Tax News & Views Capitol Hill briefing. In this issue: House approves Tax Cuts 2.0 package... 1 Congress averts shutdown; IRS funding punted to December... 4 A note on our publication schedule... 5 House approves Tax Cuts 2.0 package The House this week, as expected, approved a trio of bills known collectively as Tax Cuts 2.0 that would permanently extend the temporary tax cuts for individuals, passthrough entities, and estates that were enacted in last year s mammoth tax legislation, as well as provide new incentives to promote retirement and family savings and encourage the formation of start-up businesses. The Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760), which passed September 28 by a vote of 220-191, would make permanent provisions from the 2017 tax law (P.L. 115-97) such as the lower individual income tax rates, the higher standard deduction, the increased and modified child tax credit, the increased exemption and phase-out threshold for the individual alternative minimum tax, the increased estate and gift tax exemption, and the 20 percent deduction for certain passthrough income, all of which are currently set to expire after 2025. But it also would make permanent revenue offsets in last year s tax law that curtailed certain deductions, credits, and incentives most notably, the $10,000 cap on the itemized deduction for state and local taxes (SALT), which has come in for criticism from Democrats as well as some Republican lawmakers who represent constituents living in high-tax jurisdictions. Tax News & Views Page 1 of 6 Copyright 2018 Deloitte Development LLC
Passage came largely but not entirely along party lines. Three House Democrats crossed over to support the measure and 10 Republicans, mainly from districts that are hardest hit by the cap on the SALT deduction, cast their votes in the no column. The Family Savings Act of 2018 (H.R. 6757), approved on September 27 by a vote of 240-177, includes a variety of provisions aimed at making it easier for smaller businesses to offer tax-qualified retirement savings plans to their employees, encouraging individuals to participate in retirement plans, and promoting savings for nonretirement expenses. (Ten Democrats broke ranks to vote in favor of the bill, no Republicans voted against it.) The American Innovation Act of 2018 (H.R. 6756), also approved on September 27, includes two provisions intended to boost innovation by allowing new businesses to write off larger amounts of their costs up front as well as allowing a corporation that buys a start-up to retain some of the acquired entity s net operating losses or other tax attributes, like research and development tax credits. The bill cleared the chamber by a vote of 260-156, with 31 Democrats joining GOP colleagues in the yes column. (For a detailed discussion of the provisions in the three bills, see Tax News & Views, Vol. 19, No. 30, Sep. 14, 2018.) URL: http://newsletters.usdbriefs.com/2018/tax/tnv/180914_1.html Senate action on permanent tax cuts unlikely The White House on September 26 issued a Statement of Administration Policy in support of all three measures, noting that they advance the administration s goals of growing the economy, reforming the tax code, and providing tax relief to small businesses and middle-income families. But Republicans recognize that a permanent extension of the 2017 tax cuts does not have a viable path through the Senate this year. URL: https://www.whitehouse.gov/wp-content/uploads/2018/09/saphr6760hr6757hr6756_hr20180926.pdf The 2017 tax bill was passed with only Republican votes using the budget reconciliation process, which allows for passage by a simple majority rather than the three-fifths supermajority typically required to overcome procedural hurdles in the Senate. (Republicans control only 51 seats in the Senate.) But Congress did not adopt a budget resolution this year with reconciliation instructions that would allow another round of tax cuts to be fast-tracked and, even if they did, this legislation is estimated to have long-term revenue losses that would expose it to points of order in the Senate that would require 60 votes and thus some Democratic support to overcome. The Joint Committee on Taxation (JCT) staff estimated earlier this month that H.R. 6760 would reduce federal receipts by nearly $631 billion from 2019-2028 under a traditional static scoring method, with the bulk of these costs falling in the final three years of the budget window (that is, after 2025, when the current-law provisions are scheduled to expire). In a dynamic revenue score released September 26, the JCT projected the