United States: Tax Policy Update - March 24, 2015

NUMBER OF THE WEEK: $900 Billion

The amount of additional taxes that would fall on businesses and families under Republicans' budget plans, according to a "fact check" by the Associated Press in a story with a title made of the stuff that is every Republican's nightmare: "GOP Budgets Rely on Higher Taxes to Balance." Despite claims that the budget resolutions would have no net tax increases, the revenue assumptions in the plan don't add up without allowing a bevy of tax breaks to remain expired, the AP reports. Read more here, and read our summary of the House and Senate budget resolutions below.


House Ways & Means to Repeal Estate Tax. Ways and Means Chairman Paul Ryan (R-WI) will convene a markup on Wednesday to consider a number of tax bills including one that would repeal the estate tax. The "Death Tax Repeal Act of 2015" ( H.R. 1105), introduced by Rep. Kevin Brady (R-TX), sets out to repeal estate and generation-skipping transfer taxes as well as modify the way the gift tax is calculated. The legislation has garnered strong support from various business organizations. The bill currently has only one Democratic sponsor, Rep. Stanford Bishop (D-GA). Some Democrats on the committee have shown interest in introducing an alternative bill that would create an estate tax exemption for small farms and family businesses. Mr. Brady's bill has little chance of becoming law as President Obama is inclined to move in the opposite direction and increase the current top rate from 40 percent to 45 percent while reducing the exemption from $5.43 million to $3.5 million. According to the Joint Committee on Taxation, a repeal of the estate tax would cost approximately $295 billion. For more details on the markup, read here.

Senate Finance's International Tax Reform Working Group Making Progress. The Senate Finance Committee held a hearing last week focused on the U.S. international tax system and how it could be made more competitive. The witnesses all agreed that the current system must be modernized if U.S.-based multinational companies are to compete in the global economy, but the panel expressed varying views on the best path forward.The big news to come out of the hearing was the positive reports from both Sen. Chuck Schumer (D-NY) and Sen. Rob Portman (R-OH) on the progress being made in the committee's international tax reform working group, which they are co-chairing. Portman reported that the group is "moving toward solutions" and "moving toward consensus" on recommended changes to international tax provisions, which the group must present to Chairman Hatch and Ranking Member Wyden by the end of May.

March Madness, Congressional Style: What's in the FY 2016 House and Senate Budget Blueprints? Both the House and Senate Budget Committees approved their respective budget plans for fiscal year 2016 on March 19 by roll-call votes, which fell sharply along partisan lines. Both chambers are considering the budget resolutions on the floor this week.

The budget plans provide a clear look into Republican policy priorities in both the short and long term. Despite differences between the House and Senate proposals, they articulate a set of common goals – reduce spending, avoid net tax increases, and balance the budget. However, many of the details on how these priorities would become realities, are less clear—especially with respect to taxes.

Key aspects of the House and Senate proposals for fiscal year 2016 are summarized below.

Overview of the Budgetary Effects of the House and Senate FY 2016 Budget Resolutions



  • Balances the budget by 2024
  • Proposes $5.5 trillion in spending cuts
  • Increases deficit by $1.3 trillion over 10 years
  • No net tax increases
  • Balances the budget in 10 years
  • Proposes $5.1 trillion in spending cuts
  • Increases deficit by $1.6 trillion over 10 years
  • No net tax increases


While neither budget resolution completely quashes the possibility of using reconciliation for comprehensive tax reform, it appears increasingly unlikely. That doesn't mean, however, that piecemeal changes to the tax code won't be included in a potential reconciliation package. In fact, many of the changes inherent in repealing the Affordable Care Act − the presumed target of Republicans' reconciliation language − would necessarily impact taxes, including the medical device tax and the ACA's surtax on net investment income. Interestingly, the budgets appear to assume the revenue from those taxes (about $2 trillion) continues to come in over the next decade − a critical component of balancing the budget, as both resolutions claim to do.

The House resolution is more aggressive in calling for comprehensive tax reform to create a "fairer, simpler tax code," although it remains scant on details. The Senate resolution is even more vague about tax reform, but it does open the door by including a "deficit-neutral reserve fund," to allow for changes to the tax code, so long as they do not increase the deficit. Both resolutions include language embracing, to varying degrees, the use of macroeconomic scoring, also known as dynamic scoring, in assessing the budgetary impacts of tax proposals. But the House budget mandates dynamic scoring, as well as economic projections of policies that look forward 20 fiscal years, rather than the standard 10-year budget window.

Other key differences between the two chambers' FY2016 budgets include the following:

House of Representatives

Calls for reduced corporate and individual rates, including pass-through businesses, but does not mention specific rates.

Repeals the alternative minimum tax (AMT) and "transition[s] away from a worldwide tax system to a more competitive international tax system," presumably shifting to a territorial system or hybrid territorial system.

