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BPAA Biweekly Federal Policy Updates - January 11
Michael Best Stratagies
1/11/2019 9:36:00 AM
U.S. Senate adjourned today until Jan. 14, meaning that the partial government shutdown now in its 21st day will set a record as the longest lapse in modern history, as Congressional Democrats and President Trump remain at odds over demand for border wall funding. This shutdown is poised to break that record at midnight; CRS says longest known shutdown for all lapses since 1977 fiscal year was 21 days in 1995/96.
House Democrats may file a lawsuit if the president declares a national emergency to build a border wall, Politico reported Thursday. But there's also a legislative avenue that hasn't occasioned much discussion. A provision in the National Emergencies Act would allow the House to pass a joint resolution to terminate the emergency. The Senate then would then vote the measure up or down within 18 days — not subject to a filibuster. Senate Democrats would have to pick off only four Republicans to reach 51 votes, a plausible scenario.
The catch is that Trump could then veto the joint resolution, sending it back to Congress, which probably would lack the two-thirds majority necessary to override. Still, it's worth trying, Elizabeth Goitein, co-director of the Brennan Center for Justice, told Morning Shift. Congress has never voted to terminate an emergency. The Senate unanimously passed a bill that the president is expected to sign that would ensure back pay to workers displaced by the government shutdown.
On IRS and the shutdown:
The White House relieved some political pressure this week by announcing that the IRS would issue refunds even while a large chunk of the government is closed. The follow up from Democrats: Why aren't IRS resources opened back up to ensure that taxpayers get their correct refund? So still no word on a new contingency plan from the Treasury Department, with Monday marking two weeks until the start of the new filing season. But Democrats are increasingly pressing the administration on how they're shepherding the IRS through the expiration in funding for the agency.
Case in point and surely a political one:
Seventeen Democratic senators, led by
of Oregon, the ranking member on the Finance Committee, and
Treasury Secretary Steven Mnuchin about the administration's decision to close taxpayer advocate offices across the country. The senators' argument: If the White House is going to decide to reverse precedent and issue refunds during this shutdown, as it announced earlier this week, then it should also allow the advocate to help taxpayers make sure they're filing correctly. (The senators also noted that IRS call centers are closed under the current contingency plan.)
New Senate Finance Members Pick Top Tax Priorities:
The Senate Finance Committee’s three new Republican members are charting their course on the tax-writing panel, aiming to capitalize on their continued majority in the chamber. Sen. James Lankford (R-Okla.) left his post as chair of the Senate Appropriations Committee’s Financial Services and General Government Subcommittee for his new spot on the tax-writing committee. He is joined by Sens. Steve Daines (R-Mont.) and Todd Young (R-Ind.). Democrats added Sens. Catherine Cortez Masto (Nev.) and Maggie Hassan (N.H.) to replace Sens. Claire McCaskill (Mo.) and Bill Nelson (Fla.), who lost their midterm elections.
Daines: Tax Cut Permanence
- “I would love to make the cuts permanent,” Daines told Bloomberg Tax on Jan. 8. “That would be a great starting point.” Sen. Chuck Grassley (R-Iowa), the committee’s new chairman, has also said previously that he hopes to make the law’s changes permanent.
Young: Medical Device Tax
- Young told Bloomberg Tax on Jan. 9 that he wants “to be helpful in continuing to seek a repeal of the medical device tax,” the Affordable Care Act’s 2.3 percent excise tax on medical devices, such as MRI machines and surgical equipment.
Lankford: GREAT Act, Right-To-Know -
Lankford said he doesn’t plan to “drop a bunch of bills” right off the bat. But in his sights are two failed measures from the previous Congress. Both would impact the Internal Revenue Service and the White House office that reviews the agency’s rules. A bill Lankford introduced, the Taxpayers Right-To-Know Act (S. 317), would require the White House Office of Management and Budget to catalog costs and performance of federal programs that take up more than $1 million of the annual budget, with additional reporting requirements for programs with price tags of more than $10 million.
The Hill - Dems look to chip away at Trump tax reform law:
Democrats in the coming year will be laying the groundwork to eventually roll back parts of President Trump’s tax law. No Democratic lawmakers voted for the measure Trump signed in December 2017, criticizing the bill for providing large benefits to wealthy individuals and corporations and for adding to the federal deficit. With Republicans controlling the Senate and the White House, Democrats are unlikely to be able to undo any significant portion of the law in the next two years. Instead, their goal is to lay a foundation for what they can do in the future if they retake the Senate or White House, hammering away at Republicans over the law’s least popular aspects ahead of the 2020 vote. House Democrats’ approach on the tax law is expected to be more cautious than the actions Republicans took on ObamaCare after they took back the House in 2011. Republicans repeatedly held votes to repeal ObamaCare at the time, but Democrats are unlikely to hold a vote to do away with the entire tax law. “I think Democrats are going to be pretty careful about it,” said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center. Democrats have been critical of many parts of the law, including the cut to the top individual tax rate, the size of the cut to the corporate tax rate and international tax provisions. But some parts of the law have support among Democrats, including tax cuts for the middle class and the Opportunity Zone program designed to boost investment in economically distressed areas. Hearings in the House Ways and Means Committee are expected to be a key part of Democrats’ efforts this year to re-examine the law and shine a spotlight on its most contentious features. Democrats complained that Republicans didn’t hold hearings before passing the law and have vowed to remedy that situation. The day after the midterm elections, new Ways and Means Committee Chairman Richard Neal (D-Mass.) said it would be hard to get a revamp of the tax law enacted this year, but that he wants to hold hearings because the law “has sowed a lot of confusion.”
