Tax Policy Update

July 18, 2017

Pardon Our Dust

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The percentage of people who oppose the Trump Administration’s tax reformproposal according to a July POLITICO/Harvard poll. Among the Republicansurvey respondents, 41 percent do not have a favorable view of theadministration’s plan. That number rises sharply to 85 percent when thesame question was posed to Democrats. In addition, about 60 percent ofindependents are against the Trump tax plan.

While a majority of the respondents doubt that the administration’s taxproposals will improve the economy and create jobs, they do support sometype of reform to lower tax rates even if an overhaul of the tax code meansthe elimination of certain deductions and credits.

Fake news? You decide.


All the King’s Horses and All the King’s Men Couldn’t Put the Bill BackTogether Again.After over 60 attempts to repeal Obamacare, the GOP is once againscrambling as its latest efforts to dismantle the 2010 healthcare law havefallen apart. Last night, Sens. Jerry Moran (R-KS) and Mike Lee (R-UT)announced their opposition to the latest version of the Better Care Reconciliation Act (BCRA). The opposition countnow includes Lee, Moran, Sens. Susan Collins (R-ME) and Rand Paul (R-KY).With four senators stating their intent to oppose the motion to proceed tothe revised bill, Senate Majority Leader Mitch McConnell (R-KY) pulled thebill, realizing that the GOP lacked the necessary votes to move forwardwith the current draft of the BCRA.

The Bill is Dead, Long Live Repeal. While the current version of the Senate healthcare bill may be dead, theGOP remains committed to repealing Obamacare — for now. After last night’slast-minute defections, Leader McConnell decided to shift gears and hold avote on a straight repeal of major provisions of theAffordable Care Act with a two-year delay. H.R. 3762, the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015will form the basis for a straight repeal of Obamacare.

So what does H.R. 3762 do?A quick refresher for those of you who may not remember the details of atwo-year old bill that was going nowhere:

  • Repeals the following taxes and penalties:
    • Individual and employer mandates
    • Medical Device tax
    • Cadillac Tax
    • Health Insurance Tax (HIT)
    • Chronic Care Tax (CCT)
    • Medicare tax increase
    • Tanning tax
    • Net Investment Income Tax
    • Exclusion of reimbursement from HSAs, health FSAs and Archer MSAs of OTC drugs without prescription
    • Decreases the tax (from 20% to 10%) on HSAs and (from 20% to 15%) on Archer MSA distributions that are not used for qualified medical expenses
    • Annual limit on contributions to FSAs
    • Tax on pharmaceutical manufacturers
    • Elimination of Medicare Part D subsidy deduction
  • Medicaid expansion repeal beginning in calendar year 2018
  • Restore the Medicaid Disproportionate Share Hospital (DSH) cuts
  • Repeal of premium tax credit and cost-sharing subsidies starting in 2018 and recapture excess advance payments of the premium tax credit
  • Small business tax credit repeal
  • Repeals the Prevention and Public Health Fund (PPHF) and rescinds unobligated balances
  • Prohibits federal funding for Planned Parenthood for one year
  • Increases funding for community health centers by $235 million
  • Authorizes funding for state substance abuse and mental health programs for 2016 and 2017
  • All on-budget savings are transferred to the Federal Hospital Insurance Trust Fund (Medicare)

What are the budgetary effects of H.R. 3762? According to an Oct. 20, 2015 Congressional Budget Office (CBO) report,enacting the bill would:

  • Decrease deficits by about $130 billion over the 2016-2025 period. This number would be $78.9 billion if macroeconomic feedback were to be excluded.
  • Reduce the number of people with employment-based health insurance coverage by about 750,000 in most years after 2018, with roughly 5 million fewer people enrolling in employment-based coverage.
  • Cause roughly 7 million fewer people to obtain coverage through the non-group market.
  • Cause about 4 million fewer people to enroll in Medicaid or CHIP.
  • Cause about 16 to 17 million more nonelderly people to be uninsured, compared to the ACA.

