February 12, 2018 EY Center for Tax Policy: This Week in Tax Policy News for February 9 This week (February 12-16) Congress: The House and Senate are in session. The Senate will next convene on February 12, and conduct a procedural vote on H.R. 2579, the legislative vehicle for the immigration debate. Budget release: The Trump administration will release its FY 2019 budget proposal on February 12. Trump administration officials have indicated that there will not be a Greenbook of tax proposals as part of the budget due to the recent enactment of the TCJA. Administration officials will head to the Hill to discuss the budget, including during hearings in the: — Senate Budget Committee on February 13 (at 10 a.m.), with OMB Director Mick Mulvaney Infrastructure too: The Administration also plans to roll out its infrastructure principles on February 12, which an official said will "outline a plan that will generate at least $1.5 trillion of investment, cut the burdensome regulatory process from 10 years to 2, and provide funding for projects in rural America." Last week (February 5-9) Spending deal with tax extenders: On February 9, Congress passed and the President signed the Bipartisan Budget Act of 2018, a bill to increase defense and non-defense discretionary spending levels for two years, keep the government funded through March 23 (while detailed appropriations for the remainder of FY 2018 are completed), and lift the federal debt limit until March 1, 2019. The bill also included extensions of tax extender provisions, disaster relief, some other miscellaneous tax provisions, and health care policy changes. Senate Majority Leader Mitch McConnell (R-KY) and Senate Democratic Leader Chuck Schumer (D-NY) announced the bipartisan deal February 7. However, Senate cloture rules require an intervening day prior to voting and Senator Rand Paul (R-KY) refused to accelerate consideration on February 8 after being blocked from offering an amendment in opposition to the spending permitted under the deal. That sent the government into an hours-long shutdown as funding ran out at midnight, until the House and Senate approved the bill in the early morning hours. Senator Paul accused fellow Republicans of hypocrisy for opposing deficits under the previous Administration but not under President Trump, and some Senate Democrats questioned Paul's objection to deficits resulting from the spending bill in light of his support for the December tax law with a net 10-year cost of nearly $1.5 trillion. Tax provisions in the Bipartisan Budget Act had a net 10-year total cost of $17.4 billion, with disaster tax relief totaling $456 million, tax extenders about $15 billion, and other tax provisions nearly $2 billion, according to the Joint Committee on Taxation. More than two dozen expired tax extender provisions were extended for one year, for 2017, along with the extension and phase down of certain energy tax credits. The bill also included modifications of the advanced nuclear power production credit, modifications of the cover over of rum excise taxes, and enhancement of the carbon dioxide sequestration credit. It provided that the provisions contained within the Craft Beverage Modernization and Tax Reform Section of the Tax Cuts and Jobs Act shall not be construed to preempt, supersede, or otherwise limit or restrict any State, local, or tribal law that prohibits or regulates the production or sale of distilled spirits, wine, or malt beverages. The bill included a clarification regarding the excise tax on investment income of private colleges and universities. An exception from the private foundation excess business holding tax for independently operated philanthropic business holdings was included, along with other provisions excluded from the December tax law for Senate procedural reasons. Rettig for IRS Commissioner: President Trump February 8 announced his intention to nominate Charles Rettig to be IRS Commissioner for the remainder of a term of five years beginning November 13, 2017. Rettig specializes in tax controversy and the announcement noted his career with Hochman, Salkin, Rettig, Toscher & Perez, PC, of Beverly Hills, and his service as chair of the IRS Advisory Council. He would replace Assistant Treasury Secretary for Tax Policy David Kautter, who has been serving as Acting Commissioner of the IRS since the departure of John Koskinen. House Ways and Means Committee Chairman Kevin Brady (R-TX), who wants to act on IRS reform this year, said, "With a new tax code and a willing partner at the IRS who shares our commitment to taxpayer service, now is the time to redesign the agency so it works for all Americans." Senate Finance Committee Chairman Orrin Hatch (R-UT), whose panel will consider the nomination, said he wants to learn more about Rettig's qualifications for achieving the goals of restoring the public's faith in the IRS and ensuring "an efficient implementation of the biggest tax rewrite in over 30 years." Treasury/IRS release guidance plan: The Treasury Department and Internal Revenue Service February 7 released the second quarter update to the 2017-2018 Priority Guidance Plan, which reflects additional projects that have become near-term priorities as a result of the Tax Cuts and Jobs Act (TCJA) enacted in December. Items listed under the section on initial implementation of the TCJA include guidance implementing new Section 965 and other international tax changes; computational, definitional, and anti-avoidance guidance under new Section 199A; and computational, definitional, and other guidance under new Section 163(j). Bloomberg Tax February 9 reported Bryan Rimmke, an attorney-adviser in the Treasury's Office of Tax Legislative Counsel, as saying at an American Bar Association Section of Taxation meeting in San Diego that Treasury and IRS are aiming to release the projects recently added to the Plan before July. Marjorie A. Rollinson, Internal Revenue Service associate chief counsel (International), was reported as saying at a Practising Law Institute conference February 6 that IRS must release guidance as soon as possible on how taxpayers can elect to pay the repatriation tax in installments. She also said IRS is aware that people want guidance on the base erosion and anti-abuse tax (BEAT) and global intangible low-taxed income (GILTI) provisions. President in Ohio: During a February 5 speech at the Sheffer Corporation in Blue Ash, Ohio, President Trump said Democrats want to raise taxes and that Republicans must succeed in the midterm elections to prevent them from trying to do so. "Nancy Pelosi — what she's doing to this country. And she's gone so far left, and Schumer has gone so far left. Oh, I look forward to running against them," he said. "We've got to do well in '18, and I know we're going to do great in '20." The President said the December tax law has resulted in higher paychecks, employee bonuses, and the US going "from being one of the highest-taxed countries anywhere in the world to being one of the most competitive." He was joined by Rep. Jim Renacci (R-OH), a Ways and Means Committee member who is running for Senate against Senator Sherrod Brown (D-OH). Trump said Senator Brown, in the tax debate, "voted against us and fought us like crazy, OK? Just remember that — he voted against you. Just, when you go in there, he voted against you. Not good. Not good." While Republicans want to highlight the benefits of the tax cuts ahead of the elections, Democrats are not necessarily running on a promise to roll them back, according to House Democratic Caucus Chairman Joe Crowley (D-NY). Crowley, a Ways and Means member, said during a February 7 news conference that Democrats want to bring "balance back to the governance of the United States," citing the fact that tax cuts for individuals under the law are temporary but the corporate rate cut is permanent. Tax law and the stock market: Questions were raised this week over whether the new tax law may have contributed to stock market swings, a notion that Republicans responsible for the plan pushed back against. Politico February 6 reported Ways and Means Committee Chairman Brady as saying the selloff "reinforces that tax reform is growing this economy," and reflected investor anticipation that the Federal Reserve might move to increase interest rates. "Corrections like this are normal. And certainly in this case, because of what underlies them — stronger payroll, higher paychecks and the Fed beginning to normalize interest rates — that's a healthy picture," Brady said. Asked during a February 6 House Financial Services Committee Hearing about market turmoil, Treasury Secretary Steven Mnuchin said he is "not overly concerned about the market volatility." Financial Services Committee Chairman Jeb Hensarling (R-TX) praised the tax bill and said that it was "ironic, but totally predictable, that equities markets would now swoon over the prospects of higher interest rates and possible inflation associated with a breakout of economic growth. Artificially low interest rates may have benefited some on Wall Street, but they haven't been particularly helpful to Main Street." JCT on current system: The staff of the Joint Committee on Taxation released a summary (JCX-3-18) of the present-law Federal tax system as in effect for 2018. Quote of the Week "When I signed the tax cuts six weeks ago, it set off a tidal wave of good news that continues to grow every single day. Before the ink was dry, companies were announcing thousands and thousands of new jobs and enormous investments to their workers." — President Trump, February 5 ———————————————
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