Tax Cuts 2.0 outline to be released week of July 23, Brady says. Tax News & Views Capitol Hill briefing. July 20, 2018.

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1 Tax News & Views Capitol Hill briefing. In this issue: Tax Cuts 2.0 outline to be released week of July 23, Brady says... 1 Senate GOP taxwriters clear Rettig s nomination as IRS commissioner over Democratic objections... 3 House votes to denounce carbon taxes as Curbelo preps carbon tax proposal... 5 Multistate Tax Alert looks at potential financial reporting implications of Wayfair decision... 6 Tax Cuts 2.0 outline to be released week of July 23, Brady says House Ways and Means Committee Chairman Kevin Brady, R-Texas, said this week that he is nearly done seeking initial feedback on new House Republican tax cut legislation and will unveil an outline of the proposal the week of July 23, before the House departs for its five-week summer recess. One sure thing and lots of possibilities The one certain component of the bill is a permanent extension of provisions on the individual side of the tax code that were included in last December s tax overhaul (P.L ) and are currently set to expire after Brady and other Republicans have discussed numerous other tax incentives that could be included in the package popularly dubbed Tax Cuts 2.0 in recent weeks, although in his public comments the Ways and Means chairman has always added the caveat that nothing has officially been ruled in or out. Brady has also stated a preference for packaging the legislation as several bills. Among the additional provisions that have been mentioned for possible inclusion are: Tax News & Views Page 1 of 7 Copyright 2018 Deloitte Development LLC

2 Retirement savings and education incentives: Brady has indicated recently that the package could include provisions based on the Retirement Enhancement and Savings Act (RESA), bipartisan House and Senate companion bills that are intended to, among other things, make it easier for individuals to enroll in retirement savings plans and for small businesses to offer tax-preferred retirement plans to their employees. Brady has also spoken but only in general terms about boosting incentives to encourage individuals to save for education expenses. Capital gains indexing: Brady recently has appeared open to the idea of providing relief from capital gains taxes by indexing capital gain income to inflation, although he has stopped short of endorsing the idea outright. (Ways and Means Committee Republican Devin Nunes of California introduced a proposal for capital gains indexing on July 19.) URL: Corporate rate cut: President Trump has touted the idea of reducing the corporate income tax rate to 20 percent (from its current level of 21 percent). Brady neither endorsed nor rejected the proposal when asked about it in a July 15 interview with Fox Business. Also potentially in the mix are provisions addressing the tax treatment of private activity bonds. Brady described the pending legislative package as very tight, very focused on July 18 in a Fox Business interview. Remember, it wasn t that long ago that our economy was sluggish, paychecks were going nowhere, and jobs were going overseas. All that s changed. So now the question is, do we lock that in? Brady said in a Fox & Friends interview on July 18, adding, [n]ot only do we lock it in, we lock it away from, frankly, Democrats who want to steal those tax cuts back. Democratic taxwriters including Reps. Richard Neal of Massachusetts, John Larson of Connecticut, and Suzan DelBene of Washington, said this week that Brady and the Republicans have not included the minority in any discussions about the bill. House vote in September, Senate action less likely The anticipated Ways and Means package could move through the House before this fall s elections Brady said on July 17 following a meeting with President Trump that there will be a vote in September but it is considered less likely to make headway in the Senate. Passage in the upper chamber would require 60 votes to overcome procedural hurdles (because Republicans have not passed a joint FY 2019 budget resolution with reconciliation instructions that would allow for passage of tax legislation with a simple majority). At least one Republican, Sen. Bob Corker of Tennessee, has said he won t support additional unpaid-for tax cuts, and few if any of the 49 Senate Democrats are expected to go along with the legislation. Democratic Sen. Claire McCaskill of Missouri, a member of the Finance Committee, told Tax Analysts this week that a bill s passage will depend on what it looks like when it gets here and how it s paid for, but House Republicans are not expected to offer significant revenue offsets for their legislation. Democrats were deeply critical of the $1.5 trillion estimated revenue loss from last year s tax bill, and the Congressional Budget Office estimates that making permanent the individual and passthrough tax cuts would cost an additional $650 billion over 10 years. Republicans maintain that the tax changes will incentivize business investment and job growth and will drive higher economic growth over time. Contradicting the Republicans position, Senate Finance Committee Democrats released a report on July 18 arguing that the 2017 international tax changes reward companies for increasing their investment outside the US. URL: %20Trumps%20Tax%20Law%20and%20International%20Tax% pdf [R]ather than working across the aisle, Trump and congressional Republicans created even greater complexity, new gigantic loopholes, and a system that continues to encourage foreign over US investment, the report asserts. Tax News & Views Page 2 of 7 Copyright 2018 Deloitte Development LLC

