Mar 7, 2017
Tax Policy Update
Quote of the Week:
“So I’ll be clear about how I view this proposal based on what’s being reported day in and day out in the press. It sounds to me like the plan Republicans are pushing is effectively a grocery tax. In order to pay for a trillion-dollar corporate tax cut, Republicans want to raise prices on food, clothing and other simple products Americans buy every day.”
– Sen. Ron Wyden (D-OR) on the border adjustment tax
At the Tax Policy Center last week, Senate Finance Committee Ranking Member
Ron Wyden shared his thoughts on the GOP’s approach to comprehensive tax
reform. In addition to criticizing the border adjustment tax (“BAT”), Wyden
warned that without bipartisan support, any overhaul of the U.S. tax code
will be short-lived. The ranking member believes that a bipartisan effort
on tax is still possible, citing his previous accomplishments with Sens.
Judd Gregg and Dan Coats. Bipartisanship is “the only way to do tax reform
right,” Wyden concluded. Read Wyden’s prepared remarks
Say Yes to the BAT…
which is something President Donald Trump did not do in his address to
Congress. With tax reform being the talk of the town, the president
dedicated surprisingly little time on tax reform in his speech. Those who
had expected to get more details from Trump were left disappointed.
Although Trump did not officially endorse or reject the BAT, he did point
out that the current U.S. tax code tends to favor imports and disadvantage
exports. This could be an indicator that the president is open to fixing
the disparity. House GOP tax writers may feel relieved that Trump …
He Came, He Saw, He Delivered.
In his first address to Congress, Trump stuck to the script and struck a
more presidential tone. Most viewers and pundits agree that Trump delivered
his best performance to date. According to a CNN/ORC poll, 57 percent of
viewers said they had a positive reaction to the speech and 70 percent said
it made them feel more optimistic about the direction of the country. Those
are some impressive numbers no matter which side of the aisle you’re on.
Trump’s speech, while largely similar to previous ones in substance, was
more restrained and reassuring in tone. Absent was the usual bombastic
pronouncements and apocalyptic rhetoric. Instead of picking fights with the
media and Democrats, Trump declared that “the time for trivial fights is
behind us,” asking both parties to put aside their differences and get to
work for the American people. Trump said he would like to work with
Democrats and Republicans to enact immigration reform, improve women’s
health, provide access to affordable child care, strengthen the military,
and rebuild the nation’s infrastructure.
Although many of President Trump’s talking points adhered closely to the
Republican playbook — calling for deregulation, border security, and job
creation — he also ventured into non-GOP territory when discussing issues
like infrastructure spending, trade policy and child care tax credits.
To the dismay of policy wonks, the president provided few new details on
his top priorities: healthcare, tax reform, and infrastructure. Republican
lawmakers were hoping Trump would help fill in the policy blanks on those
hot-button issues but received little additional guidance on how to proceed
legislatively. In short, the president laid down principles rather than
“I will be asking the Congress to approve legislation that produces a
$1 trillion investment in infrastructure.”
Trump explained that his infrastructure plan would be guided by two
principles: Buy American and hire American. Again, details are lacking. The
president, however, did make clear that his infrastructure investment plan
— “a program of national rebuilding” — would include both public and
private capital. The statement is significant because initial signals from
the president have led many to believe his plan would rely solely on
private financing to fix the country’s infrastructure.
Trump’s brief remarks on infrastructure left policy wonks with some open
questions: (1) Where will the administration find the public money to fund
infrastructure projects? (2) Will Trump’s infrastructure initiatives be
tied to tax reform or will the president ask Congress to address the
infrastructure problem in a separate piece of legislation?
“I am also calling on this Congress to repeal and replace Obamacare.”
In his address, Trump did not say anything that House Republicans haven’t
already heard. Trump wants to rescue Americans from the failings of
Obamacare, calling on Democrats and Republicans to work with his
administration to provide a replacement plan that lowers costs, increases
access, and expands choice.
Trump, however, did not provide additional details regarding the healthcare
reform plan that his administration has been working on. In his view, a
better healthcare system would embrace five key principles:
- Continue to protect those with pre-existing conditions by ensuring
access to health insurance coverage.
