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SPEECH OF THE WEEK
Source: AP
The House GOP’s tax reform blueprint turns one this week. To mark theoccasion, House Speaker Paul Ryan today dropped by the 2017 NAMManufacturers Summit to deliver an update on the GOP’s efforts to overhaulthe U.S. tax code. In the past six months, mixed messages from the WhiteHouse and congressional Republicans on tax reform have injected confusionand dissension into an already difficult undertaking.
Ryan’s speech served to cut through the noise and remind everyone of theoverall goals of tax reform. And although most of the speech was a repeatof what House GOP leaders have been saying for months, Ryan did provideclarity on what tax reform will look like: First, tax reform means movingthe U.S. to a territorial system of taxation — this will helpreverse the trend of corporate inversions. Second, tax reform will be comprehensive, addressing both the business and individual sides ofthe tax code. Third, tax reform must be permanent as temporary taxcuts will do little to help grow the economy.
As expected, Ryan did not wade into the policy details and questions thathave divided Republicans, avoiding topics like the border adjustment taxand interest deductibility. The speaker recognized that “transformational”tax reform is difficult to do and that Congress will need the help of theAmerican people to get it done. The speaker is confident that despite allthe cynicism out there, Congress will get tax reform across the finish linein 2017.
In addition to tax reform, Ryan also spoke briefly about the GOP’s effortsto reform the federal regulatory system and the U.S. healthcare system.
LEGISLATIVE LANDSCAPE
Hey, Can You Send Me That Email Again? Senate Finance Committee Chairman Orrin Hatch (R-UT) has reached out tostakeholders once again to solicit input for comprehensive tax reform. Ifthis little exercise seems familiar, it’s because the solicitation is arehash of the committee’s tax reform efforts from two years ago. In March2015, 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 thecommittee’s tax reform working groups, which were tasked to come up withrecommendationsto address …
Will They or Won’t They? Just like every rom-com couple, the Senate is caught in a seemingly eternalplayback loop, leaving the country wondering whether the upper chamber willpass a health care reform bill before the July 4 recess. At this writing, aJune 30 vote is unlikely for three reasons: (1) Senators have yet to reacha consensus on the major issues at play; (2) most of the members haven’tseen the legislative text; and (3) a CBO score is not yet available.
Senator Bob Corker (R-TN) noted that GOP senators have been promised thatthey will receive a summary, legislative text, and a preliminary score ofthe bill before June 22. Details on the legislative text are still scarce.One news source reported that the latest version of the bill includes athree-year glide path down to a state’s traditional funding level beginningin 2020. However, negotiations are still ongoing and a three-year phase outof Medicaid expansion seems …
Bucket List. The House GOP continues to move forward on healthcare reform, strikingitems from its bucket list. On June 13, the House passed the first in aseries of bills that make up the so-called “third bucket” of the GOP’srepeal and replace strategy.
The Verify First Act,H.R. 2581, passed 238-184 along mostly party lines and would require individuals toverify their income eligibility and citizenship or legal immigration statuswith the Social Security Administration before accessing premium taxcredits to buy health coverage. Republicans said it is designed to close aloophole that protects taxpayer dollars from going to people who are noteligible for subsidies. Democrats maintained that the Treasury Departmentalready has protections in place, arguing that the effort is designed totarget undocumented immigrants. Other third-bucket bills that passed lastweek include:
- 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 tothe higher cost of coverage under Obamacare. Sen. Cassidy’s handout showswhat 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 theleaders of the House Ways and Means Committee to maintain the current taxtreatment of carried interest, nudging them to look elsewhere for offsetsto pay for tax reform. “In your effort to offset the costs of those ratereductions, we urge you not to increase taxes on long-term investmentincome […],” the letter said.
While the group supports the elimination of tax loopholes to help pay forlower rates, the members reject the characterization of carried interest asa tax loophole, arguing that it is “a long-term capital gain […] realizedfrom an entrepreneurial investment of expertise.” The signatories urged thetax-writing committee to oppose any changes to the treatment of carriedinterest as capital gains.
A Really Exciting Tax Topic: Pass-through Rates. While President Donald Trump has put forth a 15-percent rate forpass-throughs, House Republicans have proposed a 25-percent rate—both haveyet to fill in the blanks on the specifics. Eric Solomon and Pamela Olson,two former Treasury officials, suspect that only certain types of incomewill qualify for the pass-through rate.
Former Treasury assistant secretary for tax policy, Eric Solomon suggestedincome will be separated into buckets. This would allow active businessincome to qualify for a lower rate, while passive income, such as “interestand dividends – would be separately accounted for and would be subject totheir 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 June20:
- 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 passageis expected for both.
REGULATORY WORLD
Pass the Collection Plate.The Internal Revenue Service is contemplating alleviating requirements forbanks and withholding agents to collect foreign taxpayer numbers on formsthat 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, banksand agents have noted this doesn’t give them enough time to comply and haveasked for relief.
IRS officials are considering giving agents the opportunity to gathernumbers in a “staggered” way on legitimate forms aside from this singleprovision. The other two provisions the agency is taking into considerationare …
Don’t Fix It, Reorganize.Former Internal Revenue Service officials have recently spoken out againstthe reorganization of the IRS. The House GOP tax blueprint proposed an IRSreshuffling that would divide it into three main units: (1) families andindividuals; (2) businesses; and (3) an independent “small claims court.”
The last time the organization was restructured was 1998, which replaced ageographical structure with units that serve groups of taxpayers withparticular needs. Yet, former IRS practitioners have said that theserestructurings can cause coordination issues, slow productivity for months,and be distracting as well as expensive. Also, former Department of Justiceofficials have said in order to provide information related to criminalinvestigations, communication is the number one priority.
INTERN INTERVENTION
Hey…the Tax Policy Update team got an assist this week from one ofMcGuireWoods’ summer interns. Check out the blurbs below by our own WilliamChadwick.
House Ways and Means to Focus on Higher Education Tax Reform. This week, tax reform with regard to revamping higher education taxbreaks is a significant bipartisan focus. Both sides of the aisle wish toalter higher education tax credits: Democrats want to increase collegeaccessibility while Republicans want to simplify the tax code, makingeducation one of the few areas of tax reform that both parties can agreeon.
Several members of the House Ways and Means Committee have introducedproposals to create new tax credits and improve two existing tax creditsintroduced in 2016, the American Opportunity Tax Credit (AOTC) and theLifetime Learning Tax Credit (LLTC). Ranking member Richard E. Neal (D-MA)noted, “It’s clear: more tax credits, more complication […] I think there’sroom for streamlining for sure.”
The House GOP tax reform blueprint emphasizes the importance of simplifyingthe higher education tax benefits that families have access to, as it wouldhelp provide a more effective package that covers both college andvocational training programs.
Ways and Means members are also focused on increasing accessibility tobenefits and considering tax breaks that impact retirement savings.Committee Chairman Kevin Brady commented, “We are in a general senselooking at how we could simplify and consolidate the education savingsapproach, making it simpler and more customer-friendly […] I don’t know ifa decision has been reached yet.”
No August Recess (for Tax Criminals).Fraudulent tax return activity continues to be a nationwide problem asscammers change their schemes to victimize taxpayers. Despite the end ofthe tax season, scammers are not taking the summer off. “A new twist to anold scam,” IRS Commissioner John Koskinen said. Fraudsters impersonatingthe IRS are now using falsely certified letters from the Electronic FederalTax Payment System (EFTPS), a system that allows federal taxes to be paidonline or over the phone. To execute the scam, impersonators would allegethat the payment-request letters sent by the IRS have been returned asundeliverable and that the victim will be “arrest[ed] if a payment is notmade through a prepaid debit card.” Koskinen advises that people “shouldstay vigilant against IRS impersonation scams.”
COMMANDER-IN-TWEET
The fight for HHS Secretary Tom Price’s 6th district seat inGeorgia concludes on June 20. It’s a close one, and Democrats are hoping toflip this seat to their column. President Donald Trump made a last-minuteplug for Republican candidate Karen Handel.
LINE ITEMS
- 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
Congressional Activity
Wednesday, 6/21
Senate Finance Committee
Full committee hearing on the proposed budget request for FY2018 and thetrade policy agenda.
Thursday, 6/22
House Ways and Means Committee
Full committee hearing on U.S. trade policy agenda. USTR Lighthizer will betestifying.Senate Banking Committee
Full committee hearing on “Fostering Economic Growth: RegulatorPerspective.”
Agency Activity
Tuesday, 6/20
Internal Revenue Service
Meeting of the Taxpayer Advocacy Panel Taxpayer Assistance CenterImprovements Project Committee.
Wednesday, 6/21
Internal Revenue Service
An open meeting of the Taxpayer Advocacy Panel Toll-Free Phone Line ProjectCommittee will be conducted. The Taxpayer Advocacy Panel is solicitingpublic comments, ideas, and suggestions on improving customer service atthe Internal Revenue Service. Due to limited conference lines, notificationof intent to participate must be made with Fred Smith.
Thursday, 6/22
SEC
Meeting of the Investor Advisory Committee. Agenda includes a discussion ofcapital formation, the declining number of IPOs, and certain provisions ofthe Financial CHOICE Act.Internal Revenue Service
An open meeting of the Taxpayer Advocacy Panel with the Internal RevenueService for strategic planning. The Internal Revenue Service is seeking theTaxpayer Advocacy Panel’s input for this project.
Other Activity
Tuesday, 6/20
2017 Manufacturing Summit
National Association of Manufacturers (NAM) 2017 Manufacturing Summit inWashington, D.C., June 20–21. Join manufacturers from across the country tomeet with legislators and advocate policies that play a critical role inour nation’s economic growth.
Wednesday, 6/21
Financial Services Roundtable
FSR hosts a discussion onwhat to expect next from the administration and Congress on financialregulation.
For listings of all the week’s tax and financial services happenings, read below to find out how you can become a subscriber.
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, rmohan@mwcllc.com, (202) 857-2944.
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