Weekly Legislative Update - November 20, 2017

Senate Markup Closes

 

On November 16, Senate Finance Committee approved the modified Chairman's mark without action on any amendment making WOTC permanent.  The Chairman's modified mark passed at 10:21 PM. 

 

WOTC's situation became clear after defeat of Democratic Senator Ben Cardin's amendment to extend or make permanent several tax extenders: historic rehabilitation credit, new markets tax credit, low-income housing credit, advance refunding bonds.  Until this point, Republicans had sharply opposed and defeated every Democrat amendment.   

 

The mood changed when Senator Cardin offered his extenders amendment; several Republicans expressed friendly support of these programs, several commenting that "extenders will be dealt with later" and the chairman confirming this. Nevertheless, Republicans defeated the Cardin extenders amendment and Senator Cardin made no effort to propose permanent WOTC in the face of certain defeat. 

 

What happened to GOP Senator Rob Portman's amendment to make WOTC permanent?  

 

Senator Portman and other Republicans on Finance met with Chairman Hatch November 14 and resolved all issues among themselves about the contents of the modification to the mark.  Being assured their priorities were in the bill, GOP senators committed to supporting the new mark by defeating Democratic amendments. The fact there were no Republican amendments offered during markup, and all Democratic amendments were defeated, shows the GOP adhered to this strategy. 

We now know the decision to save all extenders till later was made during the November 14 meeting with Senator Hatch.  Thus, Senator Portman, who had already filed an amendment to make WOTC permanent, was pre-empted from offering it because of his commitment to support the modified mark GOP senators had agreed to rally around.

 

None of this was known until Senator Cardin offered his amendment on extenders around 5 PM on November 16.   

 

Association members lobbied Finance senators hard to produce a bi-partisan majority for permanent WOTC.  Special thanks to Bob Hendry who was instrumental in Senator Portman's (R-OH) response and to Maryland members who encouraged Senator Cardin (D-MD) to Act. We believe we have that majority, and the result will be to our advantage in conference and in 2019 when another extenders bill (hopefully, the last!) is inevitable.   

 

The Finance Committee bill will now go to the full Senate for passage.  Under reconciliation, the bill can be called up by majority vote and without filibuster, but Democrats will make every effort to de-rail it.  A Republican, Senator Ron Johnson (WI), has announced opposition to the bill, but according to Senator Thune the bill "has already been whipped," meaning GOP senators have been canvassed and have a majority. 

The Finance Committee bill leaves WOTC intact through December 31, 2019.  Nevertheless, we must work hard in conference, which will begin the first week of December, to ensure the Senate prevails over the House position that WOTC be repealed at year-end.  

 

Republicans will have a majority of conferees of both House and Senate negotiators, and thanks to your tremendous lobbying we can expect one or more GOP senators who've supported WOTC in the past-Portman, Grassley, Roberts, and Isakson-may be appointed to the conference and be in a position to help. 

We'll publish lists of conferees when they're appointed.  Then we'll have to swing into action bringing all our resources to bear on both House and Senate conferees to ensure the House defers to the Senate and removes its repeal of WOTC. 

 

It hasn't been an easy markup for Chairman Hatch.  Before the end, he was red-faced and exploded at what he deemed personal attacks on how he managed the conference.  For their part, Democrats inveighed they had too short notice of the bill and related documents, too often surprised by new twists, too little time to study and prepare.  

 

The Senate was adjourned November 17 for Thanksgiving recess, and will return on November 27.  One can imagine the forces that'll be mobilized this coming week, pro and con, for the coming fight.

 

No LIFO Repeal...Yet

 

The Senate Finance Committee favorably reported out the Senate version of tax reform, after considering numerous amendments.  None of the amendments referenced LIFO or attempted to use it as a pay-for, so we have made it through one more step in the tax reform process without any threats to LIFO.

 

The bill is expected to be considered on the Senate floor the week of November 27th.  We will be watching that floor debate closely, of course, but are tonight one step closer to the completion of the tax reform process with LIFO safe.  

 

In the interim, thanks again for all your efforts.

 

House Kills the Death Tax Permanently

 

On November 16, the House passed their Tax Cuts and Jobs Act, H.R. 1, which provides a path to permanent repeal of the death tax. 

The legislation doubles the current unified exemption in 2018 and enacts TIA-supported policies.

 

TIA has been pushing for inclusion of this language for many years. Versions of this legislation gained over 218 cosponsors in the 112th and 113th Congresses before finally receiving a vote in the 114th Congress, passing 240-179. Today, we can celebrate its inclusion in comprehensive tax reform. H.R. 1 passed with a vote of 227-205. Thank you to all association members who helped build a coalition into a national force.

The House permanently repealing the death provides us with a strong upper bound position in negotiations with the Senate. The Senate will pass their position and then the two will reconcile in conference. We are supporting the process on the Senate side while working with leadership and the committee to achieve the best policy possible on estate/gift/gst/basis.

There's a large gulf between the two policies:

The House: Doubles the exemption to $11 million per individual/$22 million per couple until 2025. On January 1, 2025, the death tax and generation skipping tax is repealed and the gift tax rate is dropped to 35%. Full step up in basis in maintained.

Cost: $150.7 billion over 10 years.

The current Senate mark: Doubles the exemption to $11 million per individual/$22 million per couple until sun setting on December 31, 2025. Full step up in basis in maintained.

Cost: $83 billion over 10 years

We are urging folks to support moving the Senate process forward. We continue to work toward a middle ground that provide significant relief to small businesses and a path to elimination of the death tax. Please continue to stay engaged as tax reform moves forward.  In the words of the carpenters: we've only just begun. 

 

Comparing the House and Senate Tax Reform Bills

 

Click here to view a chart comparing the House and Senate tax reform bills that was recently released by the National Journal.

 

Infrastructure in the Tax Reform Bills?

 

Conventional wisdom in the Beltway, among pundits and in the media, is that the Infrastructure bill will follow Tax reform.

However, the House and Senate Tax bills which just came out deal directly with the financing of Infrastructure.

This fact is not surprising, because a good deal of Infrastructure is financed through the tax code.

While the House bill shuns market approaches to infrastructure, the Senate bill promotes an approach that leverages scarce federal tax-payer dollars to bring in outside money from states, local governments, and private investors.

Much of this happens through the promotion (Senate) or doing-away-with (House) of what are called private activity bonds. These are simply a way of financing private infrastructure where the federal government pays less than 30 cents on the dollar for projects.

These bonds finance water, transportation, bridges, solid waste, as well as social infrastructure like cultural institutions, educational institutions, housing, and other areas.
 

When the State of Pennsylvania sought to fix 558 structurally deficient bridges, it deployed these private activity bonds in a way that brought federal, state, and private money to the table.

Examples big and small abound. These bonds are ingrained in so many aspects of our communities and serve them well, promoting basic health and well-being, economic growth and opportunity, and also jobs.

The broader approach of leveraging scarce federal dollars to get projects built through state, local and private money is the signature Trump approach.

Except at the political extremes, it enjoys broad based bipartisan approach. And, even those at the political extremes are not adverse to making exceptions. Even, politicians who succumb to doctrinaire politics at times, support these bonds when water pipes break and schools crumble. Massachusetts and Vermont use them.

We won't bother you with boring details, but other provisions like the end of the SALT exemption will impact upon school facility financing and additional infrastructure areas, as will things like advanced refunding of bonds, and others.

Importantly, the removal of the Alternative Minimum Tax will have a very positive impact upon private activity bonds.

More to follow as the House and Senate seek to reconcile and duke it out on key Infrastructure provisions within the tax code.

 

Because Congress is on its Thanksgiving recess, we will not publish our newsletter on November 27th. We will report on Congressional action on the tax bill when Congress returns.