May 9, 2017

Tax Policy Update


Source: Stephen Crowley/The New York Times

But Today I Am Still Just a Bill. House Republican leaders assembled at the White House on May 4 to congratulate one another for passing a bill: An amended version of the American Health Care Act (AHCA) narrowly passed the House by a 217-213 vote. Of note, 20 Republicans broke rank and voted against the Obamacare repeal-and-replace bill. No Democrat voted for the measure.

The AHCA is now in the Senate, where it is expected to undergo substantial changes. Senate Republican leaders have put together a 13-member working group to rewrite the bill:

Members of Senate Leadership
Majority Leader Mitch McConnell (KY)
Sen. John Cornyn (TX)
Sen. John Thune (SD)
Sen. John Barrasso (WY)

Committee Chairmen
HELP Chairman Lamar Alexander (TN)
Budget Chairman Mike Enzi (WY)
Finance Chairman Orrin Hatch (UT)

Sen. Ted Cruz (TX)
Sen. Mike Lee (UT)
Sen. Tom Cotton (AR)

Sen. Cory Gardner (CO)
Sen. Rob Portman (OH)
Sen. Pat Toomey (PA)

Given the difficulty of the task ahead of this colorful working group, a rewrite of the AHCA is not expected to be completed in the Senate until the end of the summer. Then, there’s the matter of convening a conference committee to iron out the differences between the House and the Senate bills.

Passage of the AHCA is just one of the many to-do items on the GOP’s unwieldy agenda for the summer and fall — keep in mind that the Republican-controlled Congress still has to tackle the FY2018 budget, the debt limit, and tax reform. That’s a lot of work crunched into a tight legislative schedule. So settle in folks — it will be an eventful summer.


You Break, You Buy. With the House vote to repeal and replace Obamacare, Republicans now own health care and all its problems: premium increases, the exodus of insurers from the markets, and insurance deserts where no one is willing to sell coverage anymore. High-profile Republicans, like Rep. Michael Burgess (R-TX), have acknowledged this reality. “I accept the fact that any blame there is to receive, we will receive it […],” Burgess said.

So what exactly might Republicans be blamed for? In its current form, the AHCA would phase out Medicaid expansion, repeal most of Obamacare’s taxes, and replace Obamacare’s income-based tax credits with new flat-credits based on age. After the inclusion of the controversial MacArthur-Meadows amendment, the bill also allows states to opt out of Obamacare’s protections and coverage requirements, including essential health benefits (EHB) standards, community rating, and the 5:1 age rating requirement. Critics fear this will weaken protections for the elderly and the sick.

The community-rating waiver has many worried that insurance will return to the dark days. The community-rating waiver would allow insurance companies to hike premiums based on health status for those who have not …

Who Needs Revenue Neutrality? In our Tax Policy Update last week, we noted that the question of offsets and revenue neutrality is one of the key disagreements between the Trump Administration and congressional Republicans. Since then, it has become clear that Republican lawmakers, themselves, are not yet on the same page on these issues. In separate interviews last week, Senate Finance Chairman Orrin Hatch (R-UT) and Rep. Mark Meadows (R-NC), chairman of the House Freedom Caucus gently played down the importance of revenue neutrality as a goal of comprehensive tax reform.

“I would be more concerned about how we can get the economy to move forward and grow than whether or not we meet the formal test of budget neutrality,” Hatch said to Bloomberg. This is a departure from Hatch’s repeated calls for permanence and revenue neutrality in the past.

Over on the House side, Rep. Meadows shares Hatch’s views. The North Carolina lawmaker follows the school of thought that tax cuts will eventually pay for themselves thanks to the anticipated economic growth, so offsets for such cuts aren’t necessary.

Meanwhile, Republicans on the Ways and Means Committee are doubling down on the push for revenue neutrality after their two-day policy retreat. “We’re committed to permanence. We’re committed to making sure this is paid for […],” said Rep. Peter Roskam, chair of the Tax Policy Subcommittee.

Intraparty disagreements over critical policy questions like revenue neutrality, permanence, and the border adjustment tax are why the House, Senate, and White House are eager to sit down together and produce a single blueprint for tax reform — the hope is to present a united front in order to avoid a repeat of the healthcare debacle.

This Time, It Will Be Different. National Economic Director Gary Cohn said the administration is working to ensure a more inclusive process for tax reform. “Unlike healthcare, we are talking to all the groups that are gonna be interested in our tax plan,” Cohn told Fox Business News. Though the White House has reached out to the House Freedom Caucus and industry stakeholders, Trump’s economic team has yet to step across the aisle to talk to Democrats. According to Rep. John Larson (D-CT), who spoke at the Tax Council’s legislative luncheon last week …

Wyden Introduces Bill to Simplify Energy Tax Incentives. Senate Finance Ranking Member Ron Wyden (D-OR) has introduced the Clean Energy for America Act — a bill aimed at reducing carbon pollution by offering a series of technology-neutral, performance-based energy tax incentives. According to a fact sheet provided by Wyden’s office, these credits are open to all resources, including fossil fuels that capture carbon or make efficiency improvements.