revenue loss would total $545.1 billion between 2019 and 2028, taking into account the impact of the bill on the larger economy. But the JCT cautions that revenue losses would mount in subsequent decades as government debt is expected to begin requiring increasing shares of economic resources, reducing resources available for private investment. URL: https://www.jct.gov/publications.html?func=startdown&id=5145 URL: https://www.jct.gov/publications.html?func=startdown&id=5145 For their part, Senate Democrats like their counterparts in the House uniformly criticized the 2017 legislation as a deficit buster and generally have shown no appetite for approving another largely unoffset bill that would make last year s temporary tax breaks permanent. Despite their own support for permanent law, neither Senate Majority Leader Mitch McConnell of Kentucky nor Finance Committee Chairman Orrin Hatch of Utah has publicly expressed any intention to bring up the House extension this year. In comments to reporters, House Ways and Means Committee Chairman Kevin Brady, R-Texas, has said that McConnell told me directly that when he sees 60 votes available for that provision, that s when he ll make a decision. For Senate Republican leaders, election year considerations also could be playing a role in keeping the bill off the floor. Holding a vote on a permanent tax cut extension before the November midterm elections could give a handful of Democrats running for re-election this year in states that President Trump carried in 2016 an opportunity to bolster their tax-cutting credentials by voting yes on the plan while knowing it does not have the requisite support to pass. With Republicans fighting to retain control of the Senate, providing such an opening for Democratic incumbents such as Joe Donnelly of Indiana or Heidi Heitkamp of North Dakota is politically unappealing for the GOP. (It s worth noting Tax News & Views Page 2 of 6 Copyright 2018 Deloitte Development LLC
that this very scenario played out in the September 28 House vote. Democratic Reps. Jacky Rosen of Nevada and Kyrsten Sinema of Arizona both of whom are candidates for Senate in their respective homes states and are running in close races supported a permanent extension of the 2017 tax cuts after voting against the original legislation last year. This development lends additional credence to the notion that McConnell would want to avoid giving someone like Donnelly or Heitkamp the chance to make a similar pivot in his chamber.) Retirement savings maybe Retirement legislation may have a more likely path to enactment in the near term. Although no Democrats voted for the retirement and family savings bill (H.R. 6757) in the Ways and Means Committee, several expressed a desire to expand retirement savings incentives but lamented certain provisions that were included in or left out of that bill, and 10 supported the measure on the House floor. Some of the provisions in the House-passed bill have also received bipartisan backing in the past, and some are similar to those in the Retirement Enhancement and Savings Act (RESA, S. 2526), a bipartisan bill Finance Chairman Hatch introduced in March with ranking Democrat Ron Wyden of Oregon. Although the House legislation differs from RESA in several respects, there is enough overlap that many observers believe there is potential for Congress to forge a compromise agreement during the post-election lame duck session. Ways and Means Committee Chairman Brady told supporters this week that his staff has already begun preconference discussions with the Finance staff to explore how the two bills might be melded and expressed optimism that a retirement savings bill as well as the House-approved incentives for start-up businesses might make it to President Trump s desk for signature this year. But Ways and Means ranking Democrat Richard Neal of Massachusetts told reporters this week that he doubts the House-passed retirement bill will have an impact in shaping any bicameral retirement legislation that makes its way to the White House. Right now, the only bill that s being talked about is the Senate bill, he said. Other lame duck possibilities In addition to a compromise retirement savings bill, other tax-related legislation that could see action after the election includes bipartisan IRS reform measures and the suspension or delay of some taxes created by the 2010 Patient Protection and Affordable Care Act (PPACA, P.L. 111-148). IRS reform: Senate and House staff members met this week to discuss the potential melding of a package of Housepassed bills and two Senate proposals (S. 3246 and S. 3278) to revamp IRS operations, and some key taxwriters are optimistic about a final bill before the end of the year. (For details on the House legislation, see Tax News & Views, Vol. 19, No. 13, Apr. 20, 2018.) URL: https://www.congress.gov/bill/115th-congress/senatebill/3246/text?q=%7b%22search%22%3a%5b%22s.