Weekly Legislative Update - September 10, 2018

On The Hill
The House and Senate have both been back in session last week with a rigorous agenda ahead of them and not much time before the November elections.   
 
First and foremost, the chambers will be continuing their efforts to address appropriations for the 2019 fiscal year before it starts on October 1, 2018.  At this point, the Senate has passed nine of the twelve appropriations bills in the form of three "minibus" that represent 90% of the federal discretionary funding (including a minibus with appropriations for Defense, Labor, Health and Human Services and Education that represents 70% of the federal discretionary funding).  The Senate version of the bills will now return to the House for consideration. 
 
Although President Trump may have a different take, based on his interest in getting funding for the border wall, the leadership on the Hill clearly wants to avoid any talk of a shutdown before the elections. Accordingly, the plan is to negotiate full-year appropriations for as many agencies as possible and then use a continuing resolution (CR) to fund the remaining agencies at their existing levels through December. The Republican leadership is clearly hoping that the President will be willing to wait to continue the border wall funding fight until the planned CRs run out in December. Over the last week, the President has been sending very mixed messages about whether he will go along with this strategy, which, for good reason, has Congressional leadership nervous.
 
Amidst all of this, the Senate has started confirmation hearings for Supreme Court nominee Brett Kavanaugh and is also trying to find time to take up a large scale opioid bill. This is leaving little room (both in the minds of the members and in the press) for other issues, though they are continuing to bubble up behind the surface.

Tax Reform 2.0
As we previously reported, at the end of July the House Ways and Means Committee released a two page outline of a new package of tax bills (being referred to as "Tax Reform 2.0") that Committee Chairman Kevin Brady was hoping to have ready to be introduced in the House in September and voted on before the mid-terms.
 
Since the release of the outline, Chairman Brady's office had been virtually silent about the contents or status of any draft legislation. That is until last week when the Chairman announced that his Committee plans to start mark-up on the package next week with the intent that it will be voted out of the Committee before the end of the month. Speaker of the House, Paul Ryan (R-WI) also stated last week that, once it is voted out of the Ways and Means Committee, the Republican leadership plans to bring the package to a vote before the election.   

These developments will come as unwelcome news to some members facing difficult races because Tax Reform 2.0 is expected to include provisions to make the very divisive provision limiting the deduction for state and local taxes (SALT) permanent. 

During the lull after the outline was released in July, there was some speculation that the House leadership was trying to place Tax Reform 2.0 on the back burner to avoid putting some of their more vulnerable members in the position of having to vote on the SALT deduction before the elections. The leadership's calculus on this issue remains unclear, particularly given that the Senate is unlikely to move on anything until after the elections. It is expected that Tax Reform 2.0 will be heralded as a pro small business bill as it will make the 199A (20% deduction on qualified business income) and the increased limits on the estate tax exemption permanent rather than expiring at the end of 2025. Because of these changes, Tax Reform 2.0 is likely to come with a very large price tag which will further exacerbate the current deficit unless the bill contains some major pay-fors. As a general rule, when tax legislation includes significant pay-fors, there are losers as well as winners.   

If the House includes pay-fors in Tax Reform 2.0, this will further complicate passage of the bill.
 
On the other side of the Hill, the Senate Republican leadership have been hesitant about trying to bring a tax bill for a vote in the Senate before the November elections. Because it is expected that Tax Reform 2.0 package will be making a number of the temporary provisions of the 2017 tax bill permanent, it is very unlikely that such legislation could be passed using the reconciliation process (under which the 2017 tax bill was able to pass with a simple majority in the Senate). This is because reconciliation bills may not increase the federal deficit outside the ten year budget window, which the Tax Reform 2.0 package would almost surely do. In fact, these provisions were purposefully made to sunset in 2025 so that the original tax bill passed last December would fall within the reconciliation guidelines. Thus, to pass the Senate, Tax Reform 2.0 would need to have bipartisan support (i.e. 60 votes) which would be difficult to assemble at any time, but especially before the election. While Finance Committee Chair Orrin Hatch (R-UT) has indicated that he will be speaking with his colleagues about potential bi-partisan tax provisions, it seems unlikely that a Tax Reform 2.0 bill following the general framework set out in the Ways and Means Committee's outline will get much play in the Senate before November 6.

Executive Order on Multiple Employer Plans (MEPs) 
On Friday, August 31, President Trump signed an Executive Order directing the Secretaries of Labor and Treasury to consider regulations and guidance to expand the availability of Multiple Employer Plans (commonly referred to as MEPs). Although not expressly stated in the Order, a key focus of the proposed regulations that arise from this Order will be on eliminating, or significantly scaling back, the nexus requirement, which presently requires companies to have some sort of nexus or preexisting commonality before they can join together and participate in a MEP.
 
This idea of "open MEPs" that aren't subject to a nexus requirement, is a significant part of the bi-partisan Retirement Enhancement Savings Act (RESA) that we have previously reported on and that is still pending in the Senate and may be a part of the House's Tax Reform 2.0. The President is hoping that these agencies will be able to circumvent the need to involve Congress on this issue. However, as it took over a year for the Department of Labor to go through the full process of proposing and finalizing its rules on Association Health Plans (which were similar in that they loosened the restrictions on which associations could band together to sponsor health plans together), it is still possible that Congressional action will come first. Regardless, while the train towards change is in forward motion, whether through legislation or regulation, it will be some time before it reaches its destination.
 
The Executive Order also directs the Secretaries to take action to reduce the cost to retirement plans of providing required notices and disclosures to participants (which will likely be reflected in a move towards more electronic notice options and perhaps some simplification of the notices themselves) and to update the life expectancy and distribution tables for the purposes of calculating required minimum distributions (RMDs) from IRAs and retirement plans. This latter change would have the effect of reducing the required minimum distributions an individual would be required to have distributed from an IRA or a retirement plan to take into account the increased life expectancy. This is a welcome change though it still seems absurd that required minimum distributions must be taken when an individual is still working which is the case with IRAs and with owners who own more than 5% of their company.

Bi-Partisan Protecting Taxpayers Act Would Expand EPCRS 
The bi-partisan Protecting Taxpayers Act (S.3278) was recently introduced by Senators Ben Cardin (D-MD) and Rob Portman (R-OH) and is "designed to make the IRS more responsive and accountable to taxpayers." If passed it would usher in a number of structural and procedural changes for the IRS, including, among other things, reforming the IRS Oversight Board, streamlining S corporation elections, overhauling the IRS appeals process, and improving IRS's IT infrastructure. This bill also includes a significant expansion of the IRS's Voluntary Correction Program, specifically the Employee Plain Compliance Resolution System (EPCRS) program. Under the bill, plan administrators could use EPCRS to self-correct any inadvertent qualified retirement plan violation and Treasury would be directed to further expand EPCRS to include new safe harbors for correcting inadvertent failures. Given the limited bandwidth that the Senate has in the next few months, it is unlikely that this bill will move as quickly as we would hope, but TIA will be making efforts to support the bill and help move it forward in the lame duck session.

Senate Democrats Introduce Resolution of Disapproval on Short Term Health Plan Regulations 
On August 29, 2018, Senator Tammy Baldwin (D-WI) together with thirty co-sponsors, introduced a Joint Resolution to rescind the Trump Administration's new regulations on limited duration health plans. The regulations, which were finalized and published on August 3, 2018, would expand the maximum length that a short term health plan (also known as "skinny plans") could be offered to an individual from three months to three years. These skinny plans, which were intended to help individuals bridge gaps in employer or other coverage, are not required to meet many of the Affordable Care Act (ACA) coverage requirements - meaning that they typically cover significantly fewer medical services and are cheaper. Proponents of the ACA have viewed these new rules as another effort by the Administration to undermine and attempt to derail the ACA.
 
Senator Baldwin's Resolution, is being brought forward under the Congressional Review Act (CRA), which gives Congress sixty session days (excluding recess) after receiving final regulations to pass a resolution by a simple majority to revoke the regulations. We saw the Republican controlled Congress use the CRA at the beginning of the Trump Administration to revoke a number of the Obama Administration's final regulations.
 
The Democrats will now be looking to moderates like Senators Susan Collins (R-ME), Shelley Moore Capito (R-WV) and Lisa Murkowski (R-AK) who have sided with them before on ACA issues to support the resolution and get them their majority vote.   However, even if the resolution passes, President Trump is almost guaranteed to veto it and it is very unlikely that there will be sufficient support to override the veto. Rather, the bigger impact of the Resolution will be to force members to consider and vote on the issue before the election.

White House Conference on Small Business Legislation Introduced 
As we have previously reported , Representatives Rod Blum (R-IA), Al Lawson (D-FL) and Stephanie Murphy (D-FL) introduced a bill (H.R. 6446) to authorize another White House Conference on Small Business. TIA has been active in the coalition working to jump start a new White House Conference and the introduction of the bill presents a meaningful step forward in that process. The coalition is working with members of the Senate to introduce a companion bill and we expect the formal rollout of the House bill, and hopefully its Senate companion, will occur this fall. Unfortunately, the bill does not provide for any federal funding of the conference and instead, would require all three levels (state, regional and national conferences) to be funded through private donations to the Small Business Administration (SBA). Particularly given the funding structure, it's not clear how successful this effort will prove to be.

