Tax Policy Update

February 14, 2017

Pardon Our Dust

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QUOTE OF THE WEEK

“We’re going to be announcing something I would say over the two or three weeks that will be phenomenal in terms of tax.” – President Donald Trump

In a meeting with U.S. airline executives last week, President Trumprevealed that the White House is planning to unveil its own tax reform plansoon — one that would be “incentive-based” to lower “the overall tax burdenof American businesses, big league.” The off-the-cuff remark is yet anotherplot twist in the GOP’s efforts to enact tax reform this year. Trump’scomments reportedly caught House tax writers by surprise.

White House Press Secretary Sean Spicer confirmed on Feb. 9 that theadministration would be releasing an outline of its own tax reform plan inthe coming weeks. He also signaled that the administration would utilizethe budget reconciliation process to enact the tax overhaul legislation.

House Ways and Means Chairman Kevin Brady (R-TX) seemed confident that theadministration’s plan would be similar to the House GOP tax blueprint.Based on a previous meeting with the White House, Brady believes that thereis a lot of common ground and that the discussions are going in the rightdirection. But as House GOP leaders struggle to fend off criticisms for theborder adjustment tax (“BAT”), the White House has yet to stake out a firmposition on the controversial proposal.

Gary Cohn, the head of the National Economic Council, is reportedly thepoint man for the administration’s tax plan. Cohn said that theadministration’s plan is focused on cutting taxes for both businesses andindividuals. Cohn also appears to support the idea of using revenuesgenerated through repatriation to pay for certain infrastructure programs.

LEGISLATIVE LANDSCAPE

Kick ‘Em While They’re Down. The House GOP’s border adjustment tax proposal did not have a good week.Senate Finance Chairman Orrin Hatch’s (R-UT) and Sen. John Cornyn’s (R-TX)skepticism for the BAT opened the floodgate of criticisms in the Senate.Sen. David Perdue (R-GA) has lodged the strongest complaint against theproposal to date, calling the BAT a “bad idea” outright. His concerns arethree-fold: (1) the BAT could lead to an increase in prices for goods andservices; (2) the price increase would hurt demand; and (3) increasingprices and decreasing demand could hurt job creation.

Sen. Perdue’s attack on the BAT was flanked by Sen. Mike Rounds (R-SD), whowarned …

Don’t You (Forget About Passthroughs). That was essentially Rep. Vern Buchanan’s (R-FL) message at the BipartisanPolicy Center last week. The Florida Republican discussed the challenges ofpassthroughs in the overall tax reform debate, reiterating his support forparity between C-corporations and passthroughs. In addition to thepassthrough question, GOP tax writers are also looking at ways to make roomfor both full expensing and interest deductibility.

Like Brady, Buchanan is confident that Congress will pass a tax reform billthis year and that draft legislative language will come before the Augustrecess. Buchanan also confirmed that tax reform will be enacted via asingle piece of legislation rather than via separate bills as suggestedpreviously by Stephen Moore of the Heritage Foundation. The lawmaker addedthat he would prefer to get tax reform done in a bipartisan fashion throughregular order — this would help ensure the longevity of reform.

What Chu Talking ‘Bout, Judy? Rep. Judy Chu (D-CA) is the newest Democratic member to join the House Waysand Means Committee, taking the seat left behind by Rep. Xavier Becerra.Becerra resigned in December 2016 to step in as California’s new attorneygeneral. Prior to joining Congress, Chu served on a state tax commissionthat regulates tobacco, fuel, and alcohol taxes.

Republicans will have to find a replacement for Rep. Tom Price who wasrecently confirmed to be the secretary of the Department of Health andHuman Services. The tax-writing panel will see a flight of Republicandepartures in the next couple of years: Reps. Lynn Jenkins (R-KS) and SamJohnson (R-TX) are retiring; Reps. Pat Tiberi (R-OH), Jim Renacci (R-OH),Diane Black (R-TN), and Kristi Noem (R-SD) all have the ambition to run forother offices.

Mr. Price Goes to HHS. After surviving the confirmation process on a party-line vote, Rep. TomPrice is now the secretary of the Department of Health and Human Services —the public face of the Affordable Care Act repeal effort. He mustact as the conduit between Congress and the Trump administration, bearingthe burden of transitioning the U.S. healthcare system to whatever the GOPhas in mind to replace the ACA. Of course, the Trump Administrationhas vastly different goals for a new healthcare system than main streetRepublicans. The success of the GOP, including Trump, will hinge on Price’sability to unite GOP lawmakers behind a solution. Of course, it’s no smallfeat, considering that no Republican has been up to the task in the pastseven years.

Price will have to hit the ground running as the stakes are high — insurershave warned Congress that a failure to act by April will result in …

Big Wheel Keep on Turnin’. This week, the House is set to continue its rollback of a number ofObama-era regulations through the Congressional Review Act. Thefollowing disapproving resolutions are ready for action:

  • H.J. Res 42 – to disapprove the Labor Department’s rule related to drug testing of unemployment compensation applicants.
  • H.J. Res 43 – to disapprove the final rule submitted by Secretary of Health and Human Services related to compliance with title X requirements by project recipients in selecting subrecipients.
  • H.J. Res. 66 – to disapprove the Labor Department’s rule related to savings arrangements established by States for non-governmental employees.
  • H.J. Res. 67 – to disapprove the Labor Department’s rule related to savings arrangements established by qualified state political subdivisions for non-governmental employees.
  • H.J. Res. 69 – to disapprove the Interior Department’s rule related to Non-Subsistence Take of Wildlife on National Wildlife Refuges in Alaska.

