This week (September 26-30)

Congress in: The House and Senate are in session. It is the final week for congressional leaders to reach agreement on a continuing resolution (CR) before government funding runs out after September 30. Senate Majority Leader Mitch McConnell (R-KY) has proposed a CR to extend funding into December, when Congress is expected to reconvene following the elections for a lame-duck session, and to provide funds to combat the Zika virus, which had been a major sticking point. Democrats have thus far rejected the package over the omission of funding to address the water issue in Flint, MI, and other issues.

Last week (September 19-23)

Ryan committed to Blueprint vote in 2017: House Speaker Paul Ryan (R-WI) has committed to a vote in 2017 on legislation based on the House Republican tax reform Blueprint, Ways and Means Chairman Kevin Brady (R-TX) said September 21, Bloomberg BNA reported. "He's made a commitment, we've made a commitment to bring this to a vote in 2017," Brady told a National Association of Federal Credit Unions conference. The Blueprint, released June 24 as the sixth and final plank of Ryan's "Better Way" campaign to provide policy alternatives, proposed a 20% statutory corporate tax rate, a 25% business tax rate for pass-through entities, a move toward a cash-flow consumption tax through immediate expensing for all businesses and elimination of deductibility of net interest expense, a territorial international tax system, a border tax adjustment mechanism, and elimination of most business preferences except the R&D tax credit and LIFO. Ways and Means Republican tax staff is in the process of receiving feedback and building out the tax reform Blueprint by drafting detailed statutory language. The publicly expressed goal is to have that effort completed by the end of 2016.

Ryan speech in New York: Following a speech to the Economic Club of New York September 19, Speaker Ryan reportedly said of the chance for action on Better Way proposals, "I think there's some space on welfare reform and poverty. I would love to think that that's the case with tax reform, but the experience I had when I was Ways and Means chair with [Democrats] was not a pleasant one, and I don't know if that's going to change." Recalling highway bill negotiations last year, Ryan said Republicans proposed in September 2015 establishing a territorial system of taxing foreign earnings and "dumping tens of billions into the highway trust fund" as part of the transition, but it was rejected. With Democrats increasingly calling for a worldwide system and repeal of deferral, "there is a big gulf between our two views," he said. During the speech, Ryan continued to highlight that the United States has the highest corporate tax rate in the industrialized world, and to compare that rate with Canada taxing its businesses at 15%.

Clinton on estate tax, like-kind exchanges: Democratic presidential nominee Hillary Clinton September 22 updated her campaign materials to reflect an increase in estate taxes over what she previously proposed, including up to a 65% rate on estates worth $500 million ($1 billion for couples), and her intention to limit the tax benefits of like-kind exchanges that she said are used to prevent capital gains taxation on certain sales. Clinton's previous position on the estate tax — a return to the 2009 regime of a $3.5 million exemption and 45% rate — was revised to add the higher rates on larger estates that Senator Bernie Sanders (I-VT) proposed during his presidential campaign. A previously released Clinton fact sheet on "Investing in America by Restoring Fairness to Our Tax Code" — which repeatedly references a desire to dismantle the "private tax system" for the wealthy — retains the 45% proposal but expresses her desire to "go further than that for estates valued in the tens and hundreds of millions, with higher rates as values rise, up to a 65% rate on estates valued at over $1 billion per couple." The Committee for a Responsible Federal Budget, which first detailed the new proposals, said Clinton adopted the Sanders proposal of a 50% rate on estates between $10 million-$50 million, 55% rate for estates in excess of $50 million, then the top rate of 65%. The updated document also reflects Clinton's intention to eliminate the "step up in basis" that allows accumulated capital gains to go untaxed when assets are passed on to heirs, and to treat bequests as a realization event. The document said her proposal will "include exemptions to ensure this change only affects the high-income families who by far benefit the most from this loophole, and protects middle-class families;" and "contain careful protections and flexibility for small and closely-held businesses, farms and homes, and personal property and family heirlooms." The document also reflects Clinton's intention to "rationalize the Affordable Care Act's net investment income tax to prevent gaming by high-income taxpayers."

Lew on 385, reform: Asked during a September 22 hearing at the House Financial Services Committee about finalizing the Section 385 debt-equity proposed regulations, Treasury Secretary Jack Lew said, "it all comes down to six issues which we've been working hard at addressing and I'm pretty comfortable that we're going to be able to have a final rule that resolves many of the concerns that have been raised but that won't damage the principle purpose of the rule." On prospects for tax reform, Lew continued to reject the argument that small businesses organized as pass-through entities would be disadvantaged if left out of a corporate rate cut, saying those businesses could benefit from expensing and simplification. "Real small businesses would benefit from where the emerging consensus for business tax reform is … the businesses that wouldn't benefit are not small businesses," he said.

State aid: European Competition Commissioner Margrethe Vestager visited Washington in the wake of the Commission's August 30 decision on State aid issues associated with tax arrangements, and defended the action in various forums. Ways and Means Committee Chairman Brady released a statement after meeting with Commissioner Vestager September 20, saying he expressed strong concern about the Commission's actions, especially in applying the decisions retroactively. Brady acknowledged there are "limited legislative options" in response to the Commission's actions in State aid investigations, but said — as others like Secretary Lew and Senate Elizabeth Warren (D-MA) have recently — that it could motivate tax reform. "The Commission's attacks against American companies make House Republicans even more determined to take every possible action to reform our broken tax code," Brady said. "We are focused on delivering pro-growth tax reform in 2017 that ensures a level playing field for American companies competing in global markets and encourages companies around the world to invest in America and our workers."

