The House Ways and Means Tax Policy Subcommittee held a hearing on March 14 to review the recently expired tax provisions (so-called “tax-extenders”). The McGuireWoods Tax Policy Group’s hearing summary is available here if you’re interested in reading the highlights.
The House Transportation and Infrastructure Committee held hearings last week on funding options for the administration’s $1.5 trillion infrastructure investment plan. It didn’t take long for the gas tax issue to move into the spotlight.
Transportation Secretary Elaine Chao told lawmakers that no decisions have been made on how to pay for the proposal. She added that all funding options, including a gas tax increase, are on the table. Ranking Member Peter DeFazio (D-OR) criticized the lack of progress on identifying pay-fors.
Both DeFazio and Chairman Bill Shuster (R-PA) called on the president to engage more on infrastructure and resolve the funding question since states cannot be expected to shoulder all the costs. In DeFazio’s view, without a gas tax increase, the infrastructure plan is dead in the water. Rep. Sam Graves (R-MO) argued that raising the gas tax is simply not politically feasible.
Senate Democrats have unveiled their own $1 trillion infrastructure plan, which proposes to roll back some of the tax cuts enacted last year to help pay for investments in the country’s roads, waterways, broadband network, and transit systems. The top revenue-raisers in the plan include the following:
- Restore 2017 parameters to the Alternative Minimum Tax (raises $429 billion)
- Increase the corporate tax rate to 25% (raises $359 billion)
- Return the top individual tax rate to 39.6% (raises $139 billion)
- Eliminate the exemption increase for the estate tax (raises $83 billion)
- End the preferential tax treatment of carried interest (raises $12 billion)
Committee hearings may be the only legislative action that infrastructure proponents will see in 2018. House Ways and Means Chairman Kevin Brady (R-TX) has no near-term plans to work on an infrastructure package. Brady wants to wait until there are actual pay-fors on the table, and he is leaving that task for the authorizing committees. So unless some serious financing options crop up soon, lawmakers are unlikely to move legislation this year.
Rep. Kristi Noem (R-SD) has been pushing to include an online sales tax measure in the forthcoming omnibus. Senate Finance Committee Ranking Member Ron Wyden (D-OR) has accused Republicans of “plotting to sneak a massive Internet tax increase into a completely unrelated federal spending bill.”
Rep. Noem’s bill, the Remote Transactions Parity Act or RTPA (H.R. 2193), would create sales and use tax collection obligations for remote sellers, with special carve outs for small sellers.
The Supreme Court is set to hear a case on taxing remote sellers in South Dakota v. Wayfair. For those who have not been following closely, the Wayfair case would allow the Supreme Court to revisit its 1992 decision in Quill Corp. v. North Dakota. In Quill, the Court held that the states may require retailers to collect use taxes only if it has a physical presence in that state.
Of course, in subsequent decisions, given the changing e-commerce landscape, the Supreme Court has hinted towards a change in opinion. In DMA v. Brohl, Justice Kennedy invited Congress to pass legislation on online sales taxes. Justice Kennedy wrote, “The Internet has caused far-reaching systemic and structural changes in the economy…a business may be present in a State in a meaningful way without that presence being physical in the traditional sense of the word.”
House Speaker Paul Ryan (R-WI) is gauging whether the RTPA has enough support for inclusion in the FY 2018 omnibus. This issue is not a partisan one — support depends on whether a given state levies a sales tax or not. Congressional Democrats have previously supported legislation like the RTPA. However, for members like Wyden, this bill is problematic since Oregon doesn’t have a sales tax.
As part of the 2017 Tax Act, Republicans enacted a controversial 1.14 percent excise tax on endowment returns. The tax is imposed on private universities with at least 500 students and $500,000 of assets per student. Last year, university presidents and other industry groups unsuccessfully rallied against the tax, noting that tax would not address the cost of college or student indebtedness.
In a March 7 letter to congressional leaders, universities recycled many of the same arguments in an attempt to persuade lawmakers that the endowment tax will not have the desired effect. University presidents noted that the endowment tax “will constrain the resources available to the very institutions that lead the nation in reducing, if not eliminating, the costs for low- and middle-income students, and will impede the efforts of other institutions striving to grow their endowments for this very purpose.”
