CONSISTENTLY DELIVERS

Sep 13, 2017

Tax Policy Update

Quote of the Week:

 

“At some point you’re going to have to call the play. You’re going to have to get specific. We can’t answer it if we don’t know what the details are. It’s time to make some decisions and get on with it.”

Rep. Mark Meadows (R-NC) on the House GOP tax reform plan

Rep. Mark Meadows, chairman of the conservative House Freedom Caucus, publicly vented his frustrations with House GOP tax writers last week, demanding to see the details of the “unified” tax reform plan that the Big Six negotiators have been working on this summer. Meadows’ impatience is understandable: The timeline for tax reform has tightened up after President Trump’s surprise deal with Democrats on the debt ceiling and government funding. The three-month deal expires on Dec. 8, which means Congress will have yet another year-end fire drill on these must-pass items. In view of this legislative pileup, Meadows believes that Congress must wrap up tax reform by Thanksgiving.

LEGISLATIVE LANDSCAPE

Quick Gossip Piece. House Ways and Means Committee Republicans will be holding a two-day tax policy conference, Sept. 24-25. According to an email that went out to the GOP members of the panel last night, the purpose of the conference is to give tax writers an opportunity to get together in one room and come to a decision on upcoming committee action on tax reform. Attendees for the conference will be limited to members and committee staff…members’ personal tax staffers have not been invited to the big pow-wow.

Tell Me More, Tell Me More, Did You Get Very Far? Nobody knows. There is no official readout from the Big Six meeting on tax reform last week, but according to an unnamed White House official, negotiators are “getting a lot closer to finalization,” and some “consensus was reached.” As with similar declarations in the past, the official did not offer any details in terms of where consensus has been reached or any hints to when the group will release its “unified” framework for tax reform. House Speaker Paul Ryan (R-WI), a member of the Big Six, also declined to fill in the timetable, saying, “I’ll leave it up to the tax writers as to when they’ll release their template.”

Details on the GOP’s forthcoming tax reform framework have been elusive for Republican lawmakers as well. Outside of the Big Six, no one from the party has seen anything on …

Corporate Tax Rate: When They Go Low, We Go High. The question of where the GOP will land on the corporate tax rate is still up in the air. President Trump is insisting on lowering the rate to 15 percent — which many tax policy experts, including Speaker Ryan, have said that such an aggressive reduction would be costly and unrealistic. The latest figure being floated around is 22.5 percent, which is just slightly higher than the 20 percent corporate rate proposed in the House GOP tax reform blueprint.

Lowering the current 35 percent corporate rate has always been a challenge for deficit-neutral tax reform. The task has become even more difficult since the demise of the border adjustment tax, which was supposed to raise as much as $1 trillion in revenue. So not only do tax writers have to reach an agreement on the rates, they must also produce a list of offsets. The menu of offsets currently include the following …

Bipartisanship Lives Again…Maybe. Who knew it would only take some cooperation between President Trump and Democrats to get congressional Republicans to gripe openly about the administration? Last week’s debt-ceiling-government-funding deal between Trump and Senate Democratic Leader Chuck Schumer (D-NY) and House Democratic Leader Nancy Pelosi (D-CA) has (hilariously) stirred up the GOP caucus, making some members skeptical about whether President Trump can be trusted. The agreement showed that Trump is willing to cut a deal with Democrats even at the expense of Republican interests. A handful of conservative GOP lawmakers are laying the blame on Speaker Ryan for what they perceived to be a bad deal.

Washington observers wonder whether this episode and Trump’s recent embrace of Democratic Sen. Heidi Heitkamp (D-ND) signal some sort of détente between Trump and Democrats, opening the door to more cooperation in the future — namely, in the area of tax reform. It’s interesting to note that President Trump has invited a bipartisan group of senators to …

Ways and Means to Look for a New Sheriff. On Sept. 6, the fifth most senior member of Ways and Means, Rep. Dave Reichert (R-WA), announced he would not seek reelection. The former sheriff has served seven terms in Congress. On the Ways and Means Committee, Reichert serves as the chairman of the subcommittee on trade. He also previously chaired the subcommittees on tax policy and human resources.

Reichert’s announcement comes as several other senior members of the Ways and Means Committee are also planning to depart. Joining Reichert are the following:

  • Rep. Sam Johnson (R-TX) who ranks second in seniority
  • Rep. Lynn Jenkins (R-KS) who ranks ninth in seniority
  • Rep. Dianne Black (R-TN) who ranks 12th in seniority and chairs the Budget Committee
  • Rep. Jim Renacci (R-OH) who ranks 15th
  • Rep. Kristi Noem (R-SD) who ranks 17th

It is interesting to note that the committee is losing three of the four women sitting on the panel. The committee may lose more Republican members given that 2018 will be a difficult election year for incumbents: Rep. George Holding (R-NC) is already facing a tough election in November. This turnover is unprecedented for the tax-writing committee, especially at the top of dais.

The Rash That Won’t Go Away. After July’s failed healthcare vote, Republicans seemed all too eager to move on to other priorities like tax reform; yet, healthcare continues to dominate the conversation this fall. Republicans are facing a new dilemma: Senate Health, Education, Labor, and Pension (HELP) Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) have convened a series of four market stabilization hearings with the hopes of passing a bipartisan bill to stabilize the individual healthcare market. At the same time, President Donald Trump continues to push for a final vote on repealing and replacing Obamacare.

