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This week (January 29 - February 2)

Congress: The House and Senate are in session for the first half of the week. House and Senate Republicans are set to hold a retreat in West Virginia January 31-February 2.

State of the Union: President Trump will deliver his State of the Union Address on Tuesday, January 30.

Last week (January 22-26)

D.C. Bar conference: During a January 25 District of Columbia Bar Taxation Community conference on the Tax Cuts and Jobs Act (TCJA), Treasury Tax Legislative Counsel Thomas West said an updated Treasury/IRS Priority Guidance Plan reflecting the new law will be released in coming weeks and that the most pressing focus areas for guidance include the 20% pass-through deduction, limits on interest deductibility, and some of the international changes. West said there is skepticism over the feasibility of efforts in some states to use charitable contributions as a workaround for the tax law's $10,000 cap on the state and local tax deduction. Later in the day, Deputy Assistant Secretary (Tax Policy) Dana Trier spoke about types of forthcoming guidance. He said he is willing to continue to issue notices on one-off issues like those issued under the transition tax. Other areas, where coordination is required between the specific provision and the existing Code, would require more than a Notice; specific coordination areas include the GILTI tax and the BEAT. This type of guidance is more likely to come in the form of proposed regulations and not before summer, he said. Also at the conference, Joint Committee on Taxation (JCT) Chief of Staff Tom Barthold said it isn't clear when tax writers may introduce a technical corrections bill addressing the TCJA but that JCT is working on what it may include, and that there is no timetable for a "Bluebook" describing enacted tax legislation. The Bluebook is traditionally published at the end of a Congress, but another JCT official confirmed an off-year edition focused solely on the TCJA is possible.

World Economic Forum in Davos: In an address to the World Economic Forum Annual Meeting in Davos-Klosters, Switzerland January 26, President Trump highlighted improvements to the US economy, saying, "The world is witnessing the resurgence of a strong and prosperous America," and that there "has never been a better time to hire, to build, to invest and to grow in the United States." He said following enactment of "the most significant tax cuts and reform in American history," now is "the perfect time to bring your business, your jobs and your investments to the United States." President Trump also said that in addition to domestic reforms, the Administration is also working to reform the international trading system. "We cannot have free and open trade if some countries exploit the system at the expense of others," he said. President Trump said the United States will no longer turn a blind eye to unfair economic practices such as intellectual property theft, and is prepared to negotiate mutually beneficial bilateral trade agreements with all countries, including those in the Trans-Pacific Partnership (TPP). Trump pulled the United States from the TPP in early 2017, and the remaining nations signaled January 23 that they had reached agreement and would likely finalize a deal in March. Bloomberg Tax reported on some European nation finance ministers planning to register their concerns with the new US tax law during a January 25 meeting with Treasury Secretary Steven Mnuchin, and on a letter sent by the Secretary that was meant to allay their concerns. The letter was reportedly a response to a December letter to Mnuchin from the finance ministers of France, Germany, Italy, Spain, and the UK, warning that elements of the US tax reform plan, including the base erosion and anti-abuse tax (BEAT), "may risk having a major distortive impact on international trade."

Government shuts down, reopens: On January 22, Congress approved and the President signed a continuing resolution (CR) to reopen the government and extend funding through February 8; extend the Children's Health Insurance Program (CHIP) for six years; and delay three health-related tax provisions imposed by the Affordable Care Act (ACA). The Senate's failure to advance a previous version to extend government funding through February 16, amid a dispute over addressing immigration policy in conjunction with the funding measure, shut down the government. A breakthrough came on the third day of the shutdown, as Senate Democratic Leader Chuck Schumer (D-NY) said he would vote to reopen the government given assurances from Senate Majority Leader Mitch McConnell (R-KY) that if an agreement regarding the Deferred Action for Childhood Arrivals (DACA) program is not reached by February 8, the Senate will immediately proceed to legislation on the issue. With regard to ACA taxes, the CR: (1) extended for two years the moratorium on the 2.3% excise tax imposed on the sale of medical devices (through 2019), retroactive from December 31, 2017; (2) delayed implementation of the excise tax on high-cost employer health coverage (the "Cadillac" tax) for an additional two years, until 2022; and (3) provided for a one-year moratorium on the annual excise tax imposed on health insurers for calendar year 2019. Those provisions cost $31 billion over 10 years, the Joint Committee on Taxation said January 23 (JCX-2-18).

Next deadline around the corner: The deal to reopenthe government put the focus on how lawmakers can reach agreement on immigration issues over the next few weeks — when normal congressional business will be interrupted by the President's State of the Union Address and party policy retreats — and what will happen if they don't. A deal on the "Dreamers"/DACA issue remains a moving target. Senator Schumer announced that he rescinded an offer to provide funding for a border wall, which President Trump followed with a tweet saying, "Cryin' Chuck Schumer fully understands, especially after his humiliating defeat, that if there is no Wall, there is no DACA. We must have safety and security, together with a strong Military, for our great people!" The White House previewed a legislative framework on immigration set for release January 29 that it said "represents a compromise that members of both parties can support," and conditions a solution on DACA with securing the border and other measures. Senator McConnell is expected to bring legislation to a Senate vote the week of February 5. In a January 23 MSNBC "Rachel Maddow" interview, Senator Schumer said if a bill can pass in the Senate with a bipartisan vote it will put pressure on House Republicans, who were largely on the sidelines of the shutdown. Negotiations on immigration continue among the bipartisan group of moderate senators that Senator Schumer said was behind the agreement to end the shutdown.

