviation Rulemaking Committee that will help guide the
agency on a number of regulatory matters, including the flight of unmanned
aircraft systems (UAS or “drones”) over people. This marks a meaningful
step forward for UAS users who have urged the FAA to allow for the safe
flight of UAS over populated areas. When the Obama Administration finally
revealed its small UAS rule last year, the flying of drones over people was
largely prohibited. With security and safety still of grave concern for the
FAA, Administrator Huerta is hopeful that the new committee can help guide
the expanded use of UAS over people and beyond the visual line of sight.
Key Committees Making Moves:
The House Transportation and Infrastructure Committee will mark up
a number of transportation-related bills on Wednesday, March 29.
Issues being addressed include a measure to repeal a joint Federal
Highway Administration – Federal Transit Administration regulation on
metropolitan planning organizations and legislation that requires
congressional notice when the Federal Transit Administration or Federal
Railroad Administration initiates safety audits of rail or transit
for more information.
The House Oversight and Government Reform – Government Operations
Subcommittee holds a hearing on Wednesday, March 29 called “WMATA
The Subcommittee hopes to examine whether SafeTrack has been successful
in restoring the Metro system to a state of good repair and to address
Washington Metropolitan Area Transit Authority’s (WMATA) financial
for more information.
The Senate Commerce Committee will hold a hearing on Wednesday,
March 29 on Jeffrey Rosen’s nomination to be Deputy Secretary of
If confirmed, Rosen will return to the Department of Transportation
with extensive experience, having previously served as the Department’s
Chief Legal Officer. For more information on Jeffrey Rosen and
tomorrow’s hearing, click
- In a 19-2 vote, the House Judiciary Committee approved the Mobile Workforce State Income Tax Simplification Act (H.R. 1393) — a bill that would limit the ability of states to tax nonresident
workers. The bill would only allow a state to tax those who have worked in
the state for more than 30 days in a given calendar year.
- The Campaign to Repeal FATCA sent a letter to the top House and Senate
tax writers, urging them to include the repeal of the Foreign Account Tax Compliance Act in tax reform. According to the
group, FATCA has had a negative impact on ordinary Americans, limiting
their access to bank accounts abroad. Read the letter
House Ways and Means Committee
Markup of H. Res. 186, directing the Secretary of the Treasury to provide
to the House of Representatives the tax returns and other specified
financial information of President Donald J. Trump.
House Financial Services Committee
Financial Institutions and Consumer Credit Subcommittee hearing on "The
State of Bank Lending in America."
House Financial Services Committee
Oversight and Investigations Subcommittee hearing on "The Arbitrary and
Inconsistent Non-Bank SIFI (systemically important financial institution)
House Agriculture Committee
General Farm Commodities and Risk Management Subcommittee hearing on "The
Next Farm Bill: Commodity Policy Part I."
Senate Banking Committee
Full committee hearing on "Fostering Economic Growth: The Role of Financial
House Financial Services Committee
Capital Markets, Securities and Investments Subcommittee hearing on
"Examining the Impact of the Volcker Rule on the Markets, Businesses,
Investors, and Job Creators."
Meeting of the Credit Union Advisory Council to discuss alternative data
and consumer access to financial records.
Closed meeting to discuss surveillance, enforcement, and examinations
Discussion on "Can Health Insurance Innovations Reduce Prices and Drive
Global Business Dialogue
The Global Business Dialogue (GBD) holds a discussion on "Border Taxes: The
Background, a Proposal and the Challenges."
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