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BPAA Federal Policy Update - August 24

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  • IRS Moves to Block New York, New Jersey, Connecticut Plans to Bypass SALT Cap: The Internal Revenue Service put the tri-state area on notice: The charitable workarounds New York, New Jersey and Connecticut approved following the new federal cap on deductions for state and local taxes aren’t acceptable to the federal government. Taxpayers who itemize will only be eligible for a federal deduction that’s a small fraction of their charitable donations for property tax payments, according to proposed regulations issued by the Treasury Department on Thursday. The charitable contribution strategies in high-tax states were created so taxpayers would be able to write off the full donation amount from their federal taxes. President Donald Trump’s tax overhaul created a $10,000 limit for state and local tax deductions, a pittance for Northeastern states that have high property taxes. Democratic governors in those states have battled the Republican law’s cap, saying they’re being unfairly targeted.
  • Treasury Readies Its Punch Back at Blue States’ Workarounds on Tax Deduction Cap: The Trump administration is finishing what’s expected to be a crackdown on state laws circumventing the new $10,000 federal cap on individual deductions for state and local taxes. The rules are likely to halt a strategy embraced in New York, New Jersey and Connecticut, high-tax states where high-income residents are getting pinched by the cap. Tax experts are watching the rules for how Treasury handles similar credits that predate last year’s GOP tax law, including programs in Alabama, Arizona, Georgia and South Carolina. Though New York, New Jersey and Connecticut have different approaches, all let taxpayers claim a partial credit against state or local taxes if they make donations to government-backed charities. Taxpayers, on their federal returns, would claim those donations as deductible charitable contributions—which don’t face the new cap. The biggest open question is what happens to similar tax breaks in other states.
    • For instance, Arizona, Alabama, Georgia and South Carolina let taxpayers get a 100% state tax credit for donations to charities supporting private schools. That is more generous than the New York, New Jersey and Connecticut proposals and those programs have important political backing from Republicans and the conservative school-choice movement. Before the new tax law, those programs generally didn’t provide a federal tax advantage, because taxpayers turned deductible state taxes into deductible charitable contributions. They directed how their state taxes were spent but often didn’t pay less in total tax. But now those programs are pitched by accountants as savvy tax-avoidance moves to turn nondeductible state taxes into deductible charitable contributions. A top-bracket taxpayer making a $10,000 contribution can save $10,000 on his state taxes plus $3,700 on his federal taxes. Read more at the Wall Street Journal.
  • The Benefits of Cutting the Corporate Income Tax Rate: The Tax Foundation recently released a report on what benefits we will likely see resulting from the Tax Cuts and Jobs Act cutting the corporate tax rate from 35 percent to 21 percent. Some of the key findings include:
    • Prior to the Tax Cuts and Jobs Act, the United States’ high statutory corporate tax rate stood out among rates worldwide. Among countries in the Organisation for Economic Co-operation and Development (OECD), the U.S. combined corporate income tax rate was the highest. Now, post-tax reform, the rate is close to average.
    • A corporate income tax rate closer to that of other nations will discourage profit shifting to lower-tax jurisdictions.
    • New investment will increase the size of the capital stock, and productivity, output, wages, and employment will grow. The Tax Foundation Taxes and Growth model estimates that the total effect of the new tax law will be a 1.7 percent larger economy, leading to 1.5 percent higher wages, a 4.8 percent larger capital stock, and 339,000 additional full-time equivalent jobs in the long run.
    • Economic evidence suggests that corporate income taxes are the most harmful type of tax and that workers bear a portion of the burden. Reducing the corporate income tax will benefit workers as new investments boost productivity and lead to wage growth.
    • If lawmakers raised the corporate income tax rate from 21 percent to 25 percent, we estimate the tax increase would shrink the long-run size of the economy by 0.87 percent, or $228 billion. This would reduce the capital stock by 2.11 percent, wages by 0.74 percent, and lead to 175,700 fewer full time equivalent jobs.
    • To read more about the report, click here.
  • Overhauling the Tax Overhaul: Here's What Democrats are Planning: Republicans thought the historic overhaul that slashed taxes would be one of their main campaign selling points ahead of November elections. Instead, Democrats are talking more about the law -- and how they want to undo it. In their bid to retake control of Congress, many Democratic candidates are pointing to the $1.5 trillion tax cut -- and what they say are its exclusive benefits for corporations and wealthy individuals -- as a roadblock to expanding benefits like Social Security and Medicare. Chipping away at some of the law’s costly provisions will help to fund those programs, they say. “Democrats are able to go on the offense rather than be on defense,” said Celinda Lake, a Democratic pollster. While Democrats are campaigning against the tax cut, Republicans have been quietly shelving it and focusing more on cultural and social issues such as immigration. Polls consistently show less than half of Americans approve of the tax cut. There isn’t a formal list of agreed-upon tax policy changes, but some specific targets are emerging from discussions taking place within Democratic circles, including raising the corporate rate above 21 percent and changing the treatment of capital gains and carried interest. Other proposals, like repealing the new cap for state and local tax deductions and modifying the tax break for business owners, are proving to be more divisive. Read more at Bloomberg Government with subscription.