REGULATORY WORLD

Mo’ Money, No Problems? The Internal Revenue Service is laying the foundation to try to get morefunding from Congress. This time, the IRS may rely on President Trump’sexecutive order calling for agency officials to head up cybersecurityefforts at their respective departments. The draft order, which Trump stillhas not signed, indicates that unmet budgetary needs may be addressed aspart of a cybersecurity upgrade. If the order is signed, the IRS can usethis during budgetary discussions to make the case that additional fundingcan help the agency make cybersecurity improvements and stop tax refundfraud. Congress has cut funding for the agency by over $900 million since2010 leading to shortfalls and cutbacks on taxpayer services.

Say What?!? In a strange twist of events, former secretary of state James Baker, led adelegation of Republicans to advocate for the creation of a revenue neutralcarbon tax. Baker’s group has proposed a $40-per-ton carbon tax that wouldbe distributed back to the public on a quarterly basis. In exchange for thecarbon tax, the proposal calls for the Environmental Protection Agency toeliminate most of its carbon emission regulations. Baker met with GaryCohn, Donald Trump’s chief economic adviser, along with senior adviserJared Kushner and Ivanka Trump. Baker noted that while he remains a climatechange skeptic, “the risks remain too great to ignore.” Baker added that acarbon tax would, in his opinion, “make America great again.”

ROAD WORK AHEAD

Commerce Committee Chairman Takes the Wheel on Driverless Cars. On Feb. 13, Senate Commerce Chairman John Thune (R-SD) announced that hewould be working with Sen. Gary Peters (D-MI) on a joint effort to advanceautonomous vehicle technology as part of a major congressional effort tospeed up the deployment of self-driving cars. This effort will likely leadto the introduction of legislation this spring focused on steeringdriverless regulations and standards in the right direction.

In theirjoint statementthe senators pointed to Federal Motor Vehicle Safety Standards whichexplicitly require human controls and the presence of a human driver —standards that don’t conform easily to self-driving cars. Another issuelikely to come up is the increasing concern over states advancing …

COMMANDER-IN-TWEET

The Senate confirmed, 53-47, Steven Mnuchin to be Treasury secretary.Linda McMahon, nominee to be the administrator of the Small BusinessAdministration, will get her confirmation vote on Tuesday.

LINE ITEMS

  1. House Financial Services Chairman Jeb Hensarling (R-TX) is expected to reintroduce the Financial CHOICE Act in the coming weeks. The so-called “CHOICE Act 2.0” includes the GOP’s revamped approach to reforming the Consumer Financial Protection Bureau (CFPB). Under the new bill, the bureau and its single directorship structure would be retained. However, the bill would make the director removable by the president at-will.
  2. Rep. Gohmert (R-TX) introduced a bill (H.R. 928) to clarify that a state has the sole authority to regulate hydraulic fracturing on federal land within the boundaries of the state.
  3. Public Citizen, the Natural Resources Defense Council, and the Communications Workers of America sued the Trump administration over the president’s Jan. 20 executive order requiring agencies to repeal two regulations for each new one adopted. The suit claims that the president’s order will force the repeal of regulations necessary to protect health, safety, and the environment.

LOOKING AHEAD

Congressional Activity

Tuesday, 2/14

House Ways and Means Committee
Full committee meeting to organize for the 115th Congress.Agenda: Adoption of Ways and Means Committee Authorization and OversightPlan and views and estimates on the FY2018 budget.

Senate Banking Committee
Full committee hearing on “The Semiannual Monetary Policy Report toCongress.” Fed Chair Janet Yellen will testify.

Wednesday, 2/15

House Financial Services Committee
Full committee hearing on “Monetary Policy and the State of the Economy.”

House Small Business Committee
Full committee hearing on “Start-ups Stalling? The Tax Code as a Barrier toEntrepreneurship.”

Senate Committee on Aging
Full committee hearing on “Stopping Senior Scams: Developments in FinancialFraud Affecting Seniors.”

Thursday, 2/16

Senate Finance Committee
Full committee hearing on Seema Verma, nominee to be the administrator ofthe Centers for Medicare and Medicaid Services.

Senate HELP Committee
Full committee hearing for Andy Puzder, nominee to be the Labor secretary.

House Judiciary Committee
Subcommittee hearing on H.R. 372, the Competitive Health Insurance Reform Act of 2017.

Agency Activity

Wednesday, 2/15

SEC
Advisory Committee on Small and Emerging Companies holds a meeting todiscuss matters relating to rules and regulations affecting small andemerging companies under the federal securities laws.

Other Activity

Monday, 2/13

Bipartisan Policy Center
Discussion on “Infrastructure 2017,” focusing on whether policymakersreconcile their varying priorities in a bipartisan infrastructure package.

Thursday, 2/16

Bloomberg Government
Webinar on “Tackling the Budget: 2017 Resolutions and 2018 Submission,”focusing on Trump’s first budget request.

National Economists Club
Luncheon discussion on “Destination-Based Cash Flow Taxation.”

Ripon Society
Discussion on the Republican strategy to replace Obamacare.


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