Apr 25, 2017
Tax Policy Update
MEME OF THE WEEK:
Government Shutdown Showdown.
Heeeey…déjà vu. Congress must pass a spending bill to fund
the rest of fiscal year 2017 (FY2017) by the end of Friday
or face a government shutdown.
Disagreements over hot-button political issues like funding
for the border wall, Obamacare cost-sharing subsidies, and
sanctuary cities have been jamming things up.
The good news is that the government will likely keep its
lights on, as lawmakers are looking to pass a clean,
short-term continuing resolution or “CR” to give themselves
a little more time to sort things out.
Oh the Possibilities!
Here are the big-ticket items to keep an eye on this week: (1) a possible
government shutdown, (2) a possible healthcare vote, and (3) a possible
unveiling of President Trump’s tax reform plan.
The White House would like a vote on repealing Obamacare this week, but it
is unlikely that House GOP leadership has secured the necessary votes to
pass an updated version of the American Health Care Act (“AHCA”).
And it’s hard to imagine leadership rushing to hold a vote when everyone is
still waiting to see the legislative text. But hey, anything goes these
days, so we shall see.
Here’s what we do know about the healthcare bill:
House Speaker Paul Ryan has been working with Rep. Tom MacArthur (R-NJ),
co-chair of the centrist Tuesday Group, and Rep. Mark Meadows (R-NC), chair
of the Freedom Caucus, on a compromise to garner votes from both factions.
While the final proposal has not been released, below are a few items that
the new AHCA may include…
When the Chips Are Down.
With the risk of collapsing Obamacare markets and a potential government
shutdown on the line — President Trump is threatening to use cost-sharing
subsidies as a bargaining chip to draw Democrats to the negotiating table
on health care. Democrats have of course scoffed at the idea, noting that
they do not negotiate with “hostage takers.” With the budget deadline
looming, a high-stakes drama has been unfolding over the fate of these
Obamacare mandates the payment of cost-sharing subsidies to help insurers
cover low-income enrollees’ deductibles and co-pays. In 2014, House
Republicans sued the Obama administration for appropriating money through
the Treasury Department to pay marketplace insurers for cost-sharing
subsidies. The House argued that Congress had…
Any Given Wednesday.
President Trump told reporters last week to expect his tax reform plan on
Wednesday, April 26. However, in an earlier interview with the Wall Street Journal, the president said he would not release details
on his tax plan until Congress repeals Obamacare. The back-and-forth is
giving administration officials whiplash.
When pressed for details, administration officials gave conflicting reports
as to what will be in Wednesday’s release. Office of Management and Budget
Director Mick Mulvaney indicated that the release will contain more …
Tax Reform by August! Just Kidding…
During recess, Treasury Secretary Steven Mnuchin came to the sobering
realization that getting tax reform done by August is “not realistic at
this point.” But the secretary remains optimistic that tax reform will
happen in 2017.
Before Congress left for recess, House Ways and Means Chairman Kevin Brady
(R-TX) held meetings with House Democrats, which led tax policy observers
to wonder whether Republicans can get some Democrats on board to help pass
tax reform. Payroll tax cuts and other middle-class tax cuts are reportedly
being floated around to gauge interest. But McConnell isn’t holding his
breath — he believes that Republicans and Democrats are too far apart on
policy and does not expect Democrats to participate meaningfully.
Back on the House side, the Ways and Means Committee is gearing up to hold
a few hearings on tax reform. There were talks of the Tax Policy
Subcommittee holding a hearing on the border adjustment tax this Thursday,
but that has been postponed. If the committee uses the entire month of May
for hearings, House tax writers may be able to put out legislative text
around mid-June — but this is still a very optimistic timeline.
Trump Calls for Review of Tax and Financial Services Regulations.
On April 21, President Trump issued an executive order and two presidential
memos related to tax and financial services regulations:
1. Executive Order on Identifying and Reducing Tax Regulatory Burdens
: to reduce regulatory burden on American taxpayers.
- Treasury Secretary Steven Mnuchin is ordered to review all significant
tax regulations issued in 2016 and identify those that are burdensome,
overly complex, and exceed statutory authority. An interim report is due in
60 days (June, 20, 2017).
- Within 150 days of the executive order, Mnuchin has to provide a final
report detailing the actions to be taken to mitigate the tax burden imposed
by the regulations identified in the interim report.
2. Presidential Memo on the Financial Stability Oversight Council (FSOC)
: to ensure that the designation process for identifying nonbank SIFIs
actually help to reduce systemic risk and promote market discipline.
- Mnuchin is ordered to review the Financial Stability Oversight Council’s
determination and designation process for identifying systemically
important nonbank financial institutions (SIFIs).
- The Treasury Department has to submit a report within 180 days assessing
whether these processes are fair and transparent.