Calls for "broadening the tax base by closing special interest loopholes that distort economic activity" but does not identify any specific provisions.

Calls for permanent extension of certain expired tax provisions ("extenders") without having to offset them with new revenue or spending cuts.


Gives the Senate Finance Committee some flexibility to reform the tax code but does not lay out a blueprint for an overhaul.

Nods approvingly, without endorsing as a policy matter, the continued extension of certain expiring tax provisions known as extenders.

Calls for the repeal of the medical device tax.

Calls for the budget resolution to include the cost of tax expenditures. This was an amendment offered by Sen. Sheldon Whitehouse (D-RI) during the Budget Committee's markup and was adopted with the help of six Republican senators.

Open to offer more tax-related amendments during the Senate's floor consideration of the resolution, although none of these amendments, or the resolution itself, will have the force of law.

Health Care

Both the House and Senate Budget Committees would use the reconciliation process to overturn the Affordable Care Act. The Senate bill also calls on the Senate Finance and Health, Education, Labor and Pensions Committees to find at least $1 billion each in deficit reduction savings from the Affordable Care Act by July 31. House Republicans use reconciliation to repeal the Affordable Care Act "in its entirety" and would shift some savings to Medicare's solvency.

The House Budget would repeal the Independent Payment Advisory Board (IPAB), which was intended to advise Congress on Medicare cuts but was never staffed. It would reform Medicare by changing the program to a premium support model, starting for beneficiaries in 2024, and combining Parts A and B so there would be a single premium for seniors. The budget also appears to call for some risk adjustment of premiums, and it provides a catastrophic cap on annual out-of-pocket expenses for Medicare beneficiaries

The House Budget would reform Medicaid, repealing the ACA's expansion of Medicaid and substituting State Flexibility Grants instead, and would unify Medicaid and the Children's Health Insurance Program (CHIP) while providing funds to extend CHIP.

The Senate Budget Committee, in contrast, stops short of moving Medicare to a premium support model, but seeks $430 billion in Medicare cuts and would move Medicaid more toward a CHIP model.


As part of overall efforts to reduce the deficit, congressional Republicans are using their budget proposal to push cuts to renewable energy incentives and the President's climate change agenda. In conjunction with efforts to streamline domestic energy programs, they aim to eliminate regulatory redundancy and waste for the benefit of lowering Americans' energy costs. Both chamber budget blueprints note that the United States is at the center of an energy renaissance, and the federal government should do what it can to help increase domestic oil and gas exploration (on both public and private lands) and build a robust energy infrastructure in order to enhance U.S. energy security and promote economic opportunities.

Key differences between the two chambers' FY2016 budgets include the following:

House of Representatives

Calls to immediately end the green energy loan programs, starting with the American Recovery and Reinvestment Act of 2009 (ARRA), and remove regulations and subsidies that favor some industries over others. The budget blueprint notes that the Department of Energy's research and development efforts "should focus solely on breakthrough innovations," rather than the application or commercialization of new technologies.

Identifies climate change funding at Department of Defense and the Central Intelligence Agency as "examples of areas where there should be room to cut waste, eliminate redundancies, and end the abuse and misuse of taxpayer dollars."

Following lengthy oversight of various Obama Administration regulatory proposals, including the Environmental Protection Agency's (EPA) Clean Power Plan, the budget mirrors longstanding Republican policy proposals related to regulatory reform. It includes a bid to mandate congressional approval of any administrative rule that would levy more than $100 million in annual economic costs on the economy, a classification applicable to much of the regulatory portfolio at EPA and the Department of Interior, among other agencies.

Denounces the notion of establishing a carbon tax as a means to cutting carbon emissions.


Leverages private-sector resources to make energy upgrades to federal buildings and lower energy costs by directing Congressional Budget Office to more accurately account for the long-term budgetary effects associated with Energy Savings Performance Contracts (ESPC) and Utility Energy Savings Contracts (UESC).

Fully funds wildfire suppression operations and healthy forest management activities and encourages increased timber production from national forests.

Financial Services

At the start of the 114th Congress, Republican legislators made clear their desire and intention to roll back certain provisions in the Dodd-Frank Act, which they perceive as burdensome. Last year, Republican lawmakers introduced several pieces of legislation to modify various parts of Dodd-Frank and bring regulatory relief to both small and large financial institutions. This year will be no different. For example, Republicans in both houses have already hinted at possibly changing the designation process for systemically important financial institutions (SIFIs) and ending the conservatorship of Fannie Mae and Freddie Mac.

Though the House and Senate budget plans do not provide much in terms of financial regulatory reforms, they do broadly outline the policy direction toward which the congressional Republicans are headed.

