Tax Policy Update

May 9, 2017

Pardon Our Dust

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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 tocongratulate one another for passing a bill: An amended version of the American Health Care Act (AHCA) narrowly passed the House by a217-213 vote. Of note, 20 Republicans broke rank and voted against theObamacare repeal-and-replace bill. No Democrat voted for the measure.

The AHCA is now in the Senate, where it is expected to undergo substantialchanges. Senate Republican leaders have put together a 13-member workinggroup 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, arewrite of the AHCA is not expected to be completed in the Senate until theend of the summer. Then, there’s the matter of convening a conferencecommittee to iron out the differences between the House and the Senatebills.

Passage of the AHCA is just one of the many to-do items on the GOP’sunwieldy agenda for the summer and fall — keep in mind that theRepublican-controlled Congress still has to tackle the FY2018 budget, thedebt limit, and tax reform. That’s a lot of work crunched into a tightlegislative 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 ownhealth care and all its problems: premium increases, the exodus of insurersfrom the markets, and insurance deserts where no one is willing to sellcoverage anymore. High-profile Republicans, like Rep. Michael Burgess(R-TX), have acknowledged this reality. “I accept the fact that any blamethere is to receive, we will receive it […],” Burgess said.

So what exactly might Republicans be blamed for? In its current form, theAHCA would phase out Medicaid expansion, repeal most of Obamacare’s taxes,and replace Obamacare’s income-based tax credits with new flat-creditsbased on age. After the inclusion of the controversial MacArthur-Meadowsamendment, the bill also allows states to opt out of Obamacare’sprotections 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 tothe dark days. The community-rating waiver would allow insurance companiesto 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 ofoffsets and revenue neutrality is one of the key disagreements between theTrump Administration and congressional Republicans. Since then, it hasbecome clear that Republican lawmakers, themselves, are not yet on the samepage on these issues. In separate interviews last week, Senate FinanceChairman Orrin Hatch (R-UT) and Rep. Mark Meadows (R-NC), chairman of theHouse Freedom Caucus gently played down the importance of revenueneutrality as a goal of comprehensive tax reform.

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

Over on the House side, Rep. Meadows shares Hatch’s views. The NorthCarolina lawmaker follows the school of thought that tax cuts willeventually pay for themselves thanks to the anticipated economic growth, sooffsets for such cuts aren’t necessary.

Meanwhile, Republicans on the Ways and Means Committee are doubling down onthe push for revenue neutrality after their two-day policy retreat. “We’recommitted 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 revenueneutrality, permanence, and the border adjustment tax are why the House,Senate, and White House are eager to sit down together and produce a singleblueprint for tax reform — the hope is to present a united front in orderto avoid a repeat of the healthcare debacle.

This Time, It Will Be Different. National Economic Director Gary Cohn said the administration is working toensure a more inclusive process for tax reform. “Unlike healthcare, we aretalking to all the groups that are gonna be interested in our tax plan,”Cohn told Fox Business News. Though the White House has reached outto the House Freedom Caucus and industry stakeholders, Trump’s economicteam has yet to step across the aisle to talk to Democrats. According toRep. John Larson (D-CT), who spoke at the Tax Council’s legislativeluncheon 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 carbonpollution by offering a series of technology-neutral, performance-basedenergy tax incentives. According to a fact sheet provided by Wyden’soffice, these credits are open to all resources, including fossil fuelsthat capture carbon or make efficiency improvements.

The bill also aims to simplify the existing list of renewable energy taxincentives 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 havebeen reduced by 35 percent. A copy of the bill can be foundhere. A detailed summary of the bill can be foundhere.

IRS Restructuring To Be Separate From Tax Reform. House Ways and Means Committee Chairman Kevin Brady (R-TX) and tax policysubcommittee chairman Peter Roskam (R-IL) announced that plans torestructure 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 committeewrapped up a two-day policy retreat where they discussed how to moveforward with tax reform.

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


Separation of Church and State…But Why? Last week, President Trump fulfilled a campaign promise to “totallydestroy” 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 otherreligious entities, from “directly or indirectly” participating in apolitical campaign. President Trump’s executive order provides “maximumenforcement discretion” to the IRS when enforcing a prohibition onpolitical activity by religious nonprofits. The order also provides …


President Donald Trump expresses confidence in the ability of SenateRepublicans 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 FinanceHearing: “Secondary Sanctions Against Chinese Institutions: Assessing TheirUtility for Constraining North Korea.”

Thursday, 5/11

Senate Banking Committee
Full committee hearing on “The Status of the Housing Finance System AfterNine Years of Conservatorship.”

Agency Activity

Monday, 5/8

Council will hold a closed executive session. The preliminary agendaincludes a discussion of the April 21, 2017, presidential memorandum onCouncil designations; an update on the annual reevaluation of thedesignation of a nonbank financial company; a discussion of interagencyregulatory collaboration and the February 3, 2017, executive order on coreprinciples for financial regulation; a discussion of the Council’s 2017annual report; and an update on bank holding companies’ living wills andresolution planning.

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

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

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