Tax News & Views Capitol Hill briefing. In this issue: Brady preps technical corrections, extenders for possible lame duck action... 1 Brady preps technical corrections, extenders for possible lame duck action As lawmakers returned to Capitol Hill this week to kick off the post-election lame duck session that will close out the 115th Congress, House Ways and Means Committee Chairman Kevin Brady, R-Texas, indicated that he hopes to move legislation that would make technical corrections to last year s tax cut law and extend dozens of expired (or expiring) temporary tax deductions, credits, and incentives. But whether Brady can move expansive proposals through Congress or will have to settle for something that is more limited in scope may depend on whether he can strike deals with Ways and Means Democrats and with his colleagues in the Senate. Technical corrections Brady told reporters November 13 that he is preparing a bill with approximately 80 very technical and very minor fixes to last year s massive tax cut legislation, known informally as the Tax Cuts and Jobs Act (TCJA). The extent to which Brady s Democratic colleagues on the panel will cooperate in moving a technical corrections bill remains to be seen, however. With Democrats gaining a majority in the House in the recent midterm elections, party control of the Ways and Means Committee will change hands when the 116th Congress convenes in less than two months. Rep. Richard Neal, D-Mass., who currently serves as ranking member of Ways and Means and is expected to be the next chairman, has said that the TCJA needs so many technical corrections because it was hastily drafted and Tax News & Views Page 1 of 5 Copyright 2018 Deloitte Development LLC
rushed through Congress along strictly party lines, and that as Ways and Means chairman he would be reluctant to adopt fixes without first holding hearings to explore the underlying problems in the legislation. And he isn t alone in that view. In comments to reporters on November 14, Reps. John Larson of Connecticut and Bill Pascrell of New Jersey, both Ways and Means Democrats, stressed the need to understand the effects of these corrections before any changes are made. Nobody s opposed to fixing the tax bill, but you want to make sure we re fixing everything the right way, Larson said. Although Neal doesn t take the Ways and Means gavel until this coming January, he does have leverage on this issue during the lame duck since technical corrections generally require buy-in from the chairmen and ranking members of both congressional taxwriting committees (as well as the Treasury Department and the Joint Committee on Taxation). As a result, Neal could withhold his support for a broad technical corrections bill and instead push for something more targeted that takes care of some of the more widely acknowledged errors in the TCJA for example, by designating qualified improvement property as 15-year depreciable property (rather than 39 years under the provision as currently worded) and making the provision that disallows net operating loss (NOL) carrybacks but permits unlimited NOL carryforwards effective for taxable years beginning after December 31, 2017 (the provision as drafted is effective for taxable years ending after December 31, 2017). It s worth noting that Senate Finance Committee ranking member Ron Wyden, D-Ore., has frequently expressed his own objections over the past year to the way the TCJA was approved and enacted with Republican votes alone and may also be reluctant to move a large corrections bill as part of a lame duck housekeeping effort. Moreover, technical corrections legislation that moves through the Senate would be subject to a 60-vote threshold to clear procedural hurdles in that chamber, meaning Republicans who currently control only 51 seats would have to win support from at least 9 Democrats to secure passage. But the question of whether Wyden will support Brady s technical corrections package is at this point academic since, as Wyden explained to reporters on November 15, the proposal has not been made available to Democratic taxwriters. The majority has got to give the minority some piece of paper indicating what their priorities are in order to jumpstart a serious effort. They have not given us in any way, shape, or form a piece of paper indicating what they might want to do, he said. Extenders Another looming task many hope will be addressed is renewing the expired and expiring tax extenders provisions. Brady told reporters this week that a draft proposal has been circulated to House taxwriters for review by November 16. Although Brady has not commented on the specifics of his draft, he has in prior years sought to clean up the tax extenders process by proposing short-term extensions for some provisions, permanent extensions for others, and the elimination or phase-out of provisions that are perceived to no longer make sense from a policy perspective. He suggested in his comments to reporters on November 13 that his latest proposal would continue this approach, rather than a rote one- or two-year extension of a wide swath of provisions. With our new tax code, business as usual just doesn t make sense, he said. What currently is unclear, however, is whether Republicans on the Senate Finance Committee will embrace Brady s vision of an extenders package or pursue a blanket short-term extension of expiring provisions. (Finance Committee Chairman Orrin Hatch, R-Utah, introduced legislation at the end of last year that proposed a straight two-year renewal of roughly two dozen expiring provisions.) Hatch, for his part, told reporters November 15 that we ll probably have extenders this year, although he did not elaborate on what form an extenders package might take. Tax News & Views Page 2 of 5 Copyright 2018 Deloitte Development LLC