House of Representatives

FDIC Orderly Liquidation Authority (OLA). The House plan proposes to prevent the Federal Deposit Insurance Corporation from using taxpayer dollars to pay the creditors of financial institutions that have been designated as systemically important.

CFPB Funding. The House plan proposes to change the way the Consumer Financial Protection Bureau receives its annual funding. Currently, the bureau is funded by remittances to Treasury from the Federal Reserve. The budget plan would subject the bureau to the regular annual appropriations process.

Privatization of Fannie Mae and Freddie Mac . The plan proposes to privatize Fannie Mae and Freddie Mac, putting an end to the two oft-criticized government-sponsored enterprises (GSEs).


The Senate plan provides even less in the area of financial services. It proposes the creation of a spending-neutral reserve fund for financial regulatory system reform. Reserve funds in budget resolutions simply make it easier for lawmakers to move related legislation later on in the session as long as the legislation adheres to the criteria set forth in the resolution. The Senate budget reserve fund would support legislation aimed toward providing regulatory relief to small and large financial firms, improvements to the regulatory framework, improvements to the oversight of the Federal Reserve, and improvements to capital access.


Debate over defense spending proved to be the most divisive among congressional Republicans. At the heart of the debate was the House's attempt to get around the 2011 caps on defense spending by increasing funds for the Overseas Contingency Operations account (OCOs), which pays for military operations abroad (e.g., Iraq and Afghanistan). The disagreement between fiscal conservatives and defense hawks led House Budget Chairman Tom Price to delay the final vote until last Thursday.

Despite disagreements between the House and Senate on OCO funding and the overall level of spending for defense, the budget committees reported similar totals for defense spending in their revised plans. Total defense spending provided in the House plan stands at $617 billion. The Senate plan provides a total of $619 billion.

House of Representatives

The initial budget maintains the 2011 spending caps on base defense spending, but proposes $94 billion for Overseas Contingency Operations – $20.5 billion of which would be contingent upon an offset, however. Republican defense hawks balked at this caveat and attempted a failed amendment that would have removed the offset requirement.

The version of the House budget, approved by a 22-13 vote, leaves the original OCO funding amount and offset requirement in place. However, House Speaker John Boehner has indicated that the $20.5 billion offset requirement would be stripped before floor consideration.

Thus, total defense spending provided in the House plan stands at $617 billion. The total may be raised further during floor consideration.


The House Budget Committee's attempt to get around the defense caps by funneling money through OCO received early criticism from Senate members.

The initial Senate blueprint calls for $58 billion for OCO funding, matching President Obama's request for fiscal year 2016.

After complaints from pro-defense Senate Republicans, the committee adopted an amendment by Senator Lindsey Graham, which increased OCO funding to $96 billion.

Thus, total defense spending provided in the revised Senate plan stands at $619 billion.


Proposed Regulations on MLP Qualifying Income Forthcoming. The IRS has announced that proposed regulations on qualifying income for master limited partnerships (MLPs) will be released soon. The MLP entity allows for one level of taxation at the investor level so long as 90% of the income is qualifying income. Qualifying income generally includes income derived from exploration, development, mining, or production, processing, refining, transportation and marketing of minerals and natural resources. Many experts expect that the proposed regulations to be consistent with previous private letter rulings, like permitting fracking service providers to be recognized as MLPs. Moreover, the IRS plans on responding to private letter ruling requests addressing the qualifying income of MLPs.

U.K. Diverted Profits Tax Effective April 1, 2015. The United Kingdom is going forward with its diverted profits tax (DPT), scheduled to take effect on April 1, 2015. The diverted profits tax imposes a tax on multinational companies' profits that have been deemed "diverted" from the country. The primary targets of the DPT are those companies that have avoided UK permanent establishments and benefitted from tax mismatches through the creation of intra-group expenses. The tax was first proposed in 2014 when lawmakers discussed cracking down on the shifting of profits offshore by multinationals—a growing global trend as the development of the OECD's base erosion and profit shifting (BEPS) recommendations continues. Given the short timeline from inception to implementation of the new U.K. tax, there is some uncertainty about how it will work, and future revisions are likely.


Wednesday, 3/25

House Ways and Means Committee

The full committee meets to markup a package of tax bills, mostly related to clamping down on the IRS, with the exception of a bill to repeal the estate tax. The markup takes place in 1334 Longworth. Read more here.

Thursday, 3/26


The Senate's consideration of the FY 2016 budget resolution will turn into a symphony (or cacophony) of dozens of messaging votes on amendments covering everything from climate change to taxes—and plenty in between—under the Senate's unique rules surrounding votes on the budget blueprint. Although none of the amendments would have the force of law if adopted, they give lawmakers a chance to tout their policy priorities on the floor and test their staffers' endurance. The last time the Senate had a vote-a-rama, votes ended around 5:32.... A.M.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions