The “Big 6” leading negotiations on federal tax reform released a statement on tax reform this week. They have been meeting weekly to discuss their priorities and establish a unified framework, which was originally expected to be released in September so the House and Senate tax writing committee can add meat to the bones in the fall. This release will provide Republicans with a message on tax reform to take back to their constituents over the August recess. Some key messages include that (1) the White House, Senate and House leadership, and the congressional tax writing committees are, for the first time in years, said to be singing off the same tax reform song sheet and (2) that the Senate Finance & House Ways and Means Committees will now move forward to produce tax reform legislation and the bills are expected to move through regular order. The “Big 6” includes Treasury Secretary Steven Mnuchin, National Economic Council Director Gary Cohn, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, House Speaker Paul Ryan, and Ways and Means Chairman Kevin Brady.
FY 2018 Budget:
Republicans plan to use the FY 2018 budget resolution as the vehicle for tax reform. Without a budget resolution, Republicans will lose the opportunity to expedite tax reform through the reconciliation process. The reconciliation process is valuable for the Senate to avoid a filibuster, limit debate, and pass legislation with only 51 votes. After ongoing and challenging negotiations with defense hawks and the House Freedom Caucus who mandated cuts to entitlement programs, the House Budget Committee passed on party lines a FY 2018 budget resolution. However, Republicans do not yet have the votes to bring it to a vote on the House floor before the August recess, so we will likely see it in September. Despite challenges in passing a budget resolution, Republican leadership stated that it will continue to move forward in drafting a tax bill and will release details about it in the next couple weeks, which could ease the concerns and demands from conservatives who are pressing for the exclusion of the border adjustment tax before they agree to vote for the budget resolution on the House floor.
The Businesses United for Interest and Loan Deducibility (BUILD) Coalition, made up of businesses in agriculture, real estate, retail, manufacturing, and telecommunications, is weighing in with the Senate and House on the House Republican’s proposal to eliminate the interest deduction. The House has proposed the elimination of the interest deduction as a tradeoff for immediately writing off the full cost of business’ capital investments; it has since stated it would make exceptions for small businesses. The BUILD Coalition argues that if business interest cannot be deducted, then companies’ taxable income would be overstated and the businesses would be overtaxed. It also states, “Debt and equity do not serve identical purposes and are not interchangeable forms of financing. There are a variety of non-tax reasons that businesses like ours choose debt over equity when raising capital. Thus, their differing tax treatment is appropriate.” Here is the letter the Coalition sent to the Senate: http://buildcoalition.org/wp-content/uploads/2017/07/BUILD-Coalition-Submission-To-Senate-Finance-Committee.pdf and another to the House: http://buildcoalition.org/wp-content/uploads/2017/05/BUILD-Coalition-Submission-To-Ways-and-Means-5-17-17.pdf.
The Tax Foundation released a special report on “State Inheritance Taxes and Estate Taxes: Rates, Economic Implications, and the Return of Interstate Competition.” Some of the key findings include: (1) Eighteen states and the District of Columbia impose either inheritance or estate taxes, with fourteen states (plus Washington, D.C.) levying estate taxes and six states levying inheritance taxes; (2) Washington State has the highest top marginal estate tax rate at 20 percent, while the 18 percent rate Nebraska imposes on bequests to nonrelated individuals is the nation’s highest inheritance tax rate; (3) State inheritance and estate taxes, together with the federal estate tax, reduce investment, discourage business expansion, and can sometimes drive wealthy taxpayers out of state; and (4) Estate planning and tax avoidance strategies create dead-weight losses, reduce economic efficiency, and in some instances break up farms and family-owned businesses. These costs must be taken into account above and beyond actual collections under estate and inheritance tax regimes. The Tax Foundation previously reported that an estate tax repeal would lead to the creation of nearly 140,000 new jobs. To note, both the President’s and the House Republican’s tax proposals include a repeal of the estate tax.
US Chambers of Commerce Publishes Open Letter to Members of Congress:
The US Chambers of Commerce President and CEO Tom Donohue published an open letter to Members of Congress warning them that “failure is not an option” on tax reform. He refers to a number of the roadblocks that Congress faces like health care and Senate confirmations and states, “At this point Congress must more fully turn its attention to and accelerate its effort to enact tax reform…True tax reform is going to require compromise and give and take.” He further speaks to the Chambers’ political support for Congressional candidates, “In the coming weeks, the Chamber will be launching a multi-faceted effort in support of comprehensive tax reform. And a year from now, we will be evaluating Congressional candidates based on their support of the free enterprise system and their willingness to govern.”
Tax Foundation Sends Open Letter to House Subcommittee on Tax Policy Chairman Roskam (R-IL) on Full Expensing or Corporate Rate Cut:
Scott Hodge, President of the Tax Foundation, sent a letter to Chairman Roskam (R-IL) to provide a “broader perspective on the debate over whether tax reform should prioritize full expensing or a corporate rate cut.” He advocates that “it would be a tragic mistake to pit full expensing against a corporate rate cut. Each performs an important function in any pro-growth tax reform plan…If lawmakers’ aim is a tax reform plan that maximizes economic growth while boosting real incomes, they should pair expensing with a low corporate rate.”