+3246%22%5d%7d&r=1 URL: https://www.congress.gov/bill/115th-congress/senatebill/3278/text?q=%7b%22search%22%3a%5b%22s.+3278%22%5d%7d&r=1 URL: http://newsletters.usdbriefs.com/2018/tax/tnv/180420_3.html We re so close, said Rep. Lynn Jenkins, R-Kansas, the chairwoman of the Ways and Means Oversight Subcommittee. Sen. Rob Portman, R-Ohio, who, with Democratic Sen. Ben Cardin of Maryland, co-authored of one of the Senate bills, agreed. I think we had an agreement to move forward on something that will be broadly acceptable, he told reporters this week. My hope is that we can bring them all together in one package. PPACA employer mandate, Cadillac tax: The PPACA taxes were addressed by the Ways and Means Committee in July, but Hurricane Florence knocked the floor vote planned for this month off the calendar until after the election, House leaders said this week. The Ways and Means-approved bill (H.R. 4616) would suspend the PPACA employer mandate and further delay implementation of the Cadillac tax on certain high-cost employer-provided health care plans. (For prior coverage, see Tax News & Views, Vol. 19, No. 22, July 13, 2018.) URL: http://newsletters.usdbriefs.com/2018/tax/tnv/180713_2.html Tax News & Views Page 3 of 6 Copyright 2018 Deloitte Development LLC
It is not clear whether the Senate might take up the legislation before year-end if it is cleared by the House in November or December. Storme Sixeas and Michael DeHoff Tax Policy Group Deloitte Tax LLP Congress averts shutdown; IRS funding punted to December Lawmakers this week cleared a massive appropriations measure that funds the departments of Defense, Labor, Education, and Health and Human Services for all of fiscal year 2019, and includes stop-gap language that averts a government shutdown by keeping other agencies, including the Internal Revenue Service, running through December 7. Fiscal 2019 appropriations bills: 5 down, 7 to go The House cleared the fiscal 2019 Defense-Labor-Education-HHS measure (a so-called minibus as it combines several appropriations bills into one) September 26 by a vote of 361-61. The Senate had passed the same bill September 13 on a similarly bipartisan basis. Although it had not been assured, President Trump indicated shortly before House passage that he will sign the bill soon. This marks the first time in more than two decades that defense appropriations have been completed in advance of the October 1 start of the new fiscal year. Earlier in September, Congress passed, and the president signed, another fiscal 2019 minibus funding the Departments of Energy and Veterans Affairs, as well as programs related to military construction and the legislative branch. With that, five funding measures covering the whole of fiscal year 2019 representing roughly 80 percent of annually appropriated spending will have been enacted prior to the start of the new federal fiscal year. This seemingly small achievement is actually a monumental accomplishment for lawmakers who have struggled mightily in recent years to enact appropriations bills on time in the face of intense partisanship set against the backdrop of the statutory discretionary spending caps known as the sequester. So far, Democrats and Republicans have largely overcome these obstacles this year due to an earlier spending agreement codified in the Bipartisan Budget Act of 2018 that lifted the statutory caps for both defense and nondefense programs for fiscal years 2018 and 2019, as well as an informal pact that has generally been respected to keep the fiscal 2019 bills free of partisan policy provisions, known as riders. (For details on the Bipartisan Budget Act of 2018, see Tax News & Views, Vol. 19, No. 6, Feb. 9, 2018.) URL: http://newsletters.usdbriefs.com/2018/tax/tnv/180209_1.html The seven remaining appropriations bills covering departments including Treasury, Interior, Transportation, State, Agriculture, Commerce, Justice, and Homeland Security received stop-gap funding at fiscal 2018 levels through December 7 (a so-called continuing resolution ) as part of the Defense-Labor package. As a result, lawmakers will have to revisit these agencies budgets during a post-election lame duck congressional session. IRS funding bill among those punted: The IRS, funded along with Treasury as part of the Financial