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BPAA Federal Policy Update - August 10

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POLITICAL UPDATE

  • Ohio Special Election: Trump blows up GOP's formula for winning House races: The vote breakdown in Ohio’s special election this week amplified a trend that's been building in the suburbs during the Trump era — and illustrated how the traditional Republican path to victory has been upended in key congressional districts. Deep suburban antipathy toward President Donald Trump has turned the old GOP electoral coalition inside-out in many areas in 2017 and 2018 — like Ohio’s 12th District, which for two decades sent former Rep. Pat Tiberi to Congress on the back of his popularity in the Columbus suburbs. His anointed successor, Republican Troy Balderson, took a different path to a small special-election lead, instead building on Trump’s rural strength while Democrat Danny O'Connor cut deeply into Tiberi’s old base. Read more at Politico.
  • Michigan: James wins Republican nod to face U.S. Sen. Debbie Stabenow: Detroit-area businessman and Iraq War veteran John James won the Republican nomination Tuesday to run against Democratic Sen. Debbie Stabenow this fall. James, a political newcomer endorsed by President Donald Trump, defeated Sandy Pensler in Tuesday's primary. With 99 percent of the state's precincts reporting, James had 511,203 votes, or 55 percent, to Pensler's 423,210, or 45 percent.. In a statement, Pensler conceded and said he would support James in the general election. James' win was notable because in the days before the election, President Donald Trump not only endorsed James, who is an Army veteran who attended West Point and flew Apache helicopters in Iraq, but did a recorded robocall for voters on James' behalf (he also did that on behalf of Republican gubernatorial candidate and state Attorney General Bill Schuette, who also won). In the call, Trump said, “John James is truly the real deal — he will be a star" in the Senate.
  • Kansas: Kris Kobach to recuse himself from Kansas governor's race recount: Kris Kobach, the Republican candidate endorsed by U.S. President Donald Trump in the Kansas governor’s race, said he plans to recuse himself from the vote recount after a correction in the total cut his lead to just 91 votes. Kobach told CNN late on Thursday that as Kansas’s current secretary of state, he has no role in the counting or recounting of provisional ballots, and that all the work is done at the county level. “So there’s really no point to it, but I said if my opponent wishes me to I’d be happy to. But it’s purely symbolic,” Kobach said. “I’ll be happy to recuse myself.” In a letter to Kobach on Thursday, Kansas Governor Jeff Colyer wrote that some clerks were given wrong information about which ballots to count and requested that Kobach recuse himself from “rendering further advice in these matters.” Read more at Reuters.

Minnesota: In a Challenging Year for House Republicans, Party Sees Hope in Minnesota: ELY, Minn.—As Republicans fight to maintain their House majority in the midterm elections, Minnesota provides a rare spot for them to flip a couple of Democratic seats to offset losses that may come elsewhere. Voters in two sprawling, rural Minnesota congressional districts backed President Trump by about 15 percentage points each. The GOP’s effort is aided by two high-profile Democratic departures: Rep. Rick Nolan of the state’s eighth district, in which Ely sits, is retiring, and Rep. Tim Walz of the first district is leaving Congress to run for governor. Of Mr. Nolan’s district, Corry Bliss, executive director of the Congressional Leadership Fund, a super PAC closely aligned with House Speaker Paul Ryan, said: “I would argue that’s our best pickup opportunity in the country.” Democrats need a net gain of 23 seats to retake control of the House, and more than 60 GOP-held seats have been deemed competitive by the nonpartisan Cook Political Report. Read more at the Wall Street Journal.