The Department of Labor released a Request for Information (RFI) on July 26, proposing questions for public comment on revising the Obama administration’s rule to expand overtime eligibility. The public has 60 days to submit their suggestions on the rule. To note, the overtime rule has never taken effect because of litigation and, pending on the outcome of Fifth Circuit’s decision, the Trump administration is beginning to deliver on its promise to revisit the rule through this RFI. The RFI is considered a first step to gather advice on an eventual proposal that would set a new salary threshold higher than the current $24,000 level but lower than the $47,000 figure set under Barack Obama. During Secretary Acosta’s confirmation hearing, he said that he might be comfortable with a salary threshold in the low $30,000 range to account for inflation in recent years. However, the scope of the RFI includes questions and issues beyond the salary threshold. Some of the questions include: Should the 2004 salary test be updated based on inflation? If so, which measure of inflation? Would duties test changes be necessary if the increase was based on inflation? Would a duties-only test be preferable to the current model? Were there specific industries/positions impacted? Which ones?
According to the Department of Labor’s regulatory agenda published on July 20, the Department “will propose to rescind the current restrictions on tip pooling by employers that pay tipped employees the full minimum wage directly.” The agenda contemplates issuing a Notice of Proposed Rulemaking in August 2017. The regulation, issued in 2011 under the Obama administration, bars restaurants and other service industry employers from requiring front-of-house employees, such as servers, to share tips with back-of-house workers, such as cooks and dishwashers, including when the tipped employees are paid the full minimum wage. Many legal analysts have shared that the rescission of the rule should come as a big relief to the hospitality industry, particularly in the Ninth Circuit (CA, NV WA, AZ, OR, ID, MT, HI, AK) where a split 2016 appellate court decision found the tip pooling practices of many hospitality companies invalid if the pools included “back of the house” employees.
Paid Family Leave Program:
July, Ivanka Trump defended her paid family leave plan in her op-ed in the Wall Street Journal. She shares that “a recent poll by the National Partnership for Women and Families found that 82% of voters think it is important for Congress to consider a paid-leave program.” She argues that “providing a national guaranteed paid-leave program- with a reasonable time limit and benefit cap – isn’t an entitlement, it’s an investment in America’s working families.”
In a letter to President Trump, House Democrats criticize Ivanka Trump’s paid family leave program, which was included in President Trump’s 2018 budget. They argue it is “inadequate because it only provides six weeks of paid leave for limited circumstances and without a solid funding mechanism.” Senator Kristen Gillibrand (D-NY) is also criticizing the administration’s paid leave proposal and is championing the Family and Medical Insurance Leave (FAMILY) Act that she authored and reintroduced with Congresswoman Rosa DeLauro (D-CT).
Congressional Democrats released their economic agenda “A Better Deal” on July 24. The New York Times reports that in the Democrats’ plan, “there were some striking omissions in the plan. There was no talk about health insurance beyond prescription drug prices. There was no discussion of trade policy beyond a placeholder sentence promising more details later; Mr. Schumer ’s office said Democrats planned to roll out a detailed trade agenda in the fall. And party leaders did not embrace liberal concerns about the outsize economic role of the financial industry. The focus, instead, was on a fairly small set of battle-tested ideas.” Some of these battle tested ideas include raising the federal minimum wage to $15, providing new tax credits for job training, and changing the merger rules.
- Former US Deputy Secretary of Labor under President Obama Chris Lu wrote an article on “Why It’s the Perfect Time to Raise the Federal Minimum Wage.” He argues, “Democrats have proposed increasing the federal level to $15 an hour as part of their newly released economic platform; it will go nowhere in a Republican-controlled Congress. In the absence of action, 29 states and D.C. have adopted a higher state minimum wage than the federal floor…But receiving higher wages shouldn’t depend on the generosity or geography of one’s employer. The national wage floor should be raised to allow working Americans everywhere to make ends meet and, as importantly, to level the playing field for those companies that have stepped up to pay more to their employees.”
Health Care Reform:
On July 25, the Senate proceeded with 20 hours of debate on health care reform, which included numerous amendments and three major proposals– repeal and replace of the Affordable Care Act (ACA) through an updated version of the Better Care Reconciliation Act, repeal of the ACA with a two-year delay, and a “skinny repeal” that would repeal the individual and employer mandates and medical device tax. With the inability for Senate Republican leadership to secure 50 votes, the Senate rejected the repeal and replace as well as the repeal of the ACA with a two year delay. The House Freedom Caucus leadership has stated that there is “zero” chance the House will pass a “skinny repeal” of ACA; however, the “skinny repeal” could be built out if the Senate and House go to conference. Following 20 hours of debate, the Senate will vote on dozens of amendments introduced by both parties. Final votes in the Senate are expected this Friday, July 28.
BEVERAGE AND FOOD
The Food and Drug Administration extended its deadline for comments on restaurant menu-labeling rules by 30 days after the National Restaurant Association asked for extra time beyond the original July 3 deadline. Comments are now due by August 2, 2017. Menu labeling requirements were originally included in the Affordable Care Act, which was signed into law by President Barack Obama on March 23, 2010.
BPAA is pleased to provide the following update on federal policy. Please contact Sarah Helton at email@example.com if you have any questions.