Tax Reform Framework to Be Released Wednesday
- Republicans will release a tax reform “framework” this Wednesday, September 26.
- Key Requirement: The tax bill cannot proceed as a GOP-only filibuster-proof “Reconciliation” bill unless Congress first adopts an FY 2018 Congressional Budget Resolution (see below).
- $1.5 Trillion: The framework will reportedly call for $3 trillion in tax cuts over 10 years, with roughly half paid for with offsets.
- 10-Year Expiration: Tax cuts that are not paid for will have to expire at the end of 10 years to comply with the Senate’s “Byrd Rule” that prohibits using a Budget Reconciliation bill to increase deficits beyond the 10-year budget planning window.
- State and Local Tax Deductions: One revenue offset under consideration is elimination of the state and local tax deduction.
- Repatriation of Off-shore Profits: Another offset under consideration is a one-time tax on repatriation of profits held offshore by U.S. multinational corporations.
- Other offsets will be required, but negotiators are avoiding details for now to avoid political backlash.
- 20% Corporate Tax Rate: Trump had called for a cut in the 35% statutory corporate rate to 15%, although recent reports are that GOP negotiators have settled on a 20% rate due to the cost. (Note: effective corporate tax rates are lower for many companies due to deductions and credits.)
- 25% for Pass-Through Businesses: A 25% rate for pass-through businesses (sole proprietorships, partnerships, LLCs,and S-corporations) is reportedly under consideration.
- Full Expensing: Negotiators are reportedly considering whether to allow full expensing of business capital investments as a permanent provision or as a temporary 5-year measure. (Full expensing is the treatment of an expenditure as an operating cost so that deductions can be taken immediately.)
- Top Individual Rate of 35%: The top individual rate would be reduced from 39.6% to 35% — reducing taxes for the wealthiest Americans. The current 7 brackets would be reduced to 3. Other measures under consideration are increasing the child tax credit from $1000 to $1500; and doubling the standard deduction (currently $6300 for individuals and $12,600 for couples).
- Territorial vs. Worldwide: Congressional Quarterly reports that Senate Finance Chairman Hatch and President Trump are pushing for a territorial tax system that would tax domestic income and exclude foreign profits of U.S.-based companies. (Background: The U.S. generally has a worldwide system, but allows American corporations with foreign subsidiaries to defer paying taxes on income earned abroad until that income is repatriated.)
- Border Adjustment Tax Dropped: On July 27, 2017, the “Big Six” — Speaker Ryan, Leader McConnell, Treasury Secretary Mnuchin, NEC Director Cohn, Senate Finance Chairman Hatch, and House Ways & Means Chairman Brady — released a joint statement on tax reform that set aside the controversial Border Adjustment Tax proposed last year by the House GOP, that would have taxed imports but exempted exports. Retailers strongly opposed the BAT.
- New CBO report on Tax Revenues and Corporate Inversions
- FedWeb Tax Reform Page
Budget Resolution: Prerequisite to Tax Reform
- Congressional Republicans cannot advance a filibuster-proof tax reform bill without first adopting an FY 2018 Congressional Budget Resolution. Neither the House nor the Senate have yet voted on a Budget Resolution for the fiscal year beginning October 1.
- The House Budget Committee passed its budget plan in July (H.Con.Res. 71), but it remains unclear if the plan has the votes to pass the House, due to disagreements between moderates and conservatives. In particular, moderates are concerned that the budget plan would combine tax cuts with more than $200 billion in entitlement cuts.
- Senate Budget Committee has not yet scheduled a mark-up, but Members of the Committee are reportedly nearing an agreement on an FY 2018 budget plan consistent with the tax framework to be released on Wednesday, with a net $1.5 trillion in revenue losses over 10 years. The Senate plan may sidestep the controversial entitlement cuts proposed by the House Budget Committee.
- If the plan passes the Budget Committee, it requires 50 votes to pass the Senate. If the House and Senate pass their respective plans, Republicans in the two chambers must reach agreement on a compromise version, before they can advance a tax bill.
Senate GOP Abandons ACA Repeal & Replace; Hatch Opposes Efforts to Shore up ACA Insurance Markets
- Lacking 50 GOP votes to pass the latest ACA repeal-and-replace legislation (Graham-Cassidy), Senate Republicans canceled plans to vote on the measure this week. This was the last week to utilize filibuster-proof FY 2017 “Budget Reconciliation” procedures to advance the legislation without Democratic votes.