- The report must also make the following determinations:
- whether the FSOC designation process could cause instability in the U.S.
- whether the designation process is consistent with the administration’s
Core Principles for the Regulation of the U.S. Financial System.
- Until the review is complete, FSOC will refrain from making additional
SIFI determinations and designations.
3. Presidential Memo on Orderly Liquidation Authority (OLA)
: to assess whether OLA enables taxpayer-funded bailouts of financial
companies in distress and encourages risk-taking.
- Mnuchin is ordered to conduct a review of the federal government’s
Orderly Liquidation Authority.
- Within 180 days, Mnuchin has to submit a report assessing whether OLA
encourages risk-taking and has a negative impact on U.S. financial
- The Treasury Department is ordered to evaluate possible alternatives to OLA — specifically, whether enhanced bankruptcy procedures would be a
better, feasible alternative.
More on the Tax Regulation E.O.
President Trump’s April 21 executive order requiring Treasury Secretary
Steven Mnuchin to review all significant tax regulations issued in 2016
might put the Obama Administration’s inversion regulations in its
crosshairs. During this review, the Treasury Department will take another
look at an April 2016 rule aimed at serial inverters and regulations under
Sec. 385 of the code targeting earnings stripping. The regulations under
Sec. 385 came under heavy fire, with members of the Obama Administration
admitting that the rules target even normal business transaction.
Mnuchin’s review of the regulations are part of the overall tax and
regulatory reform efforts to simplify the tax code and eliminate rules that
stymie growth. After the completion of the review, in order to repeal the
regulations, Treasury would have to go through the formal process of
proposing a plan to rescind the rules and allowing for a public comment
period. This process could take six months to complete.
On April 4, the IRS
revived a program
that employs private companies to collect outstanding tax debts. As of now,
only four private groups are authorized to participate in this program: CBE
Group of Cedar Falls, Iowa; Conserve of Fairport, N.Y.; Performant of
Livermore, Calif.; and Pioneer of Horseheads, N.Y.
The IRS will send out letters to a select group of taxpayers who might be
involved with the four private debt collectors this month. The debt
collection companies will follow up and call taxpayers over the phone. The
debt collection companies will have to follow certain steps to ensure that
they properly identify themselves to taxpayers, lowering the chances of
fraud. Agency officials will closely monitor to ensure that tax scammers do
not take advantage of the collection program.
IRS personnel indicated that the private debt collection companies are
likely to start with cases involving less than $50,000 in tax debt, with
about 100 cases assigned to each company per week, before building up to
1,000 cases a week.
ROAD WORK AHEAD
Kicking the Can Down the Road.
With the Trump Administration approaching its 100-day mile marker, it’s
only natural to reflect on how the president’s top priorities have
progressed since Inauguration Day. With no legislative victories to date,
it appears that President Trump is stalled by inside-the-Beltway
So what does this mean for infrastructure? Trump’s focus on healthcare
legislation and tax reform has pushed back the release of an infrastructure
package. A couple of weeks ago, Transportation Secretary Elaine Chao said
she expected to roll out an infrastructure plan in May. Chao has assured
that her department is on track to unveil a proposal this summer. However,
it appears that rather than moving on to other priorities that have the
potential to garner bipartisan support, such as infrastructure investment,
the president is opting to take the rockier road with issues that are sure
to drive division in Washington.
- The Internal Revenue Service is seeking comments for the agency’s
2017-2018 Priority Guidance Plan.
invites the public to identify tax issues that should be addressed in the
- As tax reform ramps up, the Big 7 coalition of non-partisan groups
representing state and local governments is asking Congress to preserve the
exemption on interest from municipal bonds. Coalition members are concerned
that Republicans might end the exemption as a way to finance tax cuts. The
coalition is currently made up of the following groups: National Governors
Association, the National Association of Counties, the Council of State
Governments, the National League of Cities, the National Conference of
State Legislatures, the U.S. Conference of Mayors and the International
City/County Management Association.
House Transportation Committee
Full committee hearing on “Building a 21st Century
Infrastructure for America,” April 26-27.
House Ways and Means Committee
Social Security Subcommittee hearing on “Stopping Disability Fraud: Risk,
Prevention, and Detection.”
House Ways and Means Committee
Oversight Subcommittee hearing on “Examining the 2017 Tax Filing Season.”
House Financial Services Committee
Hearing on “A Legislative Proposal to Create Hope and Opportunity for
Investors, Consumers, and Entrepreneurs.”
Meeting of the Community Bank Advisory Council to discuss alternative data
and consumer access to financial records.
Forum on “Reflecting on Trump’s First 100 Days.”
Discussion on “Rebuilding America: A New Infrastructure Agenda.”
Newsmaker Series with Treasury Secretary Steven Mnuchin
Discussion on “Tax and Trade: Changing Border Tax Policies and the Impact
on U.S. Business.”
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