The bill also aims to simplify the existing list of renewable energy tax incentives by consolidating them into three buckets:

  1. Incentives for Clean Electricity:
    • Technology-neutral tax credit for domestic production of clean electricity. The cleaner the facility, the larger the credit.
    • Open to all resources – renewable, fossil fuel, or anything in between.
    • Available as either a production tax credit of up to 2.3 cents per kilowatt hour or an investment tax credit of up to 30 percent.
  2. Incentives for Clean Transportation Fuel:
    • Technology-neutral tax credit for domestic production of clean transportation fuel. The cleaner the fuel, the larger the credit.
    • Open to all resources – renewable, fossil fuel, or anything in between.
    • Provides a production tax credit of up to $1 per gallon.
  3. Incentives for Energy Conservation:
    • Performance-based tax credit for energy efficient homes and tax deduction for energy-efficient commercial buildings – the more energy conserved, the larger the incentive.
    • Promotes conservation in both new and existing buildings.

These incentives would be phased out once greenhouse gas emissions have been reduced by 35 percent. A copy of the bill can be found here. A detailed summary of the bill can be found here.

IRS Restructuring To Be Separate From Tax Reform. House Ways and Means Committee Chairman Kevin Brady (R-TX) and tax policy subcommittee chairman Peter Roskam (R-IL) announced that plans to restructure the IRS will not be part of a comprehensive tax reform bill. Instead, plans to remake the agency will come in a standalone bill.

Brady’s announcement comes after members of the tax-writing committee wrapped up a two-day policy retreat where they discussed how to move forward with tax reform.

The House Ways and Means Oversight Subcommittee will hold its first hearing on overhauling the IRS on May 19. In anticipation of working on plans to overhaul the agency …


Separation of Church and State…But Why? Last week, President Trump fulfilled a campaign promise to “totally destroy” the Johnson Amendment. Or did he?

The Johnson Amendment was passed in 1954 by then-Sen. Lyndon B. Johnson, barring 501(c)(3) tax-exempt organizations, including churches and other religious entities, from “directly or indirectly” participating in a political campaign. President Trump’s executive order provides “maximum enforcement discretion” to the IRS when enforcing a prohibition on political activity by religious nonprofits. The order also provides …


President Donald Trump expresses confidence in the ability of Senate Republicans to get AHCA across the finish line:


  1. The House Freedom Caucus is starting to elbow its way into the tax reform debate. Rep. Mark Meadows, the caucus chair, said that members are actually putting together a bill in order to get a seat at the big kids table: “[W]e’re going to try to have a lot of different ideas and hopefully we can have our input with Ways and Means.”
  2. Senate Finance Committee Ranking Member Senator Ron Wyden (D-OR) introduced the Modernization of Derivatives Tax Act of 2017 (S. 1005) last week. The bill aims to simplify the complex tax rules around financial derivatives and eliminating tax avoidance strategies.
  3. The IRS recently revoked several private letter rulings relating to the regulative investment company (RIC) income test and asset diversification test under Section 851(b). The revoked letters had held income and gains from commodity-linked notes constitute qualifying income for purposes of RIC qualification.
  4. Sen. Tammy Baldwin (D-WI) and Rep. Sandy Levin (D-MI) reintroduced a bill that would tax carried interest at ordinary income rates. According to a 2015 estimate by the Joint Committee on Taxation, the proposal would raise approximately $15 billion over 10 years.
  5. The Tax Foundation has issued a new report


Congressional Activityy

Wednesday, 5/10

Senate Banking Committee
Subcommittee On National Security And International Trade And Finance Hearing: "Secondary Sanctions Against Chinese Institutions: Assessing Their Utility for Constraining North Korea."

Thursday, 5/11

Senate Banking Committee
Full committee hearing on "The Status of the Housing Finance System After Nine Years of Conservatorship."

Agency Activity

Monday, 5/8

Council will hold a closed executive session. The preliminary agenda includes a discussion of the April 21, 2017, presidential memorandum on Council designations; an update on the annual reevaluation of the designation of a nonbank financial company; a discussion of interagency regulatory collaboration and the February 3, 2017, executive order on core principles for financial regulation; a discussion of the Council’s 2017 annual report; and an update on bank holding companies’ living wills and resolution planning.

(1) Taxpayer Advocacy Panel Tax Forms and Publications Project Committee meeting on improving customer service at the Internal Revenue Service and (2) Taxpayer Advocacy Panel Special Projects Committee meeting on improving customer service at the Internal Revenue Service.

Wednesday, 5/10

Dialogue on “Reviving the U.S. IPO Market.”

Meeting of the Advisory Committee on Small and Emerging Companies.

Thursday, 5/11

Taxpayer Advocacy Panel Notices and Correspondence Project Committee meeting on improving customer service at the Internal Revenue Service.

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