3 Democrats in the hot seat? For his part, Brady is not ruling out passage of his proposals by the Senate but says the onus will be on Democrats especially those senators up for reelection this year in states that supported President Trump in 2016 to prove they don t want to raise taxes on families and small businesses. Democrats were pretty outspoken in the Senate that they couldn t support [December s bill] because it wasn t permanent for families, so we re going to give them a chance to put their voting card where their mouth is, he told Fox Business, adding, [t]he pressure is really going to be on Democrats to decide who are they standing with: [Does] Washington [have] first claim over your money or do you? Brady also has noted that packaging his Tax Cuts 2.0 proposals as separate bills rather than one comprehensive piece of legislation could make it easier for the House and Senate to reach consensus on issues such as retirement savings. The Senate had support for [the Retirement Enhancement and Savings Act], Brady told reporters this week. The bill was introduced in the Senate (S. 2526) by Finance Committee Chairman Orrin Hatch, R-Utah, and ranking Democrat Ron Wyden of Oregon and is based on similar legislation that the Finance panel unanimously approved in (For prior coverage, see Tax News & Views, Vol. 17, No. 30, Sep. 23, 2016.) URL: A companion version (H.R. 5282) was introduced in the House by Ways and Means Committee Republican Mike Kelly of Pennsylvania. [W]e think we support many of those provisions, but there are new ideas and some prior retirement savings ideas we had in our tax reform bill that we will be proposing as well, so my thought is we take the best of both, and we work out a consensus bill with the Senate, Brady said. Wyden agreed this week that there is tremendous support for RESA in the Senate but that it is likely the only part of a GOP tax cut plan Democrats will support, so it would need to be stand-alone legislation in order to succeed. Senate Majority Leader Mitch McConnell, R-Ky., has been less committal than House Republican leaders on whether he will schedule a vote on further tax cuts this year, saying only that he will consider it. Storme Sixeas Senate GOP taxwriters clear Rettig s nomination as IRS commissioner over Democratic objections The Senate Finance Committee voted along strict party lines on July 19 to advance President Trump s nomination of Charles Rettig to serve as the next commissioner of the Internal Revenue Service. Rettig had earned generally positive reviews from Democratic and Republican taxwriters since he was tapped for the top spot at the IRS in February, and his confirmation hearing before the committee last month went relatively smoothly. (For prior coverage, see Tax News & Views, Vol. 19, No. 21, June 29, 2018.) But opposition to advancing his nomination grew among Finance Committee Democrats after the IRS issued guidance (Rev. Proc ) earlier this week that generally provides that tax-exempt organizations other than section 501(c)(3) groups are no longer required to disclose names and addresses of donors on their Forms 990 or Forms 990-EZ. URL: Finance Committee ranking Democrat Ron Wyden of Oregon argued in a July 17 news release that the new guidance would [make] it easier for anonymous foreign donors to funnel dark money into nonprofits and he stated he would not support Rettig s nomination unless Rettig promised to reinstate the disclosure requirements as commissioner. In his opening statement at the July 19 Finance Committee mark-up to consider Rettig s nomination, Wyden Tax News & Views Page 3 of 7 Copyright 2018 Deloitte Development LLC