Disaster relief and other priorities Also on the lame duck agenda, according to Brady, is a disaster aid package that would provide tax relief for individuals and businesses affected by Hurricanes Florence and Michael and by the recent wildfires in California. Across the Rotunda, Senate Appropriations Committee Chairman Richard C. Shelby, R-Ala., last month suggested attaching IRS funding and similar appropriations measures to disaster relief legislation as a way to speed passage of appropriations bills before the current continuing resolution funding government operations expires on December 7. Brady also expressed hope this week that the Senate will consider some of the three bills that comprise the Houseapproved Tax Cuts 2.0 package during the lame duck. The Family Savings Act of 2018 (H.R. 6757), which promotes retirement and other tax-preferred savings for individuals, and the American Innovation Act of 2018 (H.R. 6756), which is intended to encourage entrepreneurship, are seen as having the best shot at attracting bipartisan Senate support. The third and largest bill in the package, the Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760), which would permanently extend all the TCJA s tax cut provisions for individuals, passthrough entities, and estates, is vulnerable to a Democratic filibuster and is unlikely to get floor time in the Senate. Any of the Tax Cuts 2.0 bills that do not see Senate action this year will expire when the 115th Congress officially adjourns and would need to be reintroduced in the next Congress and go through the legislative process once again. (The Protecting Family and Small Business Tax Cuts Act would seemingly be a nonstarter in a Democratic House unless it included significant offsets and was modified to reduce benefits available to upper-income taxpayers, changes unlikely to find favor among Senate Republicans who will still control that chamber next year.) What s not on the agenda Brady indicated this week that he does not foresee the House acting on legislation approved by the Ways and Means Committee during the summer that would chip away at the Patient Protection and Affordable Care Act (PPACA) by modifying the definition of full-time employee for purposes of the PPACA s individual mandate (thus reducing the number of employers subject to the mandate), further delaying implementation of the PPACA s Cadillac tax on certain high-cost employer-provided health coverage, and repealing the PPACA s 10 percent excise tax on indoor tanning services. Finally, Brady confirmed that while he still supports the 10 percent middle-class tax cut that President Trump proposed shortly before the midterms, such a proposal which has yet to be drafted will not be taken up in the lame duck session and is likely dead in the 116th Congress now that Republicans have lost their majority in the House. Organizing for the 116th Congress Also this week, party leaders in both chambers took steps to begin organizing for the upcoming 116th Congress, although some agenda items such as determining party ratios and membership assignments for standing committees likely won t be completed until the party headcounts in the House and Senate are finalized. Ten days after the midterm elections, Republicans control 51 seats in the Senate, compared to 47 for Democrats (including 2 Independents who caucus with the party). At press time, however, the race in Florida remains mired in a recount (in which Republican challenger Rick Scott is leading incumbent Democratic taxwriter Sen. Bill Nelson); and the undecided race in Mississippi will be determined by a runoff on November 27 between incumbent Republican Sen. Cindy Hyde-Smith and Democrat Mike Espy. In the House, Democrats have so far picked up a net 36 seats, giving them a majority of 231-198. There are six races still outstanding. (Results of House and Senate races are based on information reported by the Associated Press as of press time.) Senate leadership elections: Three of the four party leadership elections were held this week, bringing a few changes but no surprises. The Senate s headliners will look largely the same next year, with Mitch McConnell of Kentucky leading the Republican party for a fifth consecutive Congress, current Republican Conference Chairman John Thune of South Dakota moving up to Republican whip (replacing current Whip John Cornyn of Texas, who was termlimited out of that position), current Republican Policy Committee Chairman John Barrasso of Wyoming shifting to Republican Conference chairman, and Roy Blunt of Missouri taking the chairman s seat at the Policy Committee. Joni Tax News & Views Page 3 of 5 Copyright 2018 Deloitte Development LLC
Ernst of Iowa was elected over Deb Fischer of Nebraska to take over Blunt s current position as vice chair of the conference, adding a female to the Senate Republican leadership roster for the first time since 2010. On the Democratic side of the aisle, Sen. Chuck Schumer of New York will remain minority leader, with Dick Durbin of Illinois as minority whip, and Patty Murray of Washington and Debbie Stabenow of Michigan rounding out the minority s leadership team. Grassley to become Finance chairman: Also this week, Iowa Republican Sen. Charles Grassley announced November 16 that he will step down as chairman of the Senate Judiciary Committee and take over as head of the Finance Committee in the 116th Congress, succeeding retiring Finance Chairman Orrin Hatch, R-Utah. (As the most senior Republican member on the Finance Committee, Grassley was first in line to take over for Hatch, but there had been some questions as to whether he would want to leave the top spot at Judiciary to take over the Finance gavel.) The