An updated Jan. 2017 CBO report on the effects of H.R. 3762 indicated thatenacting the bill would lead to an 18 million increase in the number ofuninsured one year after implementing the bill. That number would increaseto 32 million by 2026. Additionally, premiums in the non-group market wouldincrease by 20 percent to 25 percent — relative to projections undercurrent law — in the year following enactment. The increase would reachabout 50 percent in the year following the elimination of the Medicaidexpansion and the marketplace subsidies, and premiums would about double by2026.

Did everyone vote in favor of the 2015 bill (H.R. 3762)?While most GOP senators voted in favor of a straight repeal of Obamacare,Sen. Susan Collins is the only senator still in office who opposed thebill.

Sens. Susan Collins and Lisa Murkowski (R-AK) already indicated that theywill not support moving forward with the plan to repeal Obamacare with adelayed replacement. Sen. Shelley Moore Capito (R-WV) also said that shecould not vote in favor of a plan to repeal Obamacare without a replacementplan in place.

With Collins and Murkowski opposing the motion to proceed, what will LeaderMcConnell do next? Here are a few ways that the healthcare debate couldplay out.

While passage of a straight repeal is highly unlikely (Options 1-3), itremains unclear what Leader McConnell will do if his latest strategy fails.Below is a quick analysis of the other options …

Tax Reform: They’re Further Ahead Than You Think. That’s what administration officials and congressional tax staffers aretelling folks behind closed doors. GOP tax writers believe they are makingreal progress in identifying the necessary offsets for comprehensive taxreform. Not surprisingly however, they are keeping their tentative list ofpay-fors under wraps. But those who have been paying close attention inrecent months already know that they ought to …

Re-visitation Rights. The Senate Finance Committee’s Ranking Member Ron Wyden (D-OR) believesthat the idea of linking infrastructure to tax reform is still alive. In aspeech last week, Wyden told the audience that the idea may see a revival,noting that Republicans haven’t completely said no to the infrastructurecomponent. Ah…hope springs eternal.

Another provision getting a second look is the interest deductibilityproposal in the House GOP tax reform blueprint. According to Ways and MeansTax Policy Subcommittee Chairman Peter Roskam (R-IL), lawmakers are lookingto modify the provision so that small businesses can continue to take theinterest deduction on their loans.

The topic of full expensing also made the news last week when theconservative group Freedom Partners asked House Republicans to drop thefull expensing provision from their tax reform blueprint, arguing that itactually won’t do much to help a majority of U.S. businesses. The groupnoted that “[f]ull expensing has very high costs in the first ten years —more than $2 trillion”— thus, it would be better to use that money to lowertax rates, as rate reductions can “substantially increase after-taxprofits.”

Camp’s Option C is Plan B. Senate Finance Republicans are reportedly looking at the option ofestablishing a foreign minimum tax. The idea of a minimum tax came upduring former Ways and Means Chairman Dave Camp’s tenure. When it was firstproposed, the tax was politically unpopular as companies were used topaying lower rates on overseas profits. After multiple revisions based ontaxpayers’ feedback, the Camp Draft landed on “Option C” that had varyingminimum tax thresholds depending on the type of income. While oppositionagainst a minimum tax regime may crop up again, it may not be quite asvicious as the opposition to the border adjustment tax (BAT).

Although a minimum tax may not achieve all the objectives of the BAT, it isa viable alternative that would help to prevent base erosion. The minimumtax regime falls in between the destination-based cash flow tax system andthe current worldwide taxation system. Under the current worldwide taxationsystem, any income earned, whether in the U.S. or not, is subject to U.S.taxation. With a minimum tax, any income earned in foreign countries with atax rate below a specified threshold would be …

There’s Something ‘Bout That Work, Work, Work…Sen. John Thune (R-SD) introduced theNew Economy Works to Guarantee Independence and Growth Act of 2017or NEW GIG Act (S. 1549) — a bill that would create a safeharbor, based on objective criteria, for workers to be treated asindependent contractors and not as employees. Additionally, the bill wouldensure that customers of these services would not be treated as anemployer. For Internet platforms or applications that facilitatetransactions and payments, third parties would also not be treated asemployers.