- Senate Republicans seem unlikely to advance a measure to shore up the ACA private insurance markets. As reported by the Washington Post, Senate Finance Committee Chairman Orrin Hatch (R-UT) rejected bipartisan efforts in the Senate HELP (Health, Education, Labor and Pensions) Committee saying, ““I personally think it’s time for the American people to see what the Democrats have done to them on health care….They’re going to find they can’t pay for it, they’re going to find that it doesn’t work. . . . Now that will make it tough on everybody. Maybe that’s what it take to wise people up.”
- In the absence of immediate bipartisan action to shore up private insurance markets, insurers may increase rates in the ACA private insurance exchanges due to expiration of cost-sharing reduction payments.
- Graham-Cassidy: The Senate GOP had been trying to cobble together a bill that could garner 50 Republican votes – the latest effort being the Graham-Cassidy bill that sought to block grant and redistribute ACA funds in the short-term and make deep cuts to Medicaid in the long-run, as well as allowing States to scrap protections against unaffordable premium increases for people with pre-existing conditions.
- The nonpartisan Congressional Budget Office released a preliminary CBO analysis of Graham-Cassidy on Sept. 25th concluding that “the number of people with comprehensive health insurance that covers high-cost medical events would be reduced by millions.”(emphasis added) Nearly all major American healthcare organizationspublicly opposed Graham-Cassidy.
- Passage became unlikely due to announced opposition from Senators Paul, McCain, Collins, Murkowski, and Cruz in the closely divided 52-48 Senate.
- McCain has called for bipartisan action on health reform.
- Repeal-and-replace could return. Republicans could opt to pass a Budget Resolution enabling another filibuster-proof repeal-and-replace bill in FY 2018 if they believe they can assemble sufficient GOP votes for passage.
- FedWeb Health Reform Page
FY 2018 Appropriations Remain Stalled Risking Shutdown in December
- State of play: Avoiding a December federal shutdown requires bipartisan action to raise defense and domestic spending caps.
- FY 2017 appropriations expire on September 30, 2017, the last day of the fiscal year. The September 8, 2017 emergency bill continues federal funding at current levels through December 8, 2017 — at which time federal agencies will have to shut-down unless FY 2018 appropriations bills or another continuing resolution “CR” are enacted.
- On September 14, 2017, the House passed an omnibus appropriations measure, but it is only a placeholder. The House bill combined the 12 regular appropriations bills passed by the House Appropriations Committee. However, these “placeholder bills” will not become law – because Republicans and Democrats have yet to negotiate overall spending levels for the (1) Defense and (2) Non-Defense Discretionary (NDD) spending categories. FedWeb Appropriations Portal
- The Budget Control Act of 2011 set statutory caps on Defense and Non-Defense Discretionary spending for each year through 2021. However, the Bipartisan Budget Act of 2013 increased the defense and non-defense caps for FY 2014 and 2015; and the Bipartisan Budget Act of 2015 increased the caps for FY 2016 and 2017.
- Bipartisan Action Required: Many Republicans and Democrats agree the caps should again be increased. However, this requires 60 votes in the Senate. (Filibuster-proof protections cannot be used for Appropriations bills.)
Debt Ceiling Cliff in December
- The bipartisan Sept. 8 emergency bill suspended the debt ceiling through December 8, 2017, temporarily avoiding a Treasury default on U.S. obligations.
- The statutory limit on the public debt, often called the “debt ceiling,” is a legal limit on the Treasury’s ability to borrow funds necessary to finance already incurred obligations of the United States. If Congress passes spending measures that exceed incoming revenues, but prevents the Treasury from borrowing funds to cover the deficit, the nation would default on its legal obligations to lenders, Social Security beneficiaries, veterans, Medicare providers and all others to whom payments are legally owed. Default has never occurred and would have catastrophic effects on the ability of the U.S. Treasury to issue bonds in the future, as well as destabilizing global financial markets. FedWeb Debt Ceiling Tracker
- President Trump said earlier this month, “”For many years, people have been talking about getting rid of [the] debt ceiling altogether, and there are a lot of good reasons to do that.” Three Senate Democrats (Schatz, Coons, Bennet) introduced legislation last week to abolish the debt ceiling, but support from the GOP majority is unlikely, with many seeing it as periodic leverage to push through budget reform measures.