economy is better than it s been in years and there s a sense of optimism about the future of our country that people haven t felt in a long time thanks to the pro-growth policies of a Republican president and a Republican majority in Congress, Grassley said in a press statement announcing his decision. Looking ahead, at the Finance Committee, I want to continue to work to make sure that as many Americans as possible get to experience this good economy for themselves. This will be Grassley s third stint at the helm of the Finance Committee. He chaired the panel for six months in 2001 and again from January 2003 until December 2006. House GOP leadership: In the House, current Republican Leader Kevin McCarthy of California and Republican Whip Steve Scalise of Louisiana will retain their positions in the minority, with McCarthy becoming the top-ranking member of the conference in the wake of Speaker Paul Ryan s retirement at the end of this year. Rep. Jim Jordon of Ohio, a leader of the conservative House Freedom Caucus, challenged McCarthy for minority leader but was handily defeated 159-43. (Jordan is now expected to make a bid to become ranking member on either the Judiciary Committee or the Oversight & Government Reform Committee. Whoever holds either position is likely to have a highly visible role next year as Democrats undertake investigations of the Trump administration.) Rep. Liz Cheney of Wyoming will join the leadership team as Republican Conference chairwoman, and Rep. Mark Walker of North Carolina will be vice chair. House Democratic leadership and Pelosi s potential math problem: The House Democratic contest is providing the only significant drama on the leadership front this season. Current Democratic Leader Nancy Pelosi of California is seeking to reclaim the title of Speaker of the House which she previously held for four years but lost when the House last changed party control after the 2010 midterm election. In this scenario, Reps. Steny Hoyer of Maryland and Jim Clyburn of South Carolina are expected to remain at the top tier of leadership and reclaim the positions of majority leader and majority whip, respectively, which they held when the Democrats last controlled the House. However, Pelosi is facing a revolt within her caucus. While she has the support of the majority of her members for the party s leadership vote, scheduled for November 28, the speaker must be elected by a majority of the full House on January 3. At least 17 incumbent or incoming Democrats have declared solid opposition to her becoming speaker and some other incoming House Democratic freshmen are said to be reluctant to support her election; so even with the largest possible caucus that could result if all of the still-undecided House races break for the Democrats, Pelosi could end up without sufficient votes from her own side to secure the 218 votes on the House floor she would need to be reelected as speaker. (An alternative scenario in which Pelosi could prevail would depend on House Republicans crossing the aisle to support her bid for speaker, a long-shot possibility President Trump highlighted recently.) But the quandary for Pelosi s detractors is that they don t have a strong alternative candidate. There have been rumblings building within the Democratic ranks that the longtime triumvirate of Pelosi, Hoyer, and Clyburn all in their late 70s should step aside for a younger generation of leaders, but no viable challenger has emerged for speaker. Rep. Marcia Fudge of Ohio told reporters this week that many colleagues are encouraging her to run for speaker if Pelosi cannot muster enough votes, but Fudge has not officially declared herself a candidate. Tax News & Views Page 4 of 5 Copyright 2018 Deloitte Development LLC
Over the last 12 hours, I ve been overwhelmed by the amount of support I ve received, Fudge told The Washington Post on November 15. Things could change rapidly. Pelosi has recently begun pitching herself as a transitional speaker paving the way for the next group of eventual leaders although she has declined to comment publicly on just how long she envisions that transition might take and has been reaching out to incoming freshmen and undecided members of the caucus. I have overwhelming support in my caucus to be speaker of the House, Pelosi told reporters November 15. I happen to think at this point, I m the best person for that. Competing priorities The tax legislative agenda during the lame duck session is competing with deadline-driven nontax priorities that include, among other things, funding operations for a significant portion of the federal government (a continuing resolution bankrolling government operations expires December 7) and reauthorizing the National Flood Insurance Program (the current authorization runs out on November 30). Also on the punch list are wrapping up a House-Senate conference agreement on the farm bill, reauthorizing the Violence Against Women Act, re-upping the Intelligence Authorization Act, and, in the Senate, votes on some of the 154 administrative and judicial nominees awaiting confirmation. But lawmakers are operating under a relatively compressed timeline. Both chambers are adjourned the week of November 19 for the Thanksgiving recess. Work resumes the week of November 26 and the lame duck session is currently scheduled to wrap up on December 14, although that deadline can be extended at the discretion of congressional leadership. Jacob Puhl and Storme Sixeas Tax Policy Group Deloitte Tax LLP 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 www.deloitte.com/about to learn more about our global network of member firms. Copyright 2018 Deloitte Development LLC. 36 USC 220506 Tax News & Views Page 5 of 5 Copyright 2018 Deloitte Development LLC