Release of Tax Reform Framework - Week of September 25: House Ways and Means Committee Chairman Kevin Brady (R-TX) stated that more details on a tax reform framework will be released the week of September 25. Speaker Paul Ryan said the outline to be released would reflect agreement among the tax-writing Ways and Means and Finance committees, and the administration. Subsequently, the committees will take feedback and write the bills in the weeks ahead. “This is really the consensus of the tax writers themselves so that we’re working from the same page,” Ryan said during a press conference. “The tax writers are going to take it from there on the details.” Brady has described this document as providing more detail than the principles released by the “Big 6” right before August recess, but it will not include specific rates. However, Senate Finance Chairman Orrin Hatch (R-UT) stated that the framework to be released in a couple weeks will not dictate his Committee’s tax reform bill and his committee wouldn’t be "anyone’s rubber stamp." To note, both House and Senate Chairmen of the tax writing committees have made statements that the framework will be just that and that they will rely on their committee members to fill in the details. As Wall Street Journal highlights, “the principles, bullet points and outlines that have dominated the tax debate all year are just the beginning of a process shaped by individual members’ preferences, business lobbying, nonpartisan revenue estimating and hundreds of pages of details…Major structural decisions—including revenue targets, international tax rules, exact tax rates and which tax breaks would be eliminated—haven’t been made yet, said a person familiar with the conversations.”
Anticipated Timeline for Tax Reform: Republican leadership continues to press that they will get tax reform done by the end 2017 largely so they can deliver on providing a boost to the economy; it is also politically important for Republicans to pass tax reform this year heading into the 2018 election year and after the failure to repeal and replace ACA. We anticipate the following timeline for tax reform to pass by this December:
- September: Senate committee hearings
- Week of September 25: “Big 6” releases its tax framework; House Republican lawmakers hold a half-day retreat on tax reform legislation
- October: House and Senate tackle and pass a 2018 budget resolution (required if tax reform is to pass through reconciliation)
- October – November: After a budget resolution passes, Chairman Brady will release a “Chairman’s Mark” of the House legislative language for tax reform and mark up the bill through regular order before working with the House Budget Committee to bring tax reform up for a House floor vote. We anticipate the Senate will move forward with its own tax reform legislation.
- December: Tax legislation passes
White House Repositioning on Tax Reform: The Washington Post reports, “White House and GOP leaders are considering major changes to upcoming tax legislation, including scaling back plans for large-scale tax cuts for the wealthy, as Republicans seek to win support from Democrats in Congress, three people briefed on the discussions said. The White House is considering, among other things, keeping the top tax rate for individuals at 39.6 percent, decreasing the benefits top earners would see in the tax package by scrapping an earlier proposal that would have cut that rate to 35 percent. White House negotiators are also considering giving up on a push to repeal the estate tax, which is levied on individuals who die with more than $5.49 million in their estates. Republicans have long called for repealing the tax, but Democrats have raised objections, saying repeal would benefit only the wealthy and would add to the federal debt. The White House and GOP leaders remain committed to reducing the corporate tax rate and delivering tax cuts for the middle class, the three people said. Senate Finance Committee Chairman Orrin G. Hatch (R-Utah), a key negotiator in the talks, said Tuesday that the plan as of now is “basically not cutting taxes very much for the wealthy.” Trump has sought to reframe the tax discussions as a way to help businesses and the middle class rather than just the wealthiest Americans…”
Interest Deductibility: In an interview at a Politico Pro policy event last week, Chairman Brady stated the framework to be released the week of September 25 will provide more clarity on the treatment of corporate interest deductions. He said that the plan is to grandfather existing debt and provide exemptions to small businesses and agriculture. Brady also noted that restricting interest deductibility would be a significant change and that they are working so the changes help create certainty and help grow the economy.
State and Local Tax Deduction: Bloomberg BNA reports, “The National Governors Association plans to team up with other organizations on a new public-private coalition to press congressional Republicans not to eliminate the federal deduction for taxes paid to state and local governments. The White House and House Speaker Paul Ryan (R-Wis.) have proposed ending the deduction to free up money to pay for a broader tax-reform plan that would involve lower rates on corporate and individual incomes. NGA Executive Director and CEO Scott Pattison said the group will be called Americans Against Double Taxation. “It’s a coalition of state and local groups that’s officially launching Thursday,” Elena Waskey, NGA spokesperson, told Bloomberg BNA.
Proposed Taxes for Tobacco Products: Senate Democratic Whip Dick Durbin (D- IL) and Senators Sherrod Brown (D-OH), Jack Reed (D-RI), Richard Blumenthal (D-CT), Ed Markey (D-MA) and Al Franken (D-MN) introduced the Tobacco Tax Equity Act of 2017. This legislation is to help reduce tobacco use by closing loopholes in the tax code that advocates argue have long been exploited by the tobacco industry to avoid regulation and taxes for their products. This legislation would apply tax parity across all tobacco products, including e-cigarettes. The Tobacco Tax Equity Act of 2017 is endorsed by the Campaign for Tobacco-Free Kids, the March of Dimes, the American Lung Association, the American Public Health Association, the American Dental Association, the National Association of County and City Health Officials, Trust for America’s Health, the American Thoracic Society, and the International & American Associations for Dental Research.
REMINDER - DOL’s Call for Public Comment on the Overtime Rule: 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 until September 25 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 the Obama administration. 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. The scope of the RFI includes questions and issues beyond the salary threshold as well. 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?