In the letter, university presidents did not offer an alternative to the tax, though universities are currently working on a proposal that would provide them with a tax credit for the amount of grants and scholarships provided to students, allowing them to attend free of cost. Some in the GOP, like Rep. Tom Reed (R-NY), have indicated a willingness to work with these educational institutions to modify the endowment tax so that it only affects universities that do not spend enough of their endowment dollar on financial assistance.
Several hurdles lie ahead for the universities. For starters, the proposal hasn’t been scored, but it’s likely to cost over $1 billion. Universities also need a vehicle to attach their legislation to — top contenders are the FY 2018 omnibus and the FAA reauthorization bill. Additionally, Republicans will need support from Senate Democrats to move the endowment tax proposals.
The March 23 government-funding deadline is just around the corner. Lawmakers are scrambling to wrap up their work on the FY 2018 omnibus spending bill, which would fund the government for the rest of this fiscal year. House Majority Leader Kevin McCarthy (R-CA) has been pushing appropriators to get a bill out by March 14 to avoid the possibility of having to do another short-term continuing resolution.
Negotiations stalled last week due to the GOP’s attempt to drop a few family planning policy riders (e.g., defunding Planned Parenthood) into the $1.3 trillion spending package. Democrats are vehemently opposed to such poison-pill additions.
More than 100 riders are still under consideration according to House Minority Whip Steny Hoyer (D-MD). The omnibus is almost certain to include a fix for Sec. 199A. There may even be a short-term extension for the FAA — reauthorization is due on March 31. An updated version of the Retirement Enhancement and Savings Act or RESA (S.2526) and the Bipartisan HSA Improvement Act (H.R. 5138) are also in play for the final package. And whether there’s another one-year extension for extenders is anybody’s guess at this point – we’re not optimistic.
The House is aiming to release the text of the omnibus on March 14. The goal is to hold a floor vote on March 16.
As some of our readers may already know, McGuireWoods’ Tax Policy Group distributes a weekly tax policy update (TPU) for clients. Below is an archive of our 2018 publications to date.
2018 TPU Archive
- March 6, 2018
- February 27, 2018
- February 13, 2018
- February 6, 2018
- January 30, 2018
- January 23, 2018
- January 17, 2018
- January 9, 2018
If you have any questions regarding the updates, please contact the TPU editors below:
Lai King Lam, firstname.lastname@example.org
Radha Mohan, email@example.com
The Senate convenes today at 4 p.m. to resume consideration of the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155). The House returns Tuesday at noon.
Lawmakers are still trying to wrap up their work on the FY 2018 omnibus spending bill – the deadline is March 23. Progress has stalled due to the GOP’s attempt to insert a few family planning policy riders, such as defunding Planned Parenthood. Democrats are vehemently opposed to these poison-pill additions.
House Majority Leader Kevin McCarthy (R-CA) told lawmakers that they would need to introduce the omnibus legislation by March 14 to avoid the possibility of having to do another CR.
Here’s what else is in store for the week:
Votes. The chamber will take up consideration of the following tax and financial services bills:
- H.R. 3996 – the Protecting Access to the Courts for Taxpayers Act would permit other courts to transfer certain cases to the U.S. Tax Court.
- H.R. 1116 – the TAILOR Act would require federal financial regulatory agencies to take risk profiles and business models of institutions into account when taking regulatory actions.
- H.R. 4545 – the Financial Institutions Examination Fairness and Reform Act would allow financial institutions to challenge findings by bank examiners.
- H.R. 4263 – the Regulation A+ Improvement Act would expand the Regulation A+ exemption and require the SEC to adjust the threshold for inflation every two years. The bill would also limit the registration and disclosure requirements for certain companies.
Financial Services Hearings. The House Financial Services Committee has scheduled a series of subcommittee hearings to examine issues related to cryptocurrency, SEC enforcement, and data security. See details in the activities section below.
Extenders Hearing. The House Ways and Means Subcommittee on Tax Policy will hold a Wednesday hearing on tax extenders.
