Senate Finance Committee members raised concerns about "Tax Cuts and Jobs Act" provisions during a hearing on the Administration's FY 2019 Budget on February 14, 2018, including the new tax code Section 199A pass-through deduction that treats sales by farmers to cooperatives more favorably than sales to other buyers, and a potential work-around for the law's three-year holding requirement for the preferential tax treatment of carried interest.

In an opening statement, Chairman Orrin Hatch (R-UT) said TCJA provisions will not have their intended effects if they are not properly implemented and that he will pressure the Administration to respect the fact that "the best place to get an explanation of Congress's intent is Congress itself." Following the whirlwind process of enacting the bill last year, Treasury and IRS have updated their Priority Guidance Plan with a long list of TCJA projects, and taxpayers are looking for answers in a number of areas.

"Where things are potentially unclear in the law, Congress should be the one to determine and explain what was intended, and, if need be, such as with Section 199A, provide a timely fix," Chairman Hatch said. Hatch said Senators Chuck Grassley (R-IA), Pat Roberts (R-KS), and John Thune (R-SD) have taken lead roles in identifying a solution for the 199A issue and that his goal is to produce a legislative fix as soon as possible.

During his opening statement, Ranking Member Ron Wyden (D-OR) dismissed the notion that corporate tax cuts under the law would immediately benefit workers, saying 20 times more money has been spent on stock buybacks than on worker bonuses over the last few months. Wyden also highlighted a Bloomberg article suggesting the three-year holding period requirement enacted under the TCJA can be avoided through an exemption for carried interest paid to a corporation rather than an individual. Treasury Secretary Steven Mnuchin, testifying at the hearing, said he met with the IRS and Office of Tax Policy as a result of that article and, "The IRS and Tax Policy intends to send out, within the next two weeks, guidance that we do believe that taxpayers will not be able to get that loophole by going through subchapter S, and that's something that we believe we have the authority to do under the existing code that left us certain discretion … "

Senator Rob Portman (R-OH) said he was submitting a question for the record regarding an international tax issue because he wants to "make sure that the CFC net earnings calculation is done properly."

Senator Bill Cassidy (R-LA) said one of the provisions of the TCJA was to provide fair treatment for taxpayers in a loss position under deemed repatriation under Section 965. He said pre-repatriation losses are ring-fenced, but there is a question regarding losses in 2017 that he wants to discuss with Treasury.

US companies and the OECD

Also during the hearing, Chairman Hatch asked Secretary Mnuchin to help ensure that forthcoming recommendations by the European Commission and the OECD with regard to taxing the digital economy do not unfairly target US companies. Mnuchin said he has already begun discussions with his foreign counterparts on that issue.

Hatch said the current and previous administrations have engaged with the European Commission and member states to express concern about targeting of US firms through state aid investigations, but the Commission is continuing to pursue existing cases and threatening to launch new investigations. He also noted that some EU member states have expressed concerns with anti-base erosion measures included in the new US tax law and are threatening legal challenges, and that he is aware that Treasury plans to engage with European officials regarding their concerns. Mnuchin confirmed that is the case, and that Treasury is also holding discussions regarding state aid cases.

Infrastructure

Senator Wyden expressed concerns about the Administration's infrastructure framework released on February 12 that asks Congress to provide $200 billion in Federal funds over 10 years to spur "at least" $1.5 trillion in infrastructure investment with partners at the State, local, tribal, and private level. Wyden noted cuts to existing infrastructure programs proposed by the Trump administration and said the infrastructure plan would result in more privatization and more tolls taking money out of families' pockets. "Drive more than a few miles to work? Get ready for more tolls. Rushing to school in the morning? Don't forget cash for the tollbooth. Heading to the grocery store or the mall to do some shopping? Better remember to budget tolls into your trip," he said.

The opening statements of Senators Hatch and Wyden are attached, along with Secretary Mnuchin's testimony.

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ATTACHMENTS

Hatch Statement

Mnuchin Statement

Wyden Statement