This time around, the president is backing Sens. Lindsey Graham (R-SC) and Bill Cassidy’s (R-LA) yet-to-be released bill. Of course, after several disastrous attempts to take action on healthcare, the GOP must tread carefully. In the coming weeks, the GOP will be forced to pick between a partisan reconciliation strategy that has previously failed and a bipartisan market stabilization that will allow them to appeal to moderates in both parties. Insurers and consumers are anxiously watching the debate unfold and hoping that the GOP chooses wisely this time around.

Going Nowhere Fast. On one hand, it is highly unlikely that the Graham-Cassidy bill will gain enough traction to garner 50 votes. For starters, the final bill is not yet available and the Congressional Budget Office has not released a score. The plan is not going to garner any support from Democrats, and even support from conservatives is dubious, given that Sen. Rand Paul (R-KY) recently criticized the bill. Many main street Republicans are also skeptical of the Graham-Cassidy proposal. During the Senate HELP Committee hearing, Massachusetts Gov. Charlie Baker, a Republican, criticized the plan on the grounds …

Repair, Not Repeal. The GOP’s alternative to pursuing the Graham-Cassidy bill through reconciliation would be to enact a bipartisan market stabilization bill. HELP Committee Chairman Alexander and Ranking Member Murray are focused on producing a narrow bill that would (1) fund cost-sharing reduction (CSR) payments that the Trump administration has repeatedly threatened to pull; (2) simplify the Section 1332 State Innovation Waiver process; (3) potentially address high-cost individuals through state reinsurance programs; (4) potentially allow pilot programs for things like association health plans; and (5) consider allowing copper plans to be offered on the individual market.

Of course, getting Republicans and Democrats to agree on a healthcare bill is near impossible. Democrats would like to see CSR payments funded through 2019 and potentially want a federal reinsurance program as well. Republicans are pushing back on these requests with demands of their own, including significantly relaxed Section 1332 waivers that allow states to loosen the ACA’s consumer protections, such as essential health benefits (EHBs). Republicans would also like to see catastrophic plans introduced for those over the age of 29.

Chairman Alexander and Ranking Member Murray have a tough road ahead, as they corral votes for this bill. They will need to get at least 25 votes out of committee to appear united and will need 60 votes for full passage of their bill.

REGULATORY WORLD

It’s Normal to Make Mistakes. The IRS and Treasury recently issued Rev. Proc. 2017-47, which provides safe harbor for regulated public utilities that have mistakenly applied the normalization rules.  Normalization is an accounting system used by regulated public utilities to reconcile the tax treatment of certain tax benefits.  This system allows these tax benefits to be passed along to ratepayers ratably over the asset’s regulatory useful life.  The safe harbor provides that the regulated public utilities that have “inadvertently or unintentionally” applied the normalization rules will not be held as violating those rules so long as they are corrected at the next available opportunity.  Further, the revenue procedure provides that the IRS will not challenge past violations of the normalization rules so long as the taxpayer makes corrections.

COMMANDER-IN-TWEET

LINE ITEMS

  1. The Senate Banking Committee approved the nominations of Randal Quarles to be the Federal Reserve’s vice chairman of supervision and Joseph Otting to be the comptroller of the currency.
  2. Federal Reserve Vice Chairman Stanley Fischer announced his intention to step down “on or around” Oct. 13. Fischer cited “personal reasons” for his departure.
  3. President Trump has nominated Robert J. Jackson, Jr. to the SEC. Jackson, a Democrat, has extensive experience in the area of executive compensation. He is the current director of Columbia Law’s Program on Corporate Law and Policy. Previously, he served as a senior advisor at the Treasury during the financial crisis and worked with Kenneth Feinberg in his work as Special Master for TARP Executive Compensation.
  4. Chip Harter, currently with PwC, will soon step into the role of assistant secretary for international tax affairs at the Treasury Department.

IN THE QUEUE

Congressional Activity

Tuesday, 9/12

House Financial Services Committee
Joint subcommittee hearing on “Examining the Relationship Between Prudential Regulation and Monetary Policy at the Federal Reserve.”

Senate HELP Committee
Full committee hearing on “Stabilizing Premiums in the Individual Insurance Market for 2018: State Flexibility.”

Senate Finance Committee
Hearing on “Health Care: Issues Impacting Cost and Coverage.”

Wednesday, 9/13

House Ways and Means Committee
Subcommittee hearing on reforming how the IRS resolves taxpayer disputes.

Thursday, 9/14

Senate HELP Committee
Full committee hearing on market stabilization, featuring testimonies from industry stakeholders.

Senate Banking Committee
Full committee hearing to examine the CFIUS.

Senate Finance Committee
The full committee will hold a hearing on streamlining how individual taxpayers file their taxes.

Agency Activity

Wednesday, 9/13

SEC
SEC Advisory Committee to hold a meeting on small and emerging companies.

Other Activity

Wednesday, 9/13

Tax Foundation
Discussion panel to examine a path to consensus tax reform with special guest Sen. Ted Cruz.


For the full edition of the Tax Policy Update, read below to find out you can become a subscriber.

The McGuireWoods’ Tax & Financial Services Policy Group assists clients in understanding how the latest legislative and regulatory proposals and decisions may impact their business and industry. To learn more about how our team can help you monitor, analyze, and navigate all relevant legislative and regulatory developments, please contact any of our attorneys and consultants below at (202) 857-1700. For more information on how to subscribe to our weekly Tax Policy Update and tax news alerts, please contact Radha Mohan, , (202) 857-2944.

Russell Sullivan
Partner

Rosemary Becchi
Partner

Harold Hancock
Partner

Charlie Iovino
Vice President

Jessica Monahan
Vice President

Radha Mohan
Assistant Vice President 


Assistant Vice President 

Daniel Chung
Associate 

Anne C. Starke
Research Associate