Read more at The Hill.
Politico Tax News -
It's now been five months since Treasury and the IRS released the initial guidance on the tax law's 20 percent deduction for pass-through income — and, well, let's just say that
didn't exactly clear everything up
. The Associated Press notes that even business owners who have attended seminars on the 199A provision don't believe they fully have a handle on the incentive, and practitioners are suggesting that the deduction will force an increased number of taxpayers to take an extension this year.
Bloomberg Government News
For a Real-World Example of Ocasio-Cortez’s Tax Proposal, Look to Sweden:
U.S. Congresswoman and Bronx-native Alexandria Ocasio-Cortez would find herself at home in Stockholm. The newly minted lawmaker is proposing to lift the top marginal tax rate to 70 percent on incomes starting at $10 million. The idea has drawn both praise and jeers from across the political spectrum. For a real world example, critics and fans alike should look to Sweden. The Nordic country has a marginal tax wedge -- the difference between the cost to the employer and what a worker takes home -- of 69.7 percent on salaries above $79,000. That’s almost 30 percentage points higher than in the U.S., and it kicks in a lot earlier than Ocasio-Cortez is proposing. Critics of high taxes claim the policy stifles economic growth by reducing the incentive for people to work. But Sweden’s employment rate is 77.5 percent, beating the U.S.’s 71 percent. The Nordic country has also surpassed the U.S. in terms of economic growth this decade, expanding 2.7 percent a year, on average, compared with 2.2 percent for the U.S. Ocasio-Cortez, 29, is a former campaign worker for Senator Bernie Sanders who has held up the virtues of the Nordic economic model. She wants to raise taxes to pay for programs to fight inequality and climate change and provide health care for all, benefits already enjoyed by Swedes and many Europeans. As a result, income equality is notably higher in the region than in the U.S. Inequality, and its impact on growth, has become one of the key issues explored by economists in the post-financial crisis world. A recent paper by economists Peter Diamond and Emmanuel Saez calculated that the optimal top tax rate would be about 73 percent. High taxes have gained acceptance in Sweden and across the Nordic region, where citizens enjoy state-funded access to services such as child care and education. Losing out on those benefits, even if take-home pay grows, is considered too great a risk.
Read more here at Bloomberg.
- New Overtime Eligibility Rule Heads to White House for Review:
The Labor Department’s long-awaited proposal to expand overtime eligibility is heading to the White House’s Office of Information and Regulatory Affairs, sources familiar with the rule told Bloomberg Law. This is the first step of regulatory review before a proposal can be released to the public for comments. A new overtime eligibility policy has been the biggest issue at the DOL since Secretary Alexander Acosta took office in 2017. A rule was scheduled for release in March in the latest regulatory agenda, but the government shutdown could affect the actual publication of the proposal.
About a third of full-time employees at the Office of Management and Budget are able to work during the shutdown. It’s unclear how many of those work in OIRA, according to Bloomberg Government. The rulemaking process is continuing for funded agencies, which includes the DOL, and OIRA is offering support to those agencies.
The DOL previously abandoned an Obama-era proposal that had been blocked by a federal court. It would have made some 4 million workers newly eligible for time-and-a-half pay. The Obama regulation would have roughly doubled—to $47,000 from $24,000—the annual salary below which workers automatically are eligible to earn overtime pay. That figure would then have been raised every three years to keep up with wage growth. That plan was panned by many Republicans and the business community as potentially resulting in job losses.
For more than a year, the DOL was reluctant to offer an indication on what’s been widely expected to be a more moderate approach than the Obama policy. The business community grew increasingly frustrated at the slow pace of developing a new overtime rule. It’s currently unclear what the new salary threshold for overtime will look like, but there’s been speculation it will be somewhere in the mid-$30,000 range.
- Small Businesses Set For Perfect Storm In 2019:
Small businesses are in for a perfect storm in 2019, which could push scores of them off the cliff. The first part of this storm is payroll, and it’s a tsunami. Many cities and states began hiking up minimum wage a few years ago, and this push for a higher minimum wage continues in 2019. Some states will increase the minimum wage to match the cost of living, such as Ohio and New Jersey. Other states will raise it in response to legislation created to establish a “living wage.” New York passed their own legislation to increase minimum wage to $15 an hour in New York City by 2018, for example. Washington D.C has also introduced legislation that aims to raise the minimum wage to $15, which will come into effect by July 2020. “The problem isn’t just the minimum wage hikes,” says Themis Rizos, a franchisee of two Mikel Coffee Community Stores and Kaptain Jimmy’s Restaurant in South Massachusetts. “It’s the difficulty to find workers. And the hike in the prices of all the materials we buy for our businesses.” That’s why he’s pessimistic for the future. “For small businesses, things begin to look like the pre-crisis Greek economy,” he adds. “With all these costs rising, it’s hard to earn a good living. It’s better to become a government employee.” And he isn't alone. Small business optimism has plunged in the last three months.
Read more here at Forbes.
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Federal Policy Update - July 28
BPAA Federal Policy Update - July 30
BPAA State Policy Update - April 9
BPAA State Policy Update - March 26
MBS Tax Reform Analysis of Passed House Version and Senate Plan
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