Opioid in the Workplace:
Bloomberg reports, “At Philip Tulkoff’s food-processing plant in Baltimore, machines grind tough horseradish roots into puree. “If you put your arm in the wrong place,” the owner says, “and you’re not paying attention, it’s going to pull you in.” It’s not a good place to be intoxicated. Drug abuse in the workforce is a growing challenge for American business. While economists have paid more attention to the opioid epidemic’s role in keeping people out of work, about two-thirds of those who report misusing pain-relievers are on the payroll. In the factory or office, such employees can be a drag on productivity, one of the U.S. economy’s sore spots. In the worst case, they can endanger themselves and their colleagues…”
Child Care and Paid Leave:
Politico reports, “Senate Democrats are angling to take on Ivanka Trump and the Trump administration on one of her signature issues — making affordable child care a key plank of their "Better Deal" agenda. Sen. Patty Murray (D-Wash.) will lead the introduction of the "Child Care for Working Families Act" on Thursday, an aide familiar with the effort said. The move is intended to showcase broad Democratic buy-in on the bill compared to President Donald Trump and congressional Republicans' halting progress on the issue. The bill, which has been under development for months, will focus on early learning, child care costs and people who administer child care. Ivanka Trump has met with Senate and House Republicans about child care legislation and family leave, though the party has yet to settle on a concrete proposal. As a candidate, Trump proposed making child care tax deductible. Republicans could still move more quickly than Democrats, however. The GOP has the majority in both chambers and could include child care or family leave legislation in a sweeping tax proposal due later this year. And Republicans have offered some concrete ideas on child care issues: Sen. Deb Fischer (R-Neb.) has introduced legislation to provide mothers with some family leave.”
Tip Pooling Regulation:
JD Supra reports on DOL’s recent proposed rulemakings that would rescind prior rules or regulations, including DOL’s tip pooling regulation. “In late July 2017, the DOL announced its intention to reverse regulations enacted in 2011 under the Obama Administration, restricting the ability of employers who do not take a tip credit to implement tip pooling. This is good news for employers, particularly restaurants, who wish to use tip pooling as a way to increase the wages of their non-tipped staff. While the DOL takes steps to rescind the 2011 Rule, it issued a non-enforcement policy regarding the 2011 Regulation. The 2011 Rule says that tips are the property of the employee and may not be kept by the employer or distributed to other workers even if the employer does not take a tip credit and pays all employees, even tipped employees, at least full minimum wage. Since the 2011 Rule's publication, the Rule has been analyzed by several courts, resulting in a split among the Circuits regarding its validity, which is an issue that is now before the United States Supreme Court. While the DOL has announced that it will take action to rescind the 2011 Rule, this will take time: the DOL will have to issue a Notice of Proposed Rulemaking and solicit comments from the public. Such a notice was expected to be published in August, but has not yet been issued. Employers should continue to act with caution in the handling of employee tips until the DOL has acted; remember that individuals can still seek to enforce the regulations through private lawsuits and some state laws will still impose similar prohibitions on tip pools.” An additional article published by JD Supra on DOL’s tip pooling regulation can be read here.
Federal Health Care Reform Proposal Replaces ACA with Block Grants:
Congressional Republicans have a week to pass health care reform legislation before their vehicle expires that would allow them to pass legislation by 51 votes. The Graham-Cassidy-Heller-Johnson (GCHJ) bill has been revived, but the required Senate votes are still in question. In general, the GCHJ proposal repeals the structure and architecture of Obamacare and replaces it with a block grant given annually to states to help individuals pay for health care. This proposal removes the decisions from Washington and gives states significant latitude over how the dollars are used to best take care of the unique health care needs of the patients in each state. The grant dollars would replace the federal money currently being spent on Medicaid Expansion, Obamacare tax credits, cost-sharing reduction subsidies and the basic health plan dollars. The proposal gives states the resources and regulatory flexibility to innovate and create healthcare systems that lower premiums and expand coverage. The proposal:
- Repeals Obamacare Individual and Employer Mandates.
- Repeals the Obamacare Medical Device Tax.
- Strengthens the ability for states to waive Obamacare regulations.
- Returns power to the states and patients by equalizing the treatment between Medicaid Expansion and Non-expansion States through an equitable block grant distribution.
- Protects patients with pre-existing medical conditions.
GCHJ also eliminates the inequity of three states receiving 37 percent of Obamacare funds and brings all states to funding parity by 2026. As an example, Pennsylvania has nearly double the population of Massachusetts, but receives 58 percent less Obamacare money than Massachusetts.
Senate Majority Leader Mitch McConnell (R-Ky.) has said will bill will be brought to the floor for a Senate vote next week.
New York Times reports, “Now, in an 11th-hour effort to repeal the Affordable Care Act, the party has come up with a way to repackage the funding for the law it loathes into a trillion-dollar pot of state grants. The plan is at the core of the bill that Senate Republican leaders have vowed to bring to a vote next week. It was initially seen as a long-shot effort by Senators Lindsey Graham and Bill Cassidy. But for all its ad hoc, last-minute feel, it has evolved into the most far-reaching repeal proposal of all. It dismantles the Medicaid expansion and the system of subsidies to help people afford insurance. It gives the states the right to waive many of the consumer protections under President Obama’s landmark health law. And it removes the guaranteed safety net that has insured the country’s poorest citizens for more than half a century… The White House and Senate leaders are now in an intensive final push to repeal the Affordable Care Act by September 30. After that, under Senate rules, they will need 60 votes, which they acknowledge is an impossibility. Senator Graham said in a statement on Thursday that the legislation was gaining “momentum and support” because it would send “money and power back to the states, and closer to patients, to deliver quality health care.” The legislation would turn over more than $1 trillion that would have been spent on the law known as Obamacare over the next seven years — everything from the funds for the expansion of Medicaid to the subsidies to help people buy private insurance — to states as “block grants” with very few strings attached. They would then use the money to set up their own health care programs. Congress would have to reauthorize the money after 2026 or it would go away…”