This Week (December 18-22)

Congress: The House and Senate are in session. The House is set to vote on the "Tax Cuts and Jobs Act" (H.R. 1) Conference Agreement on Tuesday, December 19. A Senate vote is expected to follow sometime after.

Government funding: Congress faces another government funding deadline on December 22, and must pass another stopgap measure to extend funding past that date, or something more substantial, to avoid a government shutdown heading into the Christmas holiday. House Republicans have proposed a measure to fund defense programs above sequester levels through the end of FY 2018 but other programs only through January 19, 2018 along with funding for the Children's Health Insurance Program (CHIP) for five years. The measure will face a 60-vote threshold in the Senate and Democrats are unlikely to support it, leaving the outcome of the funding situation uncertain.

EY Webcast: EY's rapid response to the conference committee report on tax reform will be held on Monday, December 18 (at 1:00 p.m.)

Last Week (December 11-15)

Conference agreement: The House and Senate conferees to the "Tax Cuts and Jobs Act" (H.R. 1) December 15 signed and released a Conference Agreement that is expected to be considered by the full House and Senate next week, capping off the most significant legislative achievement to date of the Trump Administration and the first major overhaul of the federal income tax in more than 30 years. The expectation is that President Trump will sign the bill prior to the Christmas holiday. The final conference agreement reflects compromises by the conferees in a host of areas, including a 21% corporate tax rate that will be effective in 2018 — up from 20% in the bills passed by the House and the Senate — and a 37% top individual income tax rate that would apply to joint filers with annual incomes over $600,000. The Conference Agreement sets deemed repatriation tax rates for the transition to a territorial tax system at 15.5% for earnings held in cash or other specified assets, and 8% for the remainder — rates that are higher than the Senate bill rates of 14.5%/7.5% and House rates of 14%/7%. Additional cost-saving changes were included to accommodate modifications necessary to ensure Republican votes to pass the bill on the House and Senate floors and comply with budget reconciliation instructions that allow for Senate approval by a simple majority vote of a net tax cut of not more than $1.5 trillion over 10 years. The Conference Agreement would cut taxes by $1.456 trillion over 10 years. The Conference Agreement would provide a deduction for pass-through business owners of 20%, lower than the 23% deduction in the Senate-passed bill but, because of the drop in the top individual tax rate, resulting in a slightly better effective tax rate of 29.6% on income from a pass-through that is not limited. Responding to members from high-tax states, the agreement would allow the state and local tax deduction, limited under the House and Senate bills to a property tax deduction up to $10,000, to apply to property and income tax or sales taxes. The agreement drops some controversial provisions, including the Senate tax bill's first-in first-out provision for computing basis with regard to securities transactions. Education-related tax preferences that were repealed under the House bill, such as the deduction for student loan interest, were preserved under the agreement.

Process: Republican leaders are planning to hold House and Senate votes on the conference agreement early next week, with the expectation that President Trump would sign the bill prior to the Christmas holiday. At the White House December 13, the President said it is "very important for the country to get a vote next week" on the tax bill, and provided assurances that he would be "thrilled" to support a 21% corporate tax rate. The order and timing of House and Senate votes have been the subject of speculation, in part because of health issues with Senators John McCain (R-AZ) and Thad Cochran (R-MS). The budget reconciliation process will allow the bill to be approved with as few as 50 Senate votes (with the Vice President breaking the tie), meaning Republicans, who hold 52 seats, can lose the votes of only two members if no Democrats support the bill. "It's all about timing and managing absences in the Senate. So we're basically being flexible for the [Senate] Majority Leader," House Speaker Paul Ryan (R-WI) said December 14. House Majority Leader Kevin McCarthy (R-CA) announced December 15, "The House will vote on this bill on Tuesday, and after that our country will stand on stronger footing so we can continue to lead for generations to come."

Senate support: On December 15, Senator Bob Corker (R-TN), the lone Republican senator to vote against the Senate bill, said he would support the conference agreement. "After many conversations over the past several days with individuals from both sides of the aisle across Tennessee and around the country — including business owners, farmers, chambers of commerce and economic development leaders — I have decided to support the tax reform package we will vote on next week," Senator Corker said. "This bill is far from perfect, and left to my own accord, we would have reached bipartisan consensus on legislation that avoided any chance of adding to the deficit and far less would have been done on the individual side with items that do not generate economic growth." Additionally, the refundable portion of the child tax credit was increased to $1,400 to win the support of Senator Macro Rubio (R-FL).

Brady expects technical corrections: House Ways and Means Committee Chairman Kevin Brady (R-TX) said December 11 a technical corrections bill will likely be necessary next year to resolve issues arising from the Tax Cuts and Jobs Act. "I'm certain there will be technical corrections given the magnitude of tax reform," Chairman Brady said, according to Politico. "Tax reform has a lot of technical issues in it." The Chairman said he is hopeful Democrats will allow the changes. Republicans refused to support such changes following enactment of the Affordable Care Act. Senate Finance Committee Ranking Member Ron Wyden (D-OR) has said the discussion of technical corrections reflects the haste with which the tax bill is being considered. Ways and Means Committee Ranking Member Richard Neal (D-MA) was quoted in a December 15 Bloomberg Tax story as saying, in part, "We've done our work. They're going to have to embrace an unpopular tax bill."

Mark Weinberger on CBS: On "CBS This Morning" December 12, Mark Weinberger, Global Chairman and CEO of EY and Chair of the Business Roundtable Tax and Fiscal Policy Committee, said the tax bill will "increase investment in the United States, it will make the system much more competitive, allow companies to reinvest in workers, bring that foreign cash back to the United States, and it does provide for a middle income tax cut by doubling the standard deduction, increasing the child credit, and lowering the brackets."

Quote of the Week

"This is a historic moment for the American people. For the first time in 31 years, the House and the Senate have now come together to deliver pro-growth tax reform that will help more Americans across our country keep more of their hard-earned money. This legislation will also grow our economy, make our companies of all sizes more competitive, and help prevent more American jobs from continuing to go overseas. I appreciate my colleagues' hard work and look forward to voting on this bill in the House next week." — House Ways and Means Committee Chairman Kevin Brady (R-TX), December 15

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