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Crowded September Agenda Seen as Unlikely to Affect Tax Reform

Posted on September 5, 2017 by David van den Berg Asha Glover

Lawmakers returning to Capitol Hill September 5 will face an agenda packed with controversial items that have to be dealt with in a short amount of time, but a former House Ways and Means Committee staffer said none of that is likely to have a major impact on tax reform legislation.

“The tax work is happening on a different track,” said Harold Hancock of McGuireWoods LLP, former tax counsel to the committee. “The ambitious agenda will certainly take up members’ time, but it’s not going to stop tax from moving forward.”

The ambitious agenda Hancock referred to includes needing to pass legislation to keep the government operating before it runs out of money at the end of the day September 30; to raise the country’s debt limit; to renew authorizations for the Federal Aviation Administration, the Children’s Health Insurance Program, and flood insurance; and to pass a Hurricane Harvey relief package. As Congress grapples with all of that, the House is scheduled to be in session for only 12 days in September, while the Senate will be around for 17.

Earl Pomeroy, a former Ways and Means Committee member now with Alston & Bird LLP, said there are two things that strike him about the packed September legislative outlook.

“The work is very politically difficult and time-sensitive, and secondly, it doesn’t seem like much got done in August to develop the path forward,” Pomeroy said. “The acrimony from the failed healthcare bills produced tough personal attacks — and that was just between the Republicans. There didn’t seem to be any outreach by Republicans to Democrats to build a bipartisan congressional front on these issues, either.”

Pomeroy said he expects Congress will “do what it usually does: punt.”

“Look for short-term extensions of critically needed actions, like [on the] debt limit and funding, while the positioning and negotiations get serious in the fourth quarter,” he said.

Janice Mays, former Democratic chief counsel and staff director for the Ways and Means Committee, said she expects lawmakers to come back not having a plan for any of the issues facing them in September. “My time in Congress has told me these things don’t get resolved until the last minute anyway,” said Mays, now managing director of Washington National Tax Services for PwC.

Failing to resolve issues in September will hamper efforts in Congress to “move cleanly to tax reform in the fourth quarter,” Pomeroy said, because “there will be too many open issues, presenting both parties with many points of leverage against the other.”

Not Moving to Tax Cuts Yet

According to Treasury Secretary Steven Mnuchin, the “Big Six” of top congressional Republicans and White House officials have agreed to a detailed tax reform blueprint that is being reviewed by House and Senate lawmakers and will soon be unveiled to the public, likely in September.

The group — Mnuchin; National Economic Council Director Gary Cohn; Senate Majority Leader Mitch McConnell, R-Ky.; House Speaker Paul D. Ryan, R-Wis.; Senate Finance Committee Chair Orrin G. Hatch, R-Utah; and House Ways and Means Committee Chair Kevin Brady, R-Texas — has announced its tax reform principles, but the details of the proposal still need to be filled in.

The White House previously laid out a timeline for tax reform that involved hearings and markups after Labor Day, followed by House passage of legislation in October and Senate passage in November. But neither taxwriting committee has announced any upcoming tax reform hearings.

Former Ways and Means Committee member Charles W. Boustany Jr., now with Capitol Counsel LLC, said that the surest way to get something done on tax reform this year is to pass “a big tax cut across the board.”

Mays agreed that with time running out, a bill that consists mostly of rate cuts is more and more likely. But she added that congressional Republicans are likely to call whatever they produce tax reform, even though in her mind, tax reform means fundamental changes to the code.

Tax reform is a “significant rewrite” of the code, and that’s exactly what Congress is continuing work on, Hancock said. “I don’t think they’re going to move away from that until they feel like there’s just no opportunity,” he said. “Right now everyone is focused on comprehensive reform.”

That’s the approach the U.S. Chamber of Commerce is taking, too, said Caroline L. Harris, the organization’s vice president for tax policy. “We’re not talking about tax cuts right now; we’re talking about a comprehensive overhaul of the tax code,” she said.

When asked about advancing a tax reform bill in the time that remains on the congressional calendar, Hancock said legislative days can always be added. He added that a “tremendous amount of work” has already been done on tax reform over the last six years. “Tax reform didn’t just start a few months ago,” he said. “They’re much further along in the process than I think people give them credit for.”

Budget Plans Unclear

Republicans will be attempting to pass tax reform using budget reconciliation instructionsthat would allow for a simple 51-vote majority for passage in the Senate. But that would be dependent on both chambers passing a fiscal 2018 budget resolution that includes those instructions.

While the House Budget Committee approved its budget resolution in July, it is unclear when the full House might take it up. The Senate Budget Committee has not released its own resolution.

With the fiscal year due to expire at the end of September, it’s also unclear whether Congress could just revise its fiscal 2017 budget reconciliation instructions to apply to tax reform legislation instead of healthcare. A Senate aide told Tax Analysts it may be possible to do so if the proposal meets reconciliation instructions.

However, because of a September 1 ruling from the Senate parliamentarian that the fiscal 2017 reconciliation instructions for repealing the Affordable Care Act expire September 30, using those instructions for tax reform would effectively mean the legislation would need to advance through both chambers by then. Sen. Bernie Sanders, I-Vt., ranking minority member of the Senate Budget Committee, hailed the ruling in a September 1 release.

Even without passage of a fiscal 2018 budget resolution, the House has already begun passing appropriations bills for the next fiscal year. The week of September 4, the chamber is expected to take up “minibus” legislation that includes appropriations for a number of federal agencies and departments, including the IRS. Still, most prognosticators expect Congress to pass a short-term continuing resolution to keep government funded beyond September 30.

Both the debt limit and government funding can be handled on a short-term basis in September but must be dealt with in some fashion, Mays said. Some funding for Hurricane Harvey cleanup could be tied to government funding, she suggested.

Harvey Tax Proposals Possible

Boustany said that based on relief efforts following hurricanes Rita and Katrina in 2005, lawmