September 11, 2017 - Weekly Legislative Update
GOP Tax Reform Plan Arriving Soon As Government Funding Bill Passes
Let's start at the beginning because what's happening in Congress now will bear on the coming tax reform launch.
On Tuesday the House passed H.R. 601, a foreign assistance bill, with an amendment providing $7.4 billion for the FEMA Disaster Relief Fund, and sent it to the Senate.
On Thursday, a bi-partisan Senate passed a further amendment to H.R. 601 suspending the debt ceiling, funding the government through December 8, providing additional disaster relief funds for Harvey and Irma, and extending the national flood insurance program. H.R. 601 with the Senate amendment was re-named the READ Act.
The Senate action brought total disaster relief funds from $7.4 to $15.25 billion. To the $7.4 billion for FEMA the Senate added another $7.4 billion for Community Development Block Grants through HUD for restoration of infrastructure and housing, and $450 million for the Small Business Administration's Disaster Loan Program.
Friday morning the House passed and sent to the President H.R. 601-the READ Act, as amended by the Senate, by a vote of 316-90.
The President signed the bill, which funds the government through December 8, provides $15.25 billion for disaster relief, suspends the debt ceiling for 90 days, and reauthorizes the National Flood Insurance Program.
The President also declared Georgia and South Carolina disaster areas in addition to Florida, Puerto Rico, and U.S. Virgin Islands declared earlier.
House and Senate have adjourned for the weekend and will return Monday. During the coming week we expect action in Ways and Means and Finance on a tax relief package for citizens and businesses located in disaster areas.
Our message to include a strong WOTC component in the disaster relief package has taken root on the Hill, but it will be important to build strong momentum reaching out to Ways and Means and Finance Committee members in person, on the phone, and by faxed letters on your letterhead during the coming week.
Urge the committee members that when they meet to take up a tax package for disaster areas, they strongly support the same WOTC program as enacted in 2005 for Hurricane Katrina. The basis for this is that initial estimates show the displacement of individuals and destruction of homes and businesses in the Gulf are on a par with Katrina, meaning it will take years to fully recover business and job losses.
The Labor Department appropriation in the READ Act continues funding to the States for WOTC administration at the same level as FY 2017 (there is a small half-percent reduction).
Text of the READ Act and summaries are at the House Rules Committee web site, www.rules.house.gov. Click on H.R. 601.
Swift reaction to the hurricane disasters, government funding, and debt ceiling have cleared the way for tax reform. The problem is there's been no solution to demands of conservatives in the Freedom caucus aiming to shape parameters of the bill. These demands include deep cuts in tax rates, funded by deficit spending if necessary, plus advance information on what the proposed tax rates will be.
There are only around 30 arch-conservatives in the Freedom Caucus, but loss of their votes can block passage of a budget resolution for FY 2018, which is necessary if the goal is to put a GOP stamp on the bill. Both houses agreeing to a joint budget allows the GOP majority to use reconciliation to pass their bill with 51 votes in the Senate and no filibuster.
Speaker Ryan has played his cards wisely, delaying action on a budget resolution until a draft bill tax reform bill is unveiled. That bill is a product of six leaders-Ryan, McConnell, Mnuchin, Cohen, Brady and Hatch-ably supported by tax staff at Ways and Means, Finance, Joint Committee on Taxation, Congressional Budget Office, and Treasury.
When the proposal is released the Freedom Caucus will have an answer to their demand for advance notice of what's in the bill. Ryan will be in position to deal with them one by one to try to get 218 Republicans for the budget resolution. His best argument is to tell the recalcitrants they'll be left behind because there are ways to get tax reform done without them.
Ryan has been harboring other ways than reconciliation for a long time. He can forget about passing a budget resolution and bring tax reform to the floor without reconciliation. In that stroke, passage of tax reform will become bipartisan-in a way. Ryan and McConnell still aim to make it a GOP product, but pass it by giving middle-of-the-road Democrats a voice in the product.
There's also another route-one the President may push unless Ryan stops him early. Bring the Democrats under Chuck Schumer and Nancy Pelosi into the process, make it truly bi-partisan. It's in the air after the compromise on funding and debt ceiling, and it may look like an easier route to enough votes for tax reform.
Deals for votes on the coming GOP plan will start early. Ryan and Brady want to save $1.5 trillion by ending the interest deduction, another $1.5 trillion by ending deduction for state and local taxes. That's $3 trillion that can be used to cut tax rates, but there are many voices opposed. Without these savings, either tax rates can't be cut to the level targeted, or the bill will grow the deficit.
Throwing open a tax bill to both Parties to get 60 votes in the Senate and 218 in the House would be a daunting challenge, even with the President involved. At this point, Ryan isn't sure he wants to go there. A lot depends on his talks with the Freedom Caucus.
TIA Seeks to Cover Hurricane Irma in Disaster Relief Bill
TIA and members of the Work Opportunity Tax Credit Coalition is lobbying Congress for generic language for applying WOTC to natural disasters, so as to cover powerful hurricanes like Irma. The language of Hurricane Katrina remains our model.
TIA has written to members of Congress urging them to reject restrictions to WOTC's use during disasters that have occurred in recent years, and return to the very effective Hurricane Katrina formula.
The severity and extent of the present disaster on the Gulf Coast will require that every instrument of government effective in past disasters be mobilized when Congress returns.
From floods on the Mississippi to Hurricanes Katrina and Rita, Congress has deployed the Work Opportunity Tax Credit as an immediate support for recovery of widespread disaster areas where tens of thousands of firms are shut down and business connections ruptured. Since Katrina, however, various recommendations have appeared in Congress that would severely limit the effectiveness of WOTC if applied to the present emergency. For example, limiting WOTC to employers with fewer than 200 workers, and allowing WOTC only to victims who continue to be paid by their employer, will provide far too few resources to overcome the challenges facing not only small businesses, but local establishments of regional and national companies-both are coping with extensive damage and supply/demand bottlenecks resulting from the hurricane, and the recovery of all should be supported as such firms are interrelated as suppliers and customers of each other.
TIA and members of WOTC Coalition have extensive experience in New York Liberty Zone recovery after 9/11, Hurricanes Katrina and Rita in 2005, and Midwestern Floods in 2008. We learned from Katrina that recovery depends critically on the pace at which the number of firms destroyed or shut down are replaced by firms renewing operations, and that takes resources and time; we learned that employment and production in the disaster zone, and thus the area economy, will grow as rapidly, or as slowly, as the number of firms-both small businesses and local establishments of regional or national firms-grows to replace those that have been lost. To uplift a widespread area where firms small and large are interdependent and long-established connections have been disrupted, all employers in the disaster area will need extra resources to reach the important threshold where capital, labor, and business infrastructure are adequate to make renewed operations feasible; all should be aided, but only in the most cost-effective manner.
A wage-based tax credit like WOTC can provide financial assistance to struggling employers immediately throughout the disaster area because, if WOTC is properly deployed to make disaster victims a target group, employers will gain resources with each employee hired, and additional resources as they grow to pre-disaster levels. Nevertheless, in 2008 Congress departed from deploying the standing, geared-up, and ready WOTC in the widespread Midwestern Flood disaster by allowing the credit only for small businesses with 200 or fewer employees, leaving behind many desperate-and often small-stores of regional and national employers. Moreover, at the same time, Congress did not allow disaster victims as a group-those who were residents of the disaster when it struck-to be eligible for hire, but instead allowed the credit only for employees who were paid during the shutdown-a complicated provision that was very difficult to administer. As a result, rather than being an accelerator of recovery, WOTC was largely ineffectual in getting financial resources to firms and establishments whose recovery was critical economic recovery of the zone.
Currently, WOTC does not include disaster victims as a target group. However, disasters of the current magnitude will shut down thousands of firms, many of them permanently, leaving workers without places of employment. Allowing employers large and small, old and new, to claim WOTC for disaster victims they employ-those whose principal place of abode was in the disaster area when it struck-is essential to assist who have lost jobs and face uncertainty as to whether they can be employed again by their former employer; such people are struggling with problems of housing, transportation, and family, and critically need an income, which the WOTC incentive has been proven to provide cost-effectively. Nothing is more important than employment to restoration of disaster-ravaged communities. We strongly recommend that Congress follow the Katrina model and establish a new target group designating Hurricane Harvey victims as WOTC-eligible "disaster employees", defined as individuals whose principal place of abode was in the disaster area on the date of the disaster declaration.
In sum, allowing WOTC for all employers and workers in the disaster area will be a powerful but cost-effective incentive to plough these extra financial resources into getting businesses up and running across the impacted zone. WOTC for a "disaster employee" is capped at cost to the government of no more than $1,560 per worker for an employer paying 35% corporate tax rate, and the law bars an employer from claiming the credit more than once for the same worker. The great strength of providing recovery resources based on workers' wages is that almost all resources will be ploughed into employment in the recovery area because that is where the employers, and especially the workers and families requiring assistance are located.
All employers will be on an equal footing regarding access to WOTC, all will be encouraged to employ hurricane victims, and production and employment in the region's economy will improve as the number of firms, old and new, increases with WOTC's aid. In an emergency of Harvey's size, anything less won't be equal to the task.