TAX

  • Bloomberg Tax reports: IRS Proposes Regulations on Full Expensing for Businesses: The Treasury Dept. and IRS announce proposed regulations on increasing first year depreciation deduction for qualified property, allowing for businesses to immediately write off costs of equipment and other capital purchases, Bloomberg Tax’s Lydia O’Neal reports.
  • The 2017 Tax Cuts and Jobs Act increased the first year depreciation deduction from 50 percent to 100 percent for qualified property acquired and placed in service after Sept. 27, 2017
  • Effective for items bought and placed in service after Sept. 27 and before Jan. 1, 2023
  • Deduction reduced by 20 percentage points each year after 2023 for following four years
  • Rule bans additional first-year depreciation deduction when companies acquire both stock and property in related-party transactions or partnerships contribute assets with no value for tax purposes
  • Regulations don’t address mistake in the law that means retailers and restaurants will have to depreciate cost of their renovations over 39 years, instead of one
  • Retailer, restaurant fix requires Congressional action
  • Read proposal here
  • Bloomberg Tax reports: IRS Targets Loopholes for $415 Billion Business Owner Tax Break:
  • Treasury officials say ‘crack and pack’ technique is abusive
  • Law blocks high-earning service providers from 20% deduction
  • The Internal Revenue Service provided some long-awaited answers for business owners hoping to dodge the limits on a juicy new tax break. The IRS’s proposed regulations make it clear that the agency considers a planning technique known as “crack and pack” to be abusive. The move had been eyed by professional service providers, such as law and accounting firms, to get around income limits set for pass-through businesses, whose income is reported on their owners’ personal returns. Under that strategy, business owners split their firms into different entities to lower their tax bills. For example, a law firm would put all the secretarial staff in one entity and the lawyers in another to get the full deduction for the income earned in the administrative entity. “You can see in the regulations that they were very concerned about anti-abuse provisions, people gaming the system,” said Andrew Howlett, counsel at the law firm Miller & Chevalier in Washington. The pass-through break under President Donald Trump’s tax law spurred tax professionals to circulate proposals and riff on each other’s ideas, as the industry looked to coalesce around strategies that would save their clients money. Trump and Republican leaders have said middle-class Americans and small businesses would be the biggest beneficiaries under the $1.5 trillion tax cut. But the strategies under consideration to take advantage of the 20 percent pass-through deduction showed how top earners could potentially reap the biggest gains.
  • All taxpayers who earn less than $157,500, or $315,000 for a married couple, can now deduct 20 percent of the income they receive via pass-through businesses from their overall taxable income. If taxpayers earn above those amounts and aren’t service professionals, they must meet tests to take the full deduction -- the size of their deduction depends on how much they pay in employee wages or how much they’ve invested in capital like real estate. For “service professionals,” the break fully phases out if they earn more than $207,500 if they’re single, or $415,000 if they’re married.
  • Read more at Bloomberg Tax with subscription.
  • The IRS said it would hold an Oct. 16 public hearing on the Section 199A rules (REG-107892-18), which have been submitted for publication in the Federal Register, the IRS said.
  • Bloomberg reports: Senate Sets Up Funding Talks: The Senate passed a package of four appropriations bills including fiscal 2019 funding for the IRS that comes up about $350 million short of the House’s proposal, setting up negotiations when Congress returns from recess. The Senate package, approved in a 92-6 vote yesterday, would give the IRS nearly $11.3 billion in baseline funding for 2019, while the House voted July 19 to boost the agency’s budget to $11.6 billion. Both bills would provide the agency with $77 million to implement the 2017 tax act, adding to the $320 million the agency received in fiscal 2018. Sen. James Lankford (R-Okla.), who chairs the Financial Services and General Government Subcommittee, told Bloomberg Tax that the House and Senate will work out the differences in their two bills in conference. That work will begin immediately at the staff level and then among members in both chambers, he said. “Our goal is to get final passage and get it on the president’s desk.”
  • Tax Foundation: The Tax Cuts and Jobs Act Simplified the Tax Filing Process for Millions of Households: Key Findings
  • The Tax Cuts and Jobs Act of 2017 made several significant changes to the individual income tax, including reforms to itemized deductions and the alternative minimum tax, an expanded standard deduction and child tax credit, and lower marginal tax rates across brackets.
  • These changes simplify the individual income tax for millions of households, as 28.5 million filers would be better off taking the newly expanded standard deduction, instead of itemizing various deductions, reducing compliance costs.
  • The Internal Revenue Service estimates the average time to complete an individual tax return will decrease by 4 to 7 percent. Converting this to dollar terms, we estimate compliance savings could range from $3.1 billion to $5.4 billion.
  • Under the new tax law, new limits apply to some itemized deductions, including deductions for state and local taxes paid and mortgage interest, which broadens the tax base and reduces distortions in the tax code.
  • The individual income tax changes are scheduled to expire after December 31, 2025. If permanent, the income tax provisions would reduce federal revenue by $165 billion per year on a conventional basis, but when incorporating economic growth and feedback, on a dynamic basis, they would reduce federal revenue by $115 billion a year.

Read full report.

MUSIC LICENSING

  • InsideRadio reports: Radio Relieved By Compromise To Save Music Copyright Bill: The intra-music industry coalition that’s helped propel sweeping copyright reform legislation forward in Washington has shown cracks in recent weeks, nearly cratering the bill over who’d administer some digital rights. The proposed Music Modernization Act (S. 2823) doesn’t include a performance royalty for AM/FM airplay but it’s grown more important for the radio industry since it now includes an amendment directed at the Department of Justice’s review of the ASCAP-BMI consent decrees. The bill was unanimously approved by the Senate Judiciary Committee in June and has become a catch-all for a variety of music copyright issues that have been percolating in Washington for the past several years. It passed the House in April by a 415-0 vote, and for much the year has been building momentum as songwriters, record labels, and other music industry players threw their support behind the legislation.
  • But in recent weeks, that coalition frayed after SESAC began pushing for changes to the bill. The performance rights organization wasn’t happy with a provision that would create a new licensing collective to oversee how some digital rights are administered on behalf of songwriters and music publishers. The split shouldn’t have been a surprise to those who drafted the bill however, since it would potentially cut out the SESAC-owned Harry Fox Agency that currently administers those licenses and pays out a reported $150 million in royalties each year.
  • Rather than build a new licensing bureaucracy from the ground up, SESAC proposed Congress instead work with existing licensing firms such as its Harry Fox Agency. The idea caught the attention of Senators Ted Cruz (R-TX) and John Cornyn (R-TX), who’ve embraced SESAC’s argument that a government-run monopoly is a bad idea.

Read full article here at InsideRadio.

LABOR

  • Employers Believe Employees Lack Soft Skills Necessary for Success: A new report from Bloomberg Next and Workday finds that the majority of new employees lack the necessary skills to perform at a high level in the workplace. Sixty-nine percent of corporate respondents believe new hires are equipped with the appropriate hard skills, but only 60% believe the new hires are equipped with the soft skills necessary to perform well.

Small companies say Trump admin crackdown on hiring foreign workers hurts business: Small businesses across the U.S. have faced a shortage of temporary workers in part because of the Trump administration's limits on hiring foreign workers through a visa program, NBC News reported Monday. The news outlet reported that scores of small businesses are dealing with increased demand for workers, but have had difficulty finding them because of caps placed on the number of H-2B visas available to seasonal foreign workers. "If I can fill my workforce with local guys, I would do that. I want to hire Americans first because it's easier for me, but most of the American workers don't want temporary jobs," Matt Davis, who owns a Texas landscaping businesses, told NBC. The Trump administration changed the H-2B visa program to a lottery system for the first time, making it harder on businesses who rely on foreign workers, NBC reported. In addition, Congress capped the number of visas available through the program at 66,000. Those visas are split between the summer and winter seasons, placing a limit on how many workers are available to businesses at a given time. Read more at The Hill.

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