  • Sen. Orrin Hatch Delivers Speech On Sports Betting In Congress, Will Introduce Bill Soon: Sen. Orrin Hatch delivered a speech Thursday on the Senate floor about sports betting, promising to offer legislation “in the coming weeks” that would tackle federal regulation of the rapidly expanding industry in the US. “Parts of the legislation I will be proposing are improvements in monitoring and enforcement that will benefit all stakeholders, sportsbooks, regulators, governing bodies and consumers,” Hatch said. The Senator promised to introduce legislation in May, soon after the US Supreme Court struck down PASPA. Since then, wagering has become legal in New JerseyMississippi and DelawarePennsylvania and West Virginia also have passed laws allowing for legal sports betting. One of the original architects of PASPA, Hatch said without this type of legislation “sports gambling would corrupt the integrity of the game.”
    • “Federal oversight of sports betting was an abject failure, succeeding only in enabling the growth of a massive illegal market,” Sara Slane, senior vice president of public affairs for the American Gaming Association, said in response to Hatch’s comments. “The Supreme Court decision removed this unconstitutional federal overreach, allowing states and sovereign tribal nations — who have proven to be effective regulators of all gaming — to decide what works best for their constituents,” Slane said. Hatch in particular took issue with the West Virginia sports betting law in his speech and insisted it did little to protect the integrity of sports. The state will take its first wagers on Sept. 1. “It’s amazing how quickly things get done when money is a motivator,” Hatch said. “This flurry of activity shows the need for federal minimum standards.”
    • Read full article here at Legal Sports Betting.


  • Bloomberg Government: Trump Overtime Pay Rule Slow Out of Gate: The Labor Department has shown scant signs of progress on revising an Obama-era rule to expand overtime pay eligibility, more than a year after embarking on its mission. The Trump DOL’s latest soft target for a proposed rule is January 2019, after initially aiming for a fall 2018 release. A federal judge shot down the 2016 rule, which would have qualified an additional 4 million workers for time-and-a-half pay. An appeal of that decision is on hold to allow time for Labor Secretary Alexander Acosta to develop what’s expected to be a more narrow update. Some overtime-rule watchers wonder if the DOL’s Wage and Hour Division will be able to successfully introduce a new regulation by early 2019, given ongoing leadership changes and at least a handful of competing wage-hour rulemakings in the queue. Perhaps the biggest obstacle is the threat of lawsuits from both worker and management attorneys, DOL personnel from prior administrations told Bloomberg Law. There are already rumblings that the administration is at risk of failing to complete a rule before a possible White House flip after the 2020 election.


  • JDSupra: More Guidance in Favor of Association Health Plans: In June, the Department of Labor issued a final rule that allowed the expansion of Association Health Plans (AHPs). The final rule revised the definition of who can qualify as an “employer” under ERISA and loosened the criteria for what constitutes a bona fide group or association of employers that can establish an employee welfare benefit plan. The final rule allows unrelated small employers and the self-employed to band together for the purpose of purchasing health coverage. Since the DOL issued the final rule, some groups have questioned whether the employer shared responsibility rules should apply to AHPs. That question has now been resolved in favor of AHPs in new IRS guidance. The IRS recently added new Question 18 to its Q/A on the Affordable Care Act found here. This new question and answer provides guidance on whether the employer shared responsibility rules apply if an employer that is not otherwise an ALE becomes subject to these rules by offering coverage through an Association Health Plan. Not surprisingly, the response is “no.” But, the reason the response is “no” is that Code Section 4980H and the final implementing regulations are very clear on this issue. An entity is an ALE solely if the number of its employees, combined with the employees of other members of its group which are treated as a single employer. For more information, please read here.

BPAA is pleased to provide the following biweekly update on federal policy. Please contact Tom Schreibel at if you have any questions or updates on activity at the federal level.

Visit BPAA’s website at to read previous federal and state policy updates.

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