United States: Tax Policy Update - March 31, 2015

NUMBER OF THE WEEK: $23 Billion

The total revenue generated by the additional Medicare tax and the net investment income tax used to pay for the Affordable Care Act. The total exceeds the Joint Committee on Taxation's 2010 estimates by $2 billion according to the latest data from the Internal Revenue Service. The JCT expects the revenue to increase to $38.5 billion in 2019.

LEGISLATIVE LANDSCAPE

Dancing the Two Step to Tax Reform. House Ways and Means Chairman Paul Ryan (R-WI) is open to tackling tax reform in two phases with business up first. "I'm happy to do tax reform in two phases if that's necessary, so long as the first phase doesn't preclude but actually facilitates the second phase, which is to finish the job and lower the rates across the board for families and individuals," Ryan said at a press conference with tax reporters. To be sure, revamping the business and individual sides of the tax code separately would pose certain challenges, especially in the treatment of pass-through entities, which are taxed at the individual rate. Doing business-only reform would leave these entities stuck at a higher tax bracket. Both Ryan and Senate Finance Chairman Orrin Hatch (R-UT) have acknowledged the challenge of passthroughs but have yet to present specific proposals to address the disparity. When asked about the prospects of marking up a bill this year, Hatch remained noncommittal and said he is waiting on final reports due in May from his five working groups. Meanwhile, Hatch and Ryan are continuing to meet weekly to strategize and review progress.

Diving into the deep end of reform is Congressman Charles Boustany, Jr. (R-LA), who has told reporters that he is working on a bill aimed at reforming the international tax system, apparently at Chairman Ryan's behest. Some say this is evidence that Ryan is much more inclined to delegate pieces of the tax reform puzzle to Ways and Means Committee members than his predecessor, Dave Camp, was. Speaking of Camp, Boustany said his bill would be similar in many ways to the international proposals originally offered in Camp's Tax Reform Act of 2014.

Sen. Markey Introduces Medical Device Tax Repeal. The Massachusetts senator introduced the "No Taxation on Device Innovation Act" (S. 844), which would repeal the 2.3 percent medical device excise tax. The repeal would cost approximately $29 billion over 10 years, and Sen. Markey (D-MA) is looking to the oil and gas industry for an offset. The legislation would eliminate the last-in, first-out or LIFO accounting for "major, integrated" oil companies – generating at least $14.1 billion according to the Joint Committee on Taxation. The bill would also repeal a provision that allows oil companies to drill for free on public lands offshore in the Gulf of Mexico, which would generate $15.5 billion.

Ways and Means Approves Repeal of Estate Tax. Members of the House Ways and Means Committee met last Wednesday to markup a package of IRS oversight bills. Among the bills was a measure that would repeal the estate and generation-skipping transfer taxes and modify the way the gift tax is calculated. The "Death Tax Repeal Act of 2015" (H.R. 1105) was approved and reported out by the panel in a party-line vote of 22 to 10. The bill might be brought up on the House floor for consideration during the week of April 13, when the chamber returns from recess. House passage is expected, and Senate Finance Chairman Hatch has previously indicated that he is amenable to moving the estate tax bill as stand-alone legislation.

House and Senate Pass Budget Resolutions, Working on Final Budget Agreement. Both the House and Senate approved their respective budgets for fiscal year 2016 before members left for the spring break recess. The House budget (H. Con Res. 27) was approved by a vote of 228 to 199. House members rejected five different versions of the blueprint before settling on one that would increase funding for the Overseas Contingency Operations account to $96 billion without the need for an offset. In the wee hours of Thursday morning, the Senate passed its own budget plan (S. Con. Res. 11) by a vote of 52 to 46. The House and Senate budget chairmen are planning to meet after recess to iron out the remaining differences between the two blueprints. As it stands, the House and Senate are fairly similar save disagreements over mandatory dynamic scoring, the fate of Medicare, the scope of the reconciliation instructions, and the level of overall funding for defense. Budget Chairmen Tom Price and Mike Enzi are still hoping to deliver an identical budget by April 15.

Although members had filed more than 700 amendments, only 146 of them were eventually adopted either by unanimous consent or roll call votes. As with the overall budget blueprint, these amendments are nonbinding and serve merely as political messaging opportunities for each party. Among the amendments were 70 tax-related provisions. A list of notable amendments is included below.