How Does WOTC Play Into Tax Reform Efforts? 
As noted, Congress returned last week and Ways and Means Chairman Kevin Brady led off by announcing the committee would mark up a "Tax Reform-2" bill this week and seek passage in the House thereafter.
 
Brady's plan affords an opportunity for WOTC supporters to urge him to include retroactive extension of tax provisions that expired at the end of 2017.
 
Refer to the Joint Committee on Taxation's web site, www.jct.gov, and click on "Expiring Provisions."  Then click on JCX 5-18, Federal Tax Provisions Expired in 2017-there you will see a list of 26 expired provisions that Brady can decide to extend or not extend in Tax Reform-2. 
 
Given that Brady is opposed to most extenders, it's likely the chairman's mark he'll ask Ways and Means to approve this week won't include them.  In effect, Brady will be adopting the tactic he's used before, i.e., leaving it to the Senate to pass the extenders.
 
But WOTC's supporters on Ways and Means-Democrats plus a handful of Republicans led by Congresspersons Tom Reed, Lynn Jenkins, Eric Paulsen, and Tom Rice, should not be silent at the markup.  We are calling on them to press Brady to allow an extension of Empowerment Zone credits, Indian Employment credits, and repeal of WOTC's inclusion in the BEAT tax enacted in TCJA that can effectively deny WOTC for many large employers.
 
Supporters of WOTC must work now on two fronts:
  • First, by contacting WOTC supporters on Ways and Means before this week is out and urge them to raise the matter of Empowerment Zone Tax Credit, Indian Employment Tax Credit, and the adverse impact of the BEAT tax on large corporations, at the markup of Tax Reform-2 this week.
  • Second, renew contacts with members of the Senate Finance Committee, urging them to support passage of an extenders package, including our three priorities mentioned above, on one of the three minibus appropriations bills Leader McConnell plans to pass this month. 
("Minibus" is slang to denote moving two or more appropriations bills together as a single bill; "Omnibus" isn't slang-it denotes passage of all twelve appropriations bills as a single bill.)
 
Please note that the Senate has already packaged Labor-HHS-Education appropriations and Defense appropriations for 2019, and the House voted to go to conference with the Senate on this package.
 
Defense normally has the best chance of speedy passage, hence the idea of combining it with Labor-HHS-Education-the largest civil spending bill, which can run into problems with conservatives over issues like funding for Planned Parenthood. 
 
At this point, there's no assurance extenders will be added to Defense and Labor-HHS-Education or any other minibus, but we must be successful attaching expiring provisions to one of them because Brady's Tax Reform-2 isn't going anywhere in the Senate until after the elections, if at all.

Department of Labor Appropriations For Fiscal Year 2019
The Labor-HHS-Education appropriations bill for FY 2019 includes $18.5 million for administration of WOTC by State Workforce Agencies-the same level as last year.  Congressman Tom Cole (R-OK) and Congresswoman Rosa DeLauro (D-CT) steered the bill in the House; Senator Roy Blunt (R-MO) and Senator Patty Murray (D-WA) in the Senate.  All are longstanding WOTC supporters. 
 
Cole's subcommittee included in their report on the House bill:
 
"The Committee supports efforts by the Department [of Labor] to assist states with the implementation of the Qualified Long-Term Unemployment Recipients category and to reduce backlogs . . ." 
 
Senate and House funding shows support for WOTC by congressional appropriators who understand that the billions approved for workforce training, as well as support services for veterans, ex-felons, youth, people with disabilities, and the homeless, are administered by state agencies who understand the importance of assuring there's a job at the end of the line for individuals receiving these services. 
 
Governors and mayors are among WOTC's strongest supporters, get them to tell Congress!

Congress Votes to Roll Back Some Tarriffs
Last week, on a voice vote the House passed legislation that would roll back tariffs on a little less than 1,700 products from China, mainly chemicals. The legislation, dubbed the Miscellaneous Tariffs Act, previously passed the Senate last month. 
The passed legislation now goes to president's desk for him to sign, but it is unclear what he will do. The administration has not publicly opposed the bill but has aggressively used new tariffs or the threats of them to as part of its trade policies and therefore TIA believes that the administration may likely veto the bill.