Jun 20, 2017
Tax Policy Update
SPEECH OF THE WEEK
The House GOP’s tax reform blueprint turns one this week. To mark the
occasion, House Speaker Paul Ryan today dropped by the 2017 NAM
Manufacturers Summit to deliver an update on the GOP’s efforts to overhaul
the U.S. tax code. In the past six months, mixed messages from the White
House and congressional Republicans on tax reform have injected confusion
and dissension into an already difficult undertaking.
Ryan’s speech served to cut through the noise and remind everyone of the
overall goals of tax reform. And although most of the speech was a repeat
of what House GOP leaders have been saying for months, Ryan did provide
clarity on what tax reform will look like: First, tax reform means moving
the U.S. to a territorial system of taxation — this will help
reverse the trend of corporate inversions. Second, tax reform will be comprehensive, addressing both the business and individual sides of
the tax code. Third, tax reform must be permanent as temporary tax
cuts will do little to help grow the economy.
As expected, Ryan did not wade into the policy details and questions that
have divided Republicans, avoiding topics like the border adjustment tax
and interest deductibility. The speaker recognized that “transformational”
tax reform is difficult to do and that Congress will need the help of the
American people to get it done. The speaker is confident that despite all
the cynicism out there, Congress will get tax reform across the finish line
In addition to tax reform, Ryan also spoke briefly about the GOP’s efforts
to reform the federal regulatory system and the U.S. healthcare system.
Hey, Can You Send Me That Email Again?
Senate Finance Committee Chairman Orrin Hatch (R-UT) has reached out to
stakeholders once again to solicit input for comprehensive tax reform. If
this little exercise seems familiar, it’s because the solicitation is a
rehash of the committee’s tax reform efforts from two years ago. In March
2015, the committee issued a bipartisan call for ideas to overhaul the U.S.
tax code. The public input was intended to supplement the work of the
committee’s tax reform working groups, which were tasked to come up with
to address …
Will They or Won’t They?
Just like every rom-com couple, the Senate is caught in a seemingly eternal
playback loop, leaving the country wondering whether the upper chamber will
pass a health care reform bill before the July 4 recess. At this writing, a
June 30 vote is unlikely for three reasons: (1) Senators have yet to reach
a consensus on the major issues at play; (2) most of the members haven’t
seen the legislative text; and (3) a CBO score is not yet available.
Senator Bob Corker (R-TN) noted that GOP senators have been promised that
they will receive a summary, legislative text, and a preliminary score of
the bill before June 22. Details on the legislative text are still scarce.
One news source reported that the latest version of the bill includes a
three-year glide path down to a state's traditional funding level beginning
in 2020. However, negotiations are still ongoing and a three-year phase out
of Medicaid expansion seems …
The House GOP continues to move forward on healthcare reform, striking
items from its bucket list. On June 13, the House passed the first in a
series of bills that make up the so-called “third bucket” of the GOP’s
repeal and replace strategy.
The Verify First Act,
H.R. 2581, passed 238-184 along mostly party lines and would require individuals to
verify their income eligibility and citizenship or legal immigration status
with the Social Security Administration before accessing premium tax
credits to buy health coverage. Republicans said it is designed to close a
loophole that protects taxpayer dollars from going to people who are not
eligible for subsidies. Democrats maintained that the Treasury Department
already has protections in place, arguing that the effort is designed to
target undocumented immigrants. Other third-bucket bills that passed last
H.R. 2372: Allow veterans to access Obamacare subsidies if they are not enrolled
in health coverage at the Veterans Administration.
H.R. 2579: Allow the premium assistance tax credit to be used for unsubsidized
COBRA continuation health coverage.
Do the Math.
On June 14, during the Senate GOP weekly luncheon, Sen. Bill Cassidy (R-LA)
distributed a handout breaking down the factors that have contributed to
the higher cost of coverage under Obamacare. Sen. Cassidy’s handout shows
what levers the Senate may pull in order to lower premiums. Key takeaways from the handout include…
Leave Carried Interest Alone!