4 acknowledged Rettig s qualifications for the position, but urged that Rettig be brought back before the panel to discuss his views on the disclosure policy. Finance Committee Chairman Orrin Hatch, R-Utah, said in his opening statement that the new rules would protect privacy rights of donors and reduce unnecessary information reporting and that Rettig would lead the IRS with integrity. The vote to advance Rettig s nomination was delayed after a number of Democratic senators stayed away from the scheduled public mark-up and denied the panel a quorum. The final vote took place just off the Senate floor several hours later. Rettig s nomination now must be confirmed by the full Senate. A floor vote had not been scheduled by Senate Republican leaders as of press time. If confirmed, Rettig will serve a term that expires November 12, Another nomination hearing to come The issue of donor disclosure could arise again when the Finance Committee meets on July 26 to consider the nominations of Justin Muzinich to be deputy secretary of the Treasury and Michael Desmond to be chief counsel for the IRS and an assistant general counsel in the Treasury Department. The hearing was announced July 20. Hatch, Wyden unveil tax administration proposal On a more bipartisan note, Hatch and Wyden introduced legislation on July 19 aimed at overhauling IRS administrative practices. The Taxpayer First Act of 2018 (S. 3246) includes provisions aimed at: URL: Strengthening taxpayer rights and protections; Enhancing current-law whistleblower protections and making additional reforms; Reforming laws governing IRS employee conduct and ethics; Enhancing scrutiny of IRS audit criteria; Reducing identity theft and tax refund fraud; and Increasing electronic filing of tax returns. A technical explanation of the proposal is available from the Joint Committee on Taxation staff. URL: Hatch said in a news release that the legislation will streamline the agency in a way that protects taxpayers from fraud and abuse, increases electronic filing, and supports IRS employees. Wyden, who joined Hatch in issuing the release, said the proposal would make common-sense changes to help taxpayers and streamline administrative rules at the IRS, which will allow tax officials and agents to better safeguard the American people against financial predators. The Hatch-Wyden bill is based on similar legislation that the Finance Committee approved on a bipartisan basis in (For prior coverage, see Tax News & Views, Vol. 17, No. 16, Apr. 22, 2016.) URL: The House approved its version of IRS reform legislation earlier this year. (For details, see Tax News & Views, Vol. 19, No. 13, Apr. 20, 2018.) URL: House OKs IRS budget bump for FY 2019 In other IRS legislative developments, the House of Representatives on July 18 approved a financial services and general government spending bill for fiscal year 2019 that, among other things, would boost the overall budget for the Service by $186 million over FY 2018 levels and set aside funds for the agency to implement the massive tax cut legislation (P.L ) that was signed into law last December. Tax News & Views Page 4 of 7 Copyright 2018 Deloitte Development LLC

5 The financial services and general government legislation was part of a larger appropriations package (H.R. 6147) a so-called minibus that also included funding for the Interior Department, the Environmental Protection Agency, the Department of Agriculture, and certain other federal agencies. The minibus cleared the chamber by a vote of Program allocations: As approved, the House legislation would allot the IRS just over $11.6 billion for the upcoming fiscal year, up from the roughly $11.4 billion for FY 2018 that was provided in the Consolidated Appropriations Act, 2018 (P.L ) enacted in March. Across the Service s four program areas, it would allocate: $2.49 billion to taxpayer services (down $15 million from FY 2018); $4.86 billion to enforcement activities (no change from FY 2018); $3.99 billion to operations support (up by $354 million over FY 2018); and $200 million for business systems modernization (a $90 million increase over FY 2018). Implementing 2017 tax cuts: It also would provide $77 million for the Service to use in its efforts to implement last year s tax cuts. Lawmakers gave the agency $320 million for tax cut implementation efforts in FY (The Trump administration asked Congress earlier this year to give the IRS a total of $397 million to implement the new law.) Senate minibus leaving the station: A companion Senate minibus package that includes a slightly lower overall funding level for the Service $11.3 billion is expected to be brought to the floor for a vote the week of July 23. (For details on the proposed IRS budget as approved by the Senate Appropriations Committee, see Tax News & Views, Vol. 19, No. 20, June 22, 2018.) URL: Michael DeHoff House votes to denounce carbon taxes as Curbelo preps carbon tax proposal In a mostly symbolic move, the House of Representatives voted on July 19 to approve a nonbinding resolution (H.Con.Res.119) expressing the sense of Congress that a federal carbon tax would be detrimental to the US economy. The final tally fell largely along party lines, with 222 Republicans and 7 Democrats voting in support of the proposal, and 174 Democrats and 6 Republicans in opposition. The resolution, which was sponsored by House Majority Whip Steve Scalise, R-La., now heads to the Senate, although it is unclear when, or even if, it will be taken up in that chamber. Among other purposes, concurrent resolutions serve to formalize the opinions of Congress on issues of public policy, but they do not require the president s signature and do not carry the force of law. House Republicans have approved similar resolutions in the past. In June of 2016, Scalise sponsored an almost identical resolution to disavow carbon taxes, which cleared the chamber along party lines. Most observers see little threat of a carbon tax becoming law in a Republican-controlled Congress; but Scalise nonetheless cautioned in his floor statement before this week s vote that clearly, there are people here in this chamber that want to impose a carbon tax. Curbelo proposal One House Republican who supports a carbon tax and voted against the resolution is Ways and Means Committee member Carlos Curbelo of Florida, who said after the July 19 vote he plans to release a bill in the coming days that would levy a $23 tax per ton of carbon dioxide emissions and eliminate the federal excise tax on gasoline. According to a draft (dated June 1) circulating in Washington, the tax would be indexed to inflation, with an annual increase of 2 percent over the Consumer Price Index. In addition, if carbon emissions do not reach certain reduction thresholds, the fee per metric ton would increase by $2 per year. The tax would also be border adjustable, meaning Tax News & Views Page 5 of 7 Copyright 2018 Deloitte Development LLC