Miscellaneous tax bills, extenders talk: The House approved several tax bills this week, including three that were approved by the Ways and Means Committee September 14. Chairman Brady said September 21 that the Committee has been acting on tax bills in the event the proposals could advance during the lame-duck session of Congress expected after the elections, Tax Notes reported. "I thank my colleagues for proposing common-sense solutions and I look forward to making more progress on behalf of the people we serve in the months ahead," Brady said in a September 22 statement. The Chairman is opposed to addressing any tax extender provisions this year, including extensions of tax credits for energy technologies said to be inadvertently left out of the 2015 tax legislation that members of both the House Ways and Means Committee and Senate Finance Committee called for action on during markups this week. Other potential tax items that could move after the elections include a technical corrections package. Finance Committee Chairman Orrin Hatch (R-UT) said this week regarding a likely lame-duck session, "We're definitely going to have some tax legislation, but hopefully it will be legislation almost everybody will agree with," Tax Notes reported.

House tax votes: On September 21, the House approved by a 400-20 vote The Emergency Citrus Disease Response Act (H.R. 3957), sponsored by Rep. Vern Buchanan (R-FL), to temporarily allow expensing of certain costs of replanting citrus plants lost by reason of casualty. On September 22, the House voted 415-1 to approve The United States Appreciation for Olympians and Paralympians Act (H.R. 5946), sponsored by Rep. Bob Dold (R-IL), to exempt from tax certain cash prizes and medals won in the Olympic and Paralympic Games. Also approved by the House September 22, by a 287 to 124, was the Empowering Employees through Stock Ownership Act (H.R. 5719) to allow employees of non-public firms to defer taxes on their stock options. A release by Ways and Means Member Rep. Erik Paulsen (R-MN), who sponsored the bill, said employees at many startup companies are offered stock options that, if exercised, require immediate payment of taxes, "often times before they may have the available cash to do so." The bill would allow employees to defer the taxes on their stock options until they are likely to have the funds necessary to make their tax payment, the release stated. A Joint Committee on Taxation description (JCX-74-16) put the cost of the bill at roughly $1 billion over 10 years. Democratic members objected to approving the bill without a revenue offset and a September 20 Statement of Administration Policy (SAP) expressed opposition to the bill because of the cost. "Failing to pay for new tax cuts is fiscally irresponsible," the SAP said. A nearly identical proposal, sponsored by Senators Mark Warner (D-VA) and Dean Heller (R-NV), was approved by the Senate Finance Committee September 21 as part of a collection of bipartisan, largely noncontroversial proposals to expand retirement savings and improve pension and retirement plans.

Also September 21, the Ways and Means Committee approved four additional bills:

— H.R. 5879, sponsored by Rep. Tom Rice (R-SC), to address the effective operation of the Nuclear Production Tax Credit;

— The Helping Ensure Accountability, Leadership, and Transparency in Tribal Healthcare (HEALTTH) Act (H.R. 5406), sponsored by Rep. Kristi Noem (R-SD), to address the tax treatment of the Indian Health Service student loan repayment program;

— The Stop Taxing Death and Disability Act (H.R. 5204), sponsored by Rep. Peter Roskam (R-IL), to address the tax treatment of student loans that are forgiven due to death or disability; and

— The Water and Agriculture Tax Reform Act of 2015 (H.R. 4220), sponsored by Rep. Ken Buck (R-CO), to address the tax qualification of mutual irrigation and ditch companies organized to help promote access to water.

Mobile Workforce: The House September 21 approved by voice vote the Mobile Workforce State Income Tax Simplification Act (H.R. 2315), to prohibit wages earned by an employee who performs employment duties in more than one state from being subject to income tax in any state other than: (1) the state of the employee's residence, and (2) the state within which the employee is present and performing employment duties for more than 30 days during the calendar year. Senate Finance Committee member John Thune (R-SD) sponsors a Senate version of the bill (S. 386), though the outlook for the proposal in the Senate is unclear.

Finance miners, pension markup: On September 21, the Senate Finance Committee approved the Miners Protection Act of 2016, to provide the transfer of funds to pay health benefits to retired miners and prevent insolvency of the United Mine Workers of America pension fund; and the Retirement Enhancement and Savings Act of 2016, a collection of several provisions including those to expand access to multiple employer plans (MEPs) and to improve the portability of lifetime income options. The miners bill, which was approved 18-8, would be offset by an extension of customs user fees. The broader retirement bill, approved 26-0 in an off-the-floor Senate vote following the public markup, includes a collection of bipartisan, largely noncontroversial proposals to expand retirement savings and improve pension and retirement plans. Among them are the Warner-Heller stock options bill, a proposal to allow IRAs to hold S corporation stock, and the ABLE to Work Act, to allow contributions to and a retirement savings tax credit associated with the accounts for the care of family members with disabilities.

Quote of the Week

"Now, are we skeptical of government? You bet we are. Our tax code shouldn't look like a block of Swiss cheese. No law of ours should run longer than 'War and Peace.' But our skepticism comes not from a hate of government but from a love of individual freedom." — House Speaker Paul Ryan (R-WI), September 19

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