Tax Policy Update

WORD OF THE WEEK: RECONCILIATION

The Tax Policy Update team is back — hope everyone had a relaxing Thanksgiving break. Tax reform continues to be the hot topic in Washington this week, as the Senate gears up to debate its version of the Tax Cuts and Jobs Act.

Before the bill can come to the floor, the Senate Budget Committee has to combine the tax reconciliation bill, approved by the Senate Finance Committee on Nov. 16, with the energy reconciliation bill cleared by the Senate Energy and Natural Resources Committee. The budget panel met this afternoon and approved the combined reconciliation legislation in a 12-11 party-line vote .

The full Senate is expected to take up the reconciliation bill tomorrow. Members will have up to 20 hours of debate, which will be followed by a vote-a-rama for amendments. Senate Republicans are aiming to take a final vote on the bill by the end of the week. It’s going to be a close one!

LEGISLATIVE LANDSCAPE

The Usual and Unusual Suspects. With only a 52-seat majority in the Senate, Republicans have no room for error in this week’s vote on the tax bill. Senate Majority Leader Mitch McConnell (R-KY) can only afford to lose two members. Failure to hold the caucus together will mean an embarrassing repeat of the Obamacare repeal fiasco this summer.

At this writing, two Republican senators have publicly announced their opposition to the Senate tax bill: Sens. Ron Johnson (WI) and Steve Daines (MT) are unhappy with how the bill treats pass-throughs, arguing that it favors corporations over small businesses. Despite their public opposition, Johnson and Daines are expected to return to the fold once GOP tax writers address their concerns. Both senators want a bigger tax cut for small businesses, offering up the elimination of the state and local tax deduction for corporations as a pay-for.

The Senate is expected to take up the tax bill as early as Nov. 29 — here are the Republican senators to keep an eye on:

	Sen. Lisa Murkowski (R-AK) – Likely Yes Murkowski gave GOP leadership a major headache during the Obamacare repeal episode. But the Alaska senator said she would support the individual mandate repeal in the Tax Cuts and Jobs Act. Murkowski is likely to vote for the reconciliation bill given that it includes a measure that would allow oil and gas exploration in the Arctic National Wildlife Refuge.
	Sen. Ron Johnson (R-WI) – Likely Yes Johnson argues that the bill favors corporations over pass-through businesses. He and Daines are in negotiations with GOP tax writers to provide a more generous tax cut for small businesses. Though Johnson came out early to oppose the Senate tax bill, he is expected to come around when it’s all said and done.
	Sen. Steve Daines (R-MT) – Likely Yes The Montana senator has publicly come out against the Senate bill. Like Sen. Johnson, Daines doesn’t think the bill does enough to help pass-through businesses, but he will likely support the bill in the end, especially if the GOP tax writers address his concerns.
	Sen. Jerry Moran (R-KS) – Likely Yes Moran wants to take out the repeal of the individual mandate and is concerned about the bill’s impact on the deficit.
	Sen. James Lankford (R-OK) – Likely Yes Lankford has expressed concerns over the bill’s impact on the deficit and is considering an amendment that would reverse certain tax cuts if the bill does not produce the level of economic growth that the administration is banking on.
	Sen. Bob Corker (R-TN) – Uncertain Corker told reporters that he would not vote for a bill that increaes the deficit. The Senate bill, as reported by the Senate Finance Committee, would add $1.41 trillion to the deficit based on static scoring.
	Sen. Susan Collins (R-ME) – Uncertain The inclusion of the individual mandate repeal poses a problem for Collins. She wants to strike the repeal provision from the bill, fearing that it would lead to an increase in health insurance premiums for middle-class families.
	Sen. John McCain (R-AZ) – Uncertain McCain has expressed concerns over the bill’s impact on the deficit, but he has also praised the Senate Finance Committee for advancing the bill under regular order.
	Sen. Jeff Flake (R-AZ) — Uncertain Like McCain, Flake is worried about the deficit impact of the Senate tax bill. Flake has been in converation with Sens. Corker and Lankford about inserting a trigger that would reverse some of the tax rate cuts if the bill fails to generate the level of economic growth that the administration has promised.

COMMANDER-IN-TWEET

After Trump made the tweet below, Democratic leaders Chuck Schumer (D-NY) and Nancy Pelosi (D-CA) canceled their Nov. 28 meeting with the president, saying that “the best path forward is to continue negotiating with our Republican counterparts in Congress instead.”

LINE ITEMS

1. The Senate Appropriations Committee released draft versions of the following FY 2018 spending bills: (1) Financial Services, (2) Interior-EPA, (3) Homeland Security, and (4) Defense.
2. The Senate’s FY 2018 Financial Services spending bill would provide $11 billion for the IRS — the tax collection agency is expected to use the funding to make improvements to customer service, identity theft protection, and cybersecurity to safeguard taxpayer data.

IN THE QUEUE

Congressional Activity

Wednesday, 11/29

Senate HELP Committee
Hearing on the nomination of Alex Azar to serve as HHS secretary.

House Financial Services Committee
Joint subcommittee hearing on the End Banking for Human Traffickers Act and Counter Terrorism and Illicit Finance Act.

House Financial Services Committee
Subcommittee hearing on the role of Ginnie Mae in the housing finance system.

Thursday, 11/30

House Financial Services Committee
Subcommittee hearing on the consolidated audit trail.

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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.