6 imports from a country without a carbon tax would be subject to some taxation while US producers who export their goods would receive a rebate. URL: Curbelo s proposed carbon tax would be paired with a moratorium on regulations promulgated by the Environmental Protection Agency that target greenhouse gas emissions. The moratorium would take effect upon enactment and would delay enforcement of various Clean Air Act regulations, as long as certain emissions goals are met. According to the draft legislation, the moratorium would be extended in four-year increments as long as targets are met in 2025 and 2029, and would expire in Because the bill would eliminate the current federal excise tax on gasoline, 70 percent of the revenue raised by the carbon tax would go to the Highway Trust Fund. Another combined 15 percent would go to states and municipalities to aid lower-income households facing coastal flooding and other climate change-related issues. Remaining revenue could go to research and development efforts as well as a fund for displaced energy workers. Curbelo acknowledged the bill would face an uphill battle in a Republican-controlled Congress, but he told reporters July 19 that he felt more optimistic knowing that six Republicans voted against Scalise s resolution, compared to zero in That doesn t mean it gets passed this Congress, but it means we really think it could be a good base for bipartisan cooperation on this issue, he told reporters. Jacob Puhl Multistate Tax Alert looks at potential financial reporting implications of Wayfair decision The US Supreme Court on June 21 decided what is arguably the most important state tax case of the last 25 years in South Dakota v. Wayfair, Inc., et. al. In a 5-4 decision, the majority overruled the sales/use tax nexus standard of physical presence established in National Bellas Hess and later upheld in Quill as it applied to South Dakota s sales/transaction-based sales/use tax nexus statutes affecting remote seller transactions. Much of the focus has now turned to those states with enacted statutes that are similar in application to the law in South Dakota, and the potential effective date of such provisions. A recent tax alert from s Multistate Tax Group considers the varying categories of state effective dates as well as the potential financial reporting implications if such laws were to be asserted retroactively. URL: Previous Multistate Tax Alerts on Wayfair address the potential implications for remote sellers overall, potential nexus ramifications for income and other taxes, and state tax implications for non-us companies with US customers. URL: URL: URL: House Judiciary hearing planned On Capitol Hill, meanwhile, the House Judiciary Committee announced this week that it will hold a hearing to examine the Wayfair decision and its impact on consumers and small businesses. The hearing is set for July 24 at 10:00 a.m. A witness list was not available at press time. Tax News & Views Page 6 of 7 Copyright 2018 Deloitte Development LLC

7 The Judiciary Committee has jurisdiction over state tax issues in the House. Michael DeHoff About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the Deloitte name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see to learn more about our global network of member firms. Copyright 2018 Deloitte Development LLC. 36 USC Tax News & Views Page 7 of 7 Copyright 2018 Deloitte Development LLC