Select Tax-Related Amendments to Senate Budget Resolution (S. Con. Res. 11)
Amendment No. Purpose Status
(Yeas-Nays)
323 (Sanders) To create millions of middle class jobs by investing in our nation's infrastructure paid for by raising revenue through closing loopholes in the corporate and international tax system. Rejected
(45-52)
357 (Cornyn) To raise taxes and spending by enacting President Obama's fiscal year 2016 budget. Rejected
(1-98)
394 (Coons) To establish a deficit-neutral reserve fund (DNRF) relating to special treatment of the income tax credit for research expenditures for startup companies. Agreed to
(unanimous)
428 (Moran) To establish a DNRF to extend the exception for the tax treatment of publicly traded partnerships for renewable energy power generation projects and transportation fuels. Filed
432 (Baldwin) To provide additional resources to create the opportunity for more Americans to obtain a higher education and advanced job skills by supporting two free years of community college paid for by raising revenue through requiring millionaires and billionaires to pay their fair share. Rejected
(45-55)
441 (Stabenow) To establish a DNRF relating to the Oil Spill Liability Trust Fund, equalizing the per barrel OSLT taxes for all oil sources. Filed
444 (Gardner) To establish a DNRF relating to reforming and expanding the earned income tax credit. Filed
523 (Stabenow) To prevent United States companies from getting tax benefits for moving jobs overseas, to end offshore tax loopholes including inversions, and to provide incentives for United States companies to relocate overseas jobs to the United States. Rejected
(46-54)
607 (Thune) To establish a DNRF to allow for the permanent elimination of the Federal estate tax. Agreed to
(54-46)
621 (Wicker) To establish a DNRF to repeal the Foreign Account Tax Compliance Act (FATCA) Filed
634 (Casey) To establish a DNRF to ensure that works without a retirement plan through their employer have access to a retirement savings option Filed
689 (Portman) To create a rule requiring the Senate to adopt dynamic scoring of major tax and spending legislation. Agreed to
(59-41)
652 (Warren) To make college more affordable for middle-class families by allowing borrowers with outstanding Federal and private student loans to refinance at the equivalent interest rates that were offered to Federal student loan borrowers during the 2013-2014 school year and to fully offset the cost of such a program by requiring millionaires to pay at least a 30 percent effective Federal tax rate. Rejected
(46-53)
685 (Portman) To establish a DNRF to make permanent the expensing limitations applicable for 2014 for Section 179 property. Filed
817 (Durbin) To establish a DNRF to provide tax benefits to patriot employers that invest in American jobs and provide fair pay and benefits to workers and to eliminate tax benefits for corporations that ship jobs overseas. Rejected
(46-54)
870 (Wyden) To establish a DNRF to extend tax provisions expiring in 2013 or 2014 for 2 years, such as those contained in the EXPIRE Act of 2014. Withdrawn
875 (Hirono) To establish a DNRF to permanently extend the New Markets Tax Credit. Filed
913 (Reed) To establish a DNRF to end offshore tax abuses by large corporations. Filed
919 (Reed) To establish a DNRF to eliminate deductions for corporate compensation in excess of $1,000,000. Rejected
(44-54)
928 (Blunt) To establish a DNRF to protect the United States from an energy tax. Agreed to
58-42
947 (Bennet) To ensure that small businesses are provided relief as part of tax reform by permanently increasing the maximum amount of the section 179 small business expensing allowance to $1,000,000 and the investment limitation to $2,500,000 and indexing them both for inflation. Agreed to by voice vote
968 (Wyden) To establish a DNRF to enact middle class tax relief, including extending and expanding refundable tax credits, such as tax provisions and policies included in legislation like the Working Families Tax Relief Act, American Opportunity Tax Credit Permanence and Consolidation Act, Helping Working Families Afford Child Care Act, or the 21st Century Worker Tax Cut Act, among other legislation. Agreed to
(73-27)
995 (Hatch) To reform the tax code comprehensively and without raising new revenue in order to ensure the revenue structure is efficient, pro-growth, fair, simple, permanent, and competitive, promoting savings and investment. Filed
1029 (Hatch) To establish a DNRF to prevent American jobs from being moved overseas by reducing the corporate income tax rate. Agreed to by voice vote

REGULATORY WORLD

Back to the Ol' Mandatory Arbitration Drawing Board . Ms. Grace Perez-Navarro, Deputy Director of the Organization for Economic Cooperation and Development (OECD), recently stated that the OECD would go back to the drawing board to work on dispute mechanisms for mandatory arbitration as it relates to the Base Erosion and Profit Shifting (BEPS) project. Earlier this year, OECD released a discussion draft indicating that there was no consensus reached on universal mandatory arbitration. The comment letters said that this would not be workable and that it was unacceptable. The outpour from the business community carried the message that mandatory arbitration is needed to provide certainty and guard against double taxation; however it would only apply to 25 countries-mostly the OECD member countries-as opposed to all countries. It is likely the OECD will release a revised discussion draft on "Making Dispute Resolution Mechanisms More Effective (Action Plan 14), but no release date has been set.

SIFMA Seeks FATCA FAQ Clarification . The Securities Industry and Financial Markets Association (SIFMA) recently submitted a letter to Treasury asking for clarification regarding a frequently asked question publication on the Foreign Account Tax Compliance Act (FATCA). Specifically, the SIFMA asked for guidance on whether banks must refuse to open or close accounts if they cannot get self-certification from account holders. Question 10 under "General Compliance" of the FAQ publication indicates that foreign financial institutes must obtain self-certification. SIFMA notes that this is inconsistent guidance with intergovernmental agreements already in place putting members that operate across borders in "untenable situations." SIFMA has not taken a position on who is right in the perceived disagreement.

Professional Sports in Tax-Exempt Crosshairs . Chairman Chaffetz of the House Oversight and Government Reform Committee has asked NFL Commissioner Roger Goodell and other professional sports organizations for information regarding their tax-exempt status. The NFL and other organizations have been recognized as being tax exempt pursuant to Section 501(c)(6) of the tax code for nearly 50 years, but Chaffetz and others have proposed to repeal the exemption. In a letter to Commissioner Goodell, Chaffetz says the tax exempt status was a designation reserved for trade associations. He further points to an internal IRS memo indicating that the IRS does not believe professional sports leagues qualify for the exemption. Recently introduced H.R. 547 would eliminate the exemption for such leagues, raising $109 million over the 10-year budget window. Ten similar organizations were also asked to produce information on their exemptions.

LOOKING AHEAD

** Congress is in recess, returning the week of April 13.**

PROGRAMMING NOTE.

The McGuireWoods Tax Policy Update will also return the week of April 13. Happy Recess!

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