'Common Sense Caucus:' There has been increased attention paid to the Common Sense Caucus of more than two dozen senators led by Senator Susan Collins (R-ME), with many of them quoted as suggesting that bipartisan talks were refreshing compared with the combative and partisan manner with which business in the Senate has been conducted in recent years. The lead-up to and resolution of the shutdown also highlighted differences between moderate Democratic senators up for re-election this year in states won by President Trump in 2016 and more liberal members. The New York Times reported one senator up for re-election, Joe Manchin (D-WV), as saying of conversations with other Democrats, "I've said this point blank: If people like me can't win from red states, you'll be in the minority the rest of your life."

Infrastructure plan under construction: Senator Manchin also said the White House is seeking to collaborate with Democrats on infrastructure, which President Trump this week confirmed will be a topic in his State of the Union address. The President told reporters January 24 that his infrastructure plan would "probably end up being about $1.7 trillion" and that details will be made public in early February. On January 25, a six-page outline — purportedly describing basic elements of the Administration's plan — was leaked to the media. The outline featured a program that would establish new criteria for awarding grants, with federal funds limited to no more than 20% of project costs, as an incentive for states to raise non-federal infrastructure funds. The document also suggested a reinstatement of authority to issue advance refunding bonds, which was repealed in the TCJA. Congressional response to the infrastructure outline was subdued, with several influential members questioning missing components, notably the fact that it did not identify any federal revenue sources for infrastructure programs. White House staff also dismissed the document as not reflective of the administration's ultimate proposal. Regardless of the content, official release of the administration's plan is expected to spur activity by the various Congressional committees with infrastructure-related jurisdiction. There is widespread business interest in infrastructure policy, and on January 18 the U.S. Chamber of Commerce proposed a plan to rebuild the nation's infrastructure highlighted by a 25-cent increase (phased in over five years) in federal fuels taxes, along with incentives to attract private capital including expanding the use of private activity bonds.

Tax law an election-year focus: Republicans have signaled they intend to highlight the benefits of the TCJA ahead of the midterm elections, and Democrats in turn will seek to minimize success stories resulting from the law. The Washington Post January 23 reported on plans for President Trump, Vice President Pence, cabinet officials, and top aides to travel extensively in the coming months to sell the tax overhaul, and for House Republicans to run on "The Great American Comeback." During his January 24 floor speech, Senator Schumer said Republicans promised that "the massive corporate tax cut they passed" would unleash economic growth, raise wages and boost jobs, but instead corporations are moving forward with job cuts and stock buybacks. He called the worker bonuses that have been publicized "token efforts to give corporate executives something to point to while they reap huge benefits for themselves and their shareholders." A tax bill "properly constructed" could have better delivered jobs and wage gains to middle-class families, but "Republicans squandered their once-in-a-generation opportunity on an extraordinary tax break for big corporations and the already-wealthy," Schumer said.

Washer, solar tariffs: On January 22, U.S. Trade Representative Robert Lighthizer announced that President Trump approved recommendations to impose safeguard tariffs on imported large residential washing machines and imported solar cells and modules, in response to findings by the U.S. International Trade Commission (ITC) that increased foreign imports of those products cause serious injury to domestic manufacturers. "The President's action makes clear again that the Trump Administration will always defend American workers, farmers, ranchers, and businesses in this regard," said Lighthizer. The move immediately raised questions, including from some Republican lawmakers, about whether protectionist policies will ultimately raise costs on consumers, and LG announced plans to increase prices on washers and dryers. "My administration is committed to defending American companies, and they've been very badly hurt from harmful import surges that threaten the livelihood of their workers, of jobs, actually, all over this country — many different industries," Trump said January 23, adding that the action should incentivize foreign manufacturers to build plants in the United States. Asked if the Administration is planning steel and aluminum tariffs, the President said, "We're looking at it. We're looking at a lot of things."

Quote of the Week

"The tax reform was a dream of a lot of people over many years, but they weren't able to get it done. Many people tried. And Ronald Reagan was really the last to make a meaningful cut and reform. And ours is cutting and reforming. We emphasize cut, but the reform is probably almost as important. We've wanted to do it. It is very tough politically to do it. Hard to believe that would be, but it is very, very tough. That's why it hasn't been done in close to 40 years." — President Trump, January 26

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Contact Information For additional information concerning this Alert, please contact:   Washington Council Ernst & Young    • Any member of the group, at (202) 293-7474.