Banking Bill. The chamber will resume consideration of Sen. Crapo’s regulatory relief bill for community banks (S. 2155). A cloture vote on the substitute amendment has been scheduled for 5:30 p.m. today At this writing, Republicans and Democrats have not reached an agreement on amendments (i.e., which amendments will actually get a vote.). By Friday’s count, 146 amendments have been filed.
Nomination Vote. The chamber will consider the nomination of Kevin K. McAleenan to be the commissioner of U.S. Protection at the Department of Homeland Security.
- House Small Business Committee. A field hearing on “Disparities in Access to Capital: What the Federal Government Is Doing to Increase Support For Minority Owned Firms.”
- Joint Select Committee on Solvency of Multiemployer Pension Plans. The new joint select committee will hold an open session to organize the panel.
- House Financial Services Committee. Subcommittee to hold a hearing on “Examining the Cryptocurrencies and ICO Markets.”
- House Budget Committee. Hearing on “CBO Oversight: Perspectives from Outside Experts.”
- House Ways and Means Committee. Subcommittee hearing on “Post Tax Reform Evaluation of Recently Expired Tax Provisions.”
- House Oversight Committee. Committee hearing on the federal regulatory process.
- House Budget Committee. Hearing on “CBO Oversight: Perspectives from Outside Experts.”
- House Financial Services Committee. Subcommittee hearing on “Evaluating CFIUS: Administration Perspectives.”
- House Financial Services Committee. Subcommittee hearing on “After the Breach: the Monetization and Illicit Use of Stolen Data.”
- House Appropriations Committee. Subcommittee hearing on the FY 2019 budget request from the Department of Transportation.
- House Appropriations Committee. Subcommittee hearing on the FY 2019 budget request from the Department of Health and Human Services.
- House Financial Services Committee. Subcommittee hearing on “Oversight of the SEC’s Division of Enforcement.”
Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) have introduced an updated version of the Retirement Enhancement and Savings Act (RESA) – a bill to improve access to retirement savings.
- Technical modification to ERISA fiduciary safe harbor for selection of lifetime income provider (section 204): The first sentence of the safe harbor is modified by replacing “selection of an insurer and a guaranteed retirement income contract” with “selection of an insurer for a guaranteed retirement income contract.” This one-word change clarifies that the safe harbor is solely for the selection of the insurer and the possibility that the insurer may not be able to make payments due under the contract.
- Technical modification to benefits of the Tax Court: (1) modifies the survivor annuity benefit to remove deadwood reference to the United States Board of Tax Appeal (section 305 and sec. 7448(n) of the Code); and (2) conforms the legislative language for the deadline by which magistrate judges may elect Tax Court retirement benefits to the committee report for S. 3471 (section 307 and sec. 7448(b) of the Code).
- Provisions deleted because of prior enactment: (1) extended rollover period for plan loan offsets (section 110 of S. 3471; enacted as part of Public Law 115-97); (2) modification of hardship withdrawal rules from 401(k) plans (section 111 of S. 3471; enacted as part of the Bipartisan Budget Act of 2018); (3) tax treatment of qualified equity grants (section 402 of S. 3471; enacted as part of Public Law 115-97); and (4) repeal of partnership technical terminations (section 506 of S. 3471; enacted as part of Public Law 115-97).
- Modification of effective dates: RESA as originally introduced was generally effective for years beginning after December 31, 2016; these effective dates have been changed to years beginning after December 31, 2018. Additionally, the acceleration of PBGC premiums in section 506 has been modified by accelerating additional months of premiums.
A section-by-section overview of the 2018 RESA is available here.
Senate Democrats have released their $1 trillion infrastructure plan.
Under the plan, Democrats would roll back some of the tax cuts enacted last year to help offset the $1 trillion price tag. For example, they propose to increase the corporate tax rate to 25 percent, return the top individual tax rate to 39.6 percent, eliminate the exemption increase for the estate tax, and end the preferential tax treatment of carried interest.
