24 February 2018 EY Center for Tax Policy: This Week in Tax Policy News for February 23 Congress: The House and Senate are back in session. The Senate is expected to consider a number of judicial nominations. House Republican leaders announced that the late Rev. Billy Graham will lie in honor in the Rotunda of the U.S. Capitol next week, and that House votes for the week will conclude the evening of February 27. Ways and Means: On February 27 (at 1:15 p.m.) the House Ways and Means Committee will consider adoption of Ways and Means Committee Views and Estimates on the Fiscal Year 2019 Federal Budget. AEI event with Hatch: On March 1 (at 8:30 a.m.), the American Enterprise Institute will host, "Assessing the impact of tax reform: Remarks from Senate Finance Committee Chairman Orrin Hatch (R-UT)." Tax regulatory review process under scrutiny: There has been increasing attention on efforts to undo a decades-old agreement that exempts certain IRS regulations from executive order requirements and oversight by the OMB Office of Information and Regulatory Affairs (OIRA), which is responsible for the coordinated review of regulatory actions by executive agencies. Senate Homeland and Government Affairs Committee Chairman Ron Johnson (R-WI) and Regulatory Affairs and Federal Management Subcommittee Chairman James Lankford (R-OK) wrote to the OIRA administrator February 1 urging reconsideration of the exemption, and to Acting IRS Commissioner David Kautter February 13 asking about IRS's justification for not producing economic analyses during its rulemaking process. The senators cited a September 2016 GAO report (GAO-16-720) that said the OMB director and the Treasury Secretary should examine the relevance of the 1983 agreement that was reaffirmed in 1993, and if relevant, make publicly available any reaffirmation and the reasons for it. GAO subsequently reported that as of March 2017 Treasury and OMB were in the midst of that assessment. President Trump's April 2017 executive order requiring a review of significant tax regulations issued since the beginning of 2016 called for Treasury and OMB to review and possibly reconsider the scope and implementation of the existing exemption for certain tax regulations from the review process. A February 9 letter from the Cause of Action Institute to Senate Finance Committee leaders said the exemption, which the group said stems from the IRS contention that the economic effects of its rules result from the underlying statute and not regulatory decisions, denies Congress information about major IRS rules that should be reported to the GAO under the Congressional Review Act. The letter urged the senators to press Charles Rettig on the issue when the Committee considers his nomination as IRS commissioner. In a February 23 Wall Street Journal op-ed, two former OIRA administrators urged reconsideration of the agreement that they said was intended to apply only to technical rules interpreting discrete provisions of the tax code but "appears to have grown into a loophole that the IRS and the rest of the Treasury are using to push regulations into effect without review." Trier on policy decisions: The attention on rulemaking comes as Treasury and IRS have updated their Priority Guidance Plan with a long list of Tax Cuts and Jobs Act (TCJA) projects, taxpayers are looking for answers in a number of areas, and congressional tax committee chairmen have asserted that the Administration should work with, and possibly defer to, Congress in interpreting the law. Bloomberg Tax reported Treasury Deputy Assistant Secretary for Tax Policy Dana Trier as saying February 20 at a Practising Law Institute event that Treasury is working with congressional tax-writing committees on policy decisions related to TCJA guidance, and that OMB and the White House will review quite a bit of that guidance. "The secretary of the Treasury has been involved in every bit of guidance related to tax reform and is making the calls on the major issues," Trier said, according to the report. Trier said a forthcoming notice on the interest deduction limitation under new Section 163(j), which another official said will be issued soon, will not get specific about how the rules will apply but will provide a glimpse at topics where there is relative certainty so the private sector can weigh in on how Treasury should approach proposed regulations. Joint select committees: House leaders February 23 announced members of the Joint Select Committee on Solvency of Multiemployer Pension Plans and Joint Select Committee on Budget and Appropriations Process Reform. Both committees were established by the Bipartisan Budget Act of 2018 enacted on February 9, and each will include eight Senators and eight House members, equally divided between Republicans and Democrats. The multiemployer committee is charged with reporting a bill by the end of November that, if supported by a majority of the members from each party on the committee, could be considered in both chambers without amendment and under expedited procedures in the Senate. The budget process committee must vote, also by the end of November, on a report that contains a detailed statement of the findings, conclusions, and recommendations, and proposed legislative language. — Rep. Virginia Foxx (R-NC), Education and the Workforce Committee Chairman — Rep. Steve Womack (R-AR), House Budget Committee Chairman Economic report: The Economic Report of the President released on February 21 included discussion of companies announcing wage and salary increases, as well as bonuses and/or 401(k) match increases, in the weeks following enactment of the TCJA. "Though subject to change and evolving circumstances, the immediate corporate response to the TCJA therefore offers provisional confirmation of the theoretical and empirical evidence on profit sharing, the link between corporate taxation and labor earnings, and the effect of corporate taxation on investment in the context of internationally mobile capital," the report stated. President Trump said enactment of the TCJA "has inspired businesses to express their confidence in the economy." EU on TCJA: European Union finance ministers began work during a February 20 Council of Economic and Financial Affairs session on a strategy to address US enactment of the TCJA and concerns that it could violate WTO rules. Reuters reported European Commission Vice President Valdis Dombrovskis as saying additional discussion and a better idea of how US provisions are being implemented are necessary before speculation about next steps or retaliation. German Finance Minister Peter Altmaier said there is a desire to avoid companies moving their headquarters from Europe to the United States and investment flows being redirected. Bloomberg Tax reported Altmaier as saying the US tax law makes it imperative that the EU agree on the terms for a common corporate tax base to retain and attract investment. Supreme Court on remote sales taxes: The Supreme Court announced it will hear arguments April 17 in South Dakota v. Wayfair, regarding whether remote sellers can be compelled to collect and remit sales and use taxes on transactions involving customers in states where the seller lacks any physical presence. The physical presence standard was formally established in the 1992 Quill Corp. v. North Dakota ruling in which the Court said it was up to Congress to determine a standard for allowing states to impose a sales tax obligation. Congress has debated the issue in recent years but has yet to come to agreement. "As we knew when we set out to reform taxes and rein in the regulatory state, when America's enterprises are optimistic about where the economy is heading, they will expand their operations; invest more in plant and equipment, which raises workers' productivity; and, as a result, raise wages. We have recently seen capital spending again contribute to rising productivity, after holding productivity growth back under the previous Administration, and have also once again started to observe economic growth above the 3% level — which many claimed was impossible." — President Trump, February 21 Economic Report of the President
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