A group of House Republicans led by Rep. Richard Hudson (R-NC) wants the
leaders of the House Ways and Means Committee to maintain the current tax
treatment of carried interest, nudging them to look elsewhere for offsets
to pay for tax reform. “In your effort to offset the costs of those rate
reductions, we urge you not to increase taxes on long-term investment
income […],” the letter said.
While the group supports the elimination of tax loopholes to help pay for
lower rates, the members reject the characterization of carried interest as
a tax loophole, arguing that it is “a long-term capital gain […] realized
from an entrepreneurial investment of expertise.” The signatories urged the
tax-writing committee to oppose any changes to the treatment of carried
interest as capital gains.
A Really Exciting Tax Topic: Pass-through Rates.
While President Donald Trump has put forth a 15-percent rate for
pass-throughs, House Republicans have proposed a 25-percent rate—both have
yet to fill in the blanks on the specifics. Eric Solomon and Pamela Olson,
two former Treasury officials, suspect that only certain types of income
will qualify for the pass-through rate.
Former Treasury assistant secretary for tax policy, Eric Solomon suggested
income will be separated into buckets. This would allow active business
income to qualify for a lower rate, while passive income, such as “interest
and dividends – would be separately accounted for and would be subject to
their own rate.” But the bucket method has its …
Tax Bills in da House.
House lawmakers are gearing up to approve the following tax bills on June
H.R. 1551 – a bill to modify the nuclear production tax credit. The bill would
extend the availability of the nuclear production tax credit beyond the
2020 deadline for nuclear power plants. Under the measure, the credit
would also be transferable.
H.R. 1393 – the Mobile Workforce State Income Tax Simplification Act would
limit the authority of states to tax certain income of employees whose
employment duties are performed in other states.
The measures have been placed on the suspension calendar, and swift passage
is expected for both.
Pass the Collection Plate.
The Internal Revenue Service is contemplating alleviating requirements for
banks and withholding agents to collect foreign taxpayer numbers on forms
that agents use to determine the rate that applies to a foreigner’s U.S.
income. The deadline for this requirement is Jan. 1, 2018. However, banks
and agents have noted this doesn’t give them enough time to comply and have
asked for relief.
IRS officials are considering giving agents the opportunity to gather
numbers in a “staggered” way on legitimate forms aside from this single
provision. The other two provisions the agency is taking into consideration
Don’t Fix It, Reorganize.
Former Internal Revenue Service officials have recently spoken out against
the reorganization of the IRS. The House GOP tax blueprint proposed an IRS
reshuffling that would divide it into three main units: (1) families and
individuals; (2) businesses; and (3) an independent “small claims court.”
The last time the organization was restructured was 1998, which replaced a
geographical structure with units that serve groups of taxpayers with
particular needs. Yet, former IRS practitioners have said that these
restructurings can cause coordination issues, slow productivity for months,
and be distracting as well as expensive. Also, former Department of Justice
officials have said in order to provide information related to criminal
investigations, communication is the number one priority.
Hey…the Tax Policy Update team got an assist this week from one of
McGuireWoods’ summer interns. Check out the blurbs below by our own William
House Ways and Means to Focus on Higher Education Tax Reform
. This week, tax reform with regard to revamping higher education tax
breaks is a significant bipartisan focus. Both sides of the aisle wish to
alter higher education tax credits: Democrats want to increase college
accessibility while Republicans want to simplify the tax code, making
education one of the few areas of tax reform that both parties can agree
Several members of the House Ways and Means Committee have introduced
proposals to create new tax credits and improve two existing tax credits
introduced in 2016, the American Opportunity Tax Credit (AOTC) and the
Lifetime Learning Tax Credit (LLTC). Ranking member Richard E. Neal (D-MA)
noted, “It’s clear: more tax credits, more complication […] I think there’s
room for streamlining for sure.”