It remains to be seen whether Congress will immediately move to infrastructure after its work on the FY 2018 omnibus. Washington observers are generally pessimistic about the prospects of getting an infrastructure package done this year.
The House and Senate convene today at noon and 3 p.m., respectively.
Congressional appropriators are aiming to finish writing the FY 2018 omnibus spending bill this week. They are hoping to introduce the package early next week, which will give them several days to debate and pass the legislation before the March 23 government-funding deadline.
Here’s what is in store for the week:
Bills Under Consideration. Lawmakers will vote on the following financial services bills:
- H.R. 4607 – the Comprehensive Regulatory Review Act would expand the required comprehensive review of financial regulatory requirements. The review must be completed by the Federal Financial Institutions Examination Council, CFPB, NCUA, OCC, FDIC, and Federal Reserve Board. The review must be conducted every 7 years and regulators must consider tailoring regulations to limit specified burdens.
- H.R. 2226 – the Portfolio Lending and Mortgage Access Act would, among other things, modify provisions related to residential mortgage loans. In general, a creditor that is a depository institution shall not be subject to suit for violating specified ability-to-pay requirements with respect to a residential mortgage loan if: (1) the creditor has consistently held the loan on its balance sheet, and (2) prepayment penalties associated with the loan comply with specified limitations.
- H.R. 4725 – the Community Bank Reporting Act would require short form call reports for certain depository institutions.
- H.R. 4768 – the bill would require the president to develop a national strategy to combat the financial networks of transnational organized criminals.
FY 2019 Appropriations. The House Appropriations Committee will hold subcommittee hearings Tuesday and Wednesday on the FY 2019 budget requests of the Treasury, CFTC, and Department of Labor.
Financial Services Hearings. The House Financial Services Committee will hold subcommittee hearings this Wednesday on H.R. 5059, the State Insurance Regulation Preservation Act; and on legislative proposals to reform the current data security regulatory regime.
Crapo’s Banking Bill. The Senate will take up consideration of S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act – a bill that aims to ease regulatory burdens for small financial institutions such as credit unions, community banks, and regional banks. The bipartisan measure would also improve access to mortgage credit and consumer protections for veterans and victims of fraud. Senate Banking Chairman Mike Crapo is planning to insert additional provisions to the bill via a manager’s amendment. These provisions are expected to include a number of minor bills that have already cleared the House. The cloture vote is scheduled for Tuesday. Barring any last-minute controversial additions, passage is expected by the end of the week. A summary of the bill can be viewed here.
Nominations. The Senate will vote on three judicial nominations today:
- Karen Scholer to be U.S. District Judge for the Northern District of Texas
- Tilman Eugene Self III to be U.S. District Judge for the Middle District of Georgia
- Terry Doughty to be U.S. District Judge for the Western District of Louisian
E-commerce Hearing. The Senate Finance Committee will meet Tuesday to discuss how to protect e-commerce consumers from counterfeits.
- House Appropriations Committee. Subcommittee hearing on the Treasury Department’s FY 2019 budget request. Secretary Mnuchin to testify.
- House Appropriations Committee. Subcommittee hearing on the Labor Department’s FY 2019 budget request. Secretary Acosta to testify.
- Senate Finance Committee. Full committee hearing on “Protecting E-commerce Consumers from Counterfeits.”
- House Financial Services Committee. Markup of FY 2019 budget views and estimates.
- House Transportation Committee. Hearing to examine the administration’s infrastructure proposal.
- House Transportation Committee. Subcommittee hearing on “Building a 21st Century Infrastructure for America: Long-Term Funding for Highways and Transit Programs.”
- House Appropriations Committee. Subcommittee hearing on the CFTC’s FY 2019 budget request with Chairman Chris Giancarlo testifying.
- Joint Economic Committee. Hearing on “The Economic Report of the President” with Council of Economic Advisers Chairman Kevin Hassett testifying.
- House Financial Services Committee. Subcommittee meeting to discuss H.R. 5059, the State Insurance Regulation Preservation Act.
- House Financial Services Committee. Subcommittee hearing on “Legislative Proposals to Reform the Current Data Security and Breach Notification Regulatory Regime.”