The safe harbor test focuses on three areas …

Budget Budges a Little. The House Budget Committee today unveiled itsFY2018 budget resolution, which sets discretionary spending at $1.1 trillion. The GOP’s budgetproposal aims to balance the budget within 10 years via a combination ofspending cuts and projected economic growth. Most importantly, theresolution contains reconciliation instructions directing 11 Housecommittees to produce at least $203 billion in mandatory savings andreforms. The House Ways and Means Committee will use the instructions topursue deficit-neutral tax reform.

Here is a quick overview of the reconciliation savings by committee:

Source: FY2018 House Budget Resolution

The House Budget Committee will hold a markup of the FY2018 budgetresolution on July 19. The panel is expected to approve the resolution, butit remains unclear whether it will see floor action before the start ofAugust recess. House GOP moderates are still unhappy with the steep levelof cuts proposed in the budget, while members of the ultra-conservativeHouse Freedom Caucus would like to see more spending cuts. Even if HouseRepublicans manage to pass this budget, their counterparts in the Senateare expected to propose significant changes.

A list of the budget-related documents can be viewedhere.


IRS Readjusts Rules on Corporate Reorganization. On July 12, the IRS pulled part of the 2005 rules on corporatereorganization with insolvent companies and issued new guidance. The oldrules required solvency as a necessary condition for a Section 332liquidation, to which the IRS and Treasury said is not consistent with caselaw. Practitioners disagree about what is permitted under current law. Somebelieve the proposed rule formalized the IRS’s requirement for acquiredentities to be solvent. However, others disagree, claiming that Norman Scott Inc. v. Commissioner holds that solvency is not anecessary condition. The new proposed rules do not point to specificguidance.



  1. A bipartisan group of senators led by Sen. Heidi Heitkamp (D-ND) reintroduced a bill that would extend and expand the 45Q tax credit to promote carbon capture technologies. Read more here .


Congressional Activity

Tuesday, 7/18

Senate Finance Committee
Full committee hearing on “Comprehensive Tax Reform: Prospects andChallenges.”

Senate Finance Committee
Full committee hearing on the nomination of David Kautter to be assistantsecretary of the Treasury for tax policy.

Senate Banking Committee
Full committee hearing on the following nominations:

  • Mr. J. Paul Compton, Jr. to be General Counsel, U.S. Department of Housing and Urban Development
  • Ms. Anna M. Farias to be Assistant Secretary for Fair Housing and Equal Opportunity, U.S. Department of Housing and Urban Development
  • Mr. Neal J. Rackleff to be Assistant Secretary for Community Planning and Development, U.S. Department of Housing and Urban Development
  • Mr. Richard Ashooh to be Assistant Secretary for Export Administration, U.S. Department of Commerce
  • Ms. Elizabeth Erin Walsh to be Assistant Secretary for Global Markets and Director General of the United States and Foreign Commercial Service, U.S. Department of Commerce
  • Mr. Christopher Campbell to be Assistant Secretary for Financial Institutions, U.S. Department of the Treasury

House Ways and Means Committee
Subcommittee hearing on the “Modernization of NAFTA.”

House Financial Services Committee
Subcommittee hearing on “The Cost of Being a Public Company in Light ofSarbanes-Oxley and the Federalization of Corporate Governance.”

House Financial Services Committee
Subcommittee hearing on “Managing Terrorism Financing Risk in Remittancesand Money Transfers.”

Wednesday, 7/19

House Education and Workforce Committee
Markup of the Affordable Retirement Advice for Savers Act (H.R.2823), a bill to overturn the DOL’s Fiduciary Rule.

House Ways and Means Committee
Subcommittee hearing on how tax reform will simplify the tax code and helpindividuals and families.

House Financial Services Committee
Subcommittee hearing on “Congressional Oversight of Independent RegulatoryAgencies.”

Thursday, 7/20

House Financial Services Committee
Subcommittee hearing on “Monetary Policy v. Fiscal Policy: Risks to PriceStability and the Economy.”

Senate Banking Committee
Full committee hearing on “Housing Finance Reform: Maintain Access forSmall Lenders.”

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