The House GOP tax reform blueprint emphasizes the importance of simplifying
the higher education tax benefits that families have access to, as it would
help provide a more effective package that covers both college and
vocational training programs.
Ways and Means members are also focused on increasing accessibility to
benefits and considering tax breaks that impact retirement savings.
Committee Chairman Kevin Brady commented, “We are in a general sense
looking at how we could simplify and consolidate the education savings
approach, making it simpler and more customer-friendly […] I don’t know if
a decision has been reached yet.”
No August Recess (for Tax Criminals).
Fraudulent tax return activity continues to be a nationwide problem as
scammers change their schemes to victimize taxpayers. Despite the end of
the tax season, scammers are not taking the summer off. “A new twist to an
old scam,” IRS Commissioner John Koskinen said. Fraudsters impersonating
the IRS are now using falsely certified letters from the Electronic Federal
Tax Payment System (EFTPS), a system that allows federal taxes to be paid
online or over the phone. To execute the scam, impersonators would allege
that the payment-request letters sent by the IRS have been returned as
undeliverable and that the victim will be “arrest[ed] if a payment is not
made through a prepaid debit card.” Koskinen advises that people “should
stay vigilant against IRS impersonation scams.”
The fight for HHS Secretary Tom Price’s 6th district seat in
Georgia concludes on June 20. It’s a close one, and Democrats are hoping to
flip this seat to their column. President Donald Trump made a last-minute
plug for Republican candidate Karen Handel.
- The Treasury Department released its first report on the financial
regulatory regime. The report specifically addresses regulatory changes to
the U.S. depository system, calling for, among other things, regulatory
relief for community banks and modifications to the Volcker Rule.
Subsequent reports will address regulations affecting capital markets,
asset management, and non-bank financial institutions.
- At a House appropriations subcommittee hearing, Transportation Secretary
Elaine Chao told lawmakers that the push to have infrastructure be a part
of tax reform has “receded.” In a separate hearing, Treasury Secretary
Steven Mnuchin confirmed that the administration does not intend to link
the two issues.
- Foreign investors will be a critical part of the Trump Administration’s
infrastructure plan, Treasury Secretary Mnuchin said in his opening remarks
at the SelectUSA Investment Summit. “Public-private partnerships are
crucial to ensuring that the American taxpayer does not bear the full cost
of any proposed program,” he added.
IN THE QUEUE
Senate Finance Committee
Full committee hearing on the proposed budget request for FY2018 and the
trade policy agenda.
House Ways and Means Committee
Full committee hearing on U.S. trade policy agenda. USTR Lighthizer will be
Senate Banking Committee
Full committee hearing on “Fostering Economic Growth: Regulator
Internal Revenue Service
Meeting of the Taxpayer Advocacy Panel Taxpayer Assistance Center
Improvements Project Committee.
Internal Revenue Service
An open meeting of the Taxpayer Advocacy Panel Toll-Free Phone Line Project
Committee will be conducted. The Taxpayer Advocacy Panel is soliciting
public comments, ideas, and suggestions on improving customer service at
the Internal Revenue Service. Due to limited conference lines, notification
of intent to participate must be made with Fred Smith.
Meeting of the Investor Advisory Committee. Agenda includes a discussion of
capital formation, the declining number of IPOs, and certain provisions of
the Financial CHOICE Act.
Internal Revenue Service
An open meeting of the Taxpayer Advocacy Panel with the Internal Revenue
Service for strategic planning. The Internal Revenue Service is seeking the
Taxpayer Advocacy Panel's input for this project.
2017 Manufacturing Summit
National Association of Manufacturers (NAM) 2017 Manufacturing Summit in
Washington, D.C., June 20–21. Join manufacturers from across the country to
meet with legislators and advocate policies that play a critical role in
our nation’s economic growth.
Financial Services Roundtable
FSR hosts a discussion on
what to expect next from the administration and Congress on financial
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