Services and General Government appropriations bill, is among the agencies that will be funded at current levels through December 7 as part of the continuing resolution. Both chambers have previously approved fiscal 2019 IRS funding language the House on July 18 and the Senate on August 1 with House providing roughly $300 million more than their Senate counterparts. The House bill would provide the IRS with roughly $11.6 billion in total funding, including roughly $2.49 billion for taxpayer services, $4.86 billion for enforcement, $3.99 billion for operations support, and $200 million for business systems modernization. Tax News & Views Page 4 of 6 Copyright 2018 Deloitte Development LLC
By contrast, the Senate bill would provide the agency with almost $11.3 billion in total funding, including $2.51 billion for taxpayer services, $4.86 billion for enforcement, $3.7 billion for operations support, and $110 million for business systems modernization. Both bills also provide $77 million in funds dedicated to helping implement the last year s tax cut legislation for the 2018 tax filing season. The fiscal year 2018 budget as enacted provides $11.43 billion in overall funding, with $2.5 billion dedicated to taxpayer services, $4.86 billion for enforcement, $3.63 billion for operations support, $110 million for systems modernization, and a one-time payment of $320 million for implementing the 2017 tax law. The delay in full-year fiscal 2019 IRS funding has less to do with disagreements over those line-item appropriations numbers than with certain sticking points negotiators have encountered in the other funding bills Agriculture, Transportation, and Interior-Environment that are riding in the minibus along with the Financial Services and General Government bill, most notably the president s desire to secure additional funding to build a wall between the US and Mexico. Negotiators hope to resolve these issues prior to the new December 7 funding deadline, although the president appears to be willing to force a lapse in appropriations meaning a partial shutdown of some of the government functions not funded beyond then to secure funding for construction of a wall. FAA programs, taxes poised for long-term reauthorization Also this week, Congress took steps to reauthorize for five years the Federal Aviation Administration (FAA) and the related excise taxes that help fund its operations. The aviation policy bill was passed in the House September 26 on a widely bipartisan 398-23 vote as part of broader legislation (H.Res. 1082) that, in part, also provides disaster relief funding related to Hurricane Florence. The FAA s current expenditure authority is set to expire on October 1. The bill includes some significant nontax changes to FAA policy. On the revenue side, however, the measure simply would extend the current-law excise taxes on fuel and tickets which provide the agency s dedicated revenue stream along with expenditure authority from the airport and airway trust fund, through September 30, 2023. It does not include any extraneous tax provisions. (Because it is one of the few must-pass bills with a tax title expected to be taken up this year, some on Capitol Hill had regarded FAA funding legislation as a possible vehicle for tax extenders or technical corrections to the 2017 tax cut law.) The Senate is expected to take up and pass the bill soon. However, in the event the Senate is unable to process the bill, and the president to sign it, prior to October 1, the House also unanimously agreed to a bare bones measure (H.R. 6897, the Airport and Airway Extension Act of 2018, Part II) September 26 that would extend the FAA s tax and expenditure authorities for one week (that is, through October 7, 2018). Alex Brosseau Tax Policy Group Deloitte Tax LLP A note on our publication schedule The House is set to adjourn on September 28 to give lawmakers a chance for one final sprint down the campaign trail ahead of the November 6 midterm elections. The Senate currently plans to remain in session through October 26 and then adjourn for a week of last-minute campaigning, but the agenda for the October work period is expected to focus primarily on nontax issues. We will publish Tax News & Views as events warrant while the Senate is in session. Tax News & Views Page 5 of 6 Copyright 2018 Deloitte Development LLC
Lawmakers in both chambers are expected to be back in Washington to kick off a post-election lame duck work period on November 13. Jon Traub Managing Principal, Tax Policy 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 6 of 6 Copyright 2018 Deloitte Development LLC