- Help Americans purchase health plans of their choice by providing
age-based tax credits and expanded health savings accounts (HSAs).
- Give states more resources and flexibility with Medicaid.
- Find ways to lower the price of prescription drugs.
- Allow Americans to purchase health insurance across state lines.
The lack of specifics left policymakers and lawmakers with three big policy
questions: (1) What will the administration and Republicans do to encourage
insurers to stay in the market to help ensure a stable transition? (2) The
cost of providing tax credits and expanding HSAs is substantial, where will
congressional Republicans find the money to pay for them? (3) How will the
federal government allocate resources in an equitable way to give states
the flexibility to manage their respective Medicaid programs?
The Great Reveal.
Abracadabra! The Republicans finally pulled a replacement for the Affordable Care Act out of their proverbial hats. On March 7,
both the House Ways and Means Committee and the House Energy and Commerce
Committee unveiled their long-awaited legislation to repeal and replace the
ACA— the American Health Care Act (AHCA). We’ve been waiting
over six years (or 2,540 days and 60 repeal votes later) for the GOP to
release a replacement plan and while the jury is still out on whether the
AHCA was worth the wait, below is a list of major provisions in the repeal
and replace bill …
Survivor 2: IRS Rules Granted Immunity? In last week’s edition of our Tax Policy Update, we noted that
Treasury and IRS officials are still figuring out the impact of executive
orders, and in particular, the order calling for the repeal of two rules
for every new rule written. Those in the legal community believe that the
Treasury regulations will unlikely be affected by this order. According to
an interim guidance memo from the Office of Information and Regulatory
Affairs, the executive order …
Partnership Audit Rules Still On Track.
According to a Treasury official, the new partnership audit regime is
moving forward to be implemented for tax years beginning in 2018 despite
taxpayer concerns. Rochelle Hodes, an associated tax legislative counsel
with Treasury, said that “nobody should think this isn’t going to happen,
because right now it is.”
The rules as enacted under the Bipartisan Budget Act of 2015 raised
many questions concerning substance and procedure. To allay concerns,
Treasury issued proposed regulations providing guidance on the new regime
earlier this year, but White House Chief of Staff Reince Priebus issued a
regulatory freeze two days later. The proposed regulations sought to
clarify many of the procedures and definitions outlined in the partnership
audit rules that were enacted under the Bipartisan Budget Act of 2015. With Treasury Secretary Steve Mnuchin
in place and ready to address concerns, there is time remaining, albeit
limited, for taxpayers to prepare for the implementation of the new regime.
Amid the latest uproar over his campaign team’s contacts with Russia,
President Trump found the time to weigh in on The Apprentice:
- Highly-related parties will be subject to a “higher level of scrutiny”
under the Section 385 regulations, and in particular, under the
documentation rules requiring substantiation of certain debt transactions.
Speaking at a recent tax law conference, Filiz Serbes, IRS special counsel,
added that the documentation rules help the examining agent see the
taxpayer’s process in determining the debt or equity characterization of a
- The Labor Department
to extend the Fiduciary Rule’s applicability date by 60 days. The
proposal is open for a 15-day comment period.
Treasury Secretary Steven Mnuchin told reporters that a comprehensive
tax reform bill would be signed into law by the August recess.
House Ways and Means Committee
Full committee markup: “Budget Reconciliation Recommendations to Repeal and
House Energy and Commerce Committee
Full committee markup: “Budget Reconciliation Legislative Recommendations.”
House Appropriations Committee
Subcommittee on Transportation to hold a hearing on “Investing in America:
Funding Our Nation’s Transportation Infrastructure Needs.”
House Oversight and Government Reform Committee
Government Operations Subcommittee and Health Care, Benefits and
Administrative Rules Subcommittee joint hearing on “Examining IRS Customer
House Financial Services Committee
Full committee markup of securities-related bills. See list
Senate Banking Committee
Full committee markup of securities-related bills. See list
Cato to hold a discussion on “Setting Infrastructure Priorities:
Considerations for the 115th Congress.”
Washington Post to hold a discussion on “Infrastructure: The Road Ahead.”
Discussion on how the Senate plans to use reconciliation to repeal the
Affordable Care Act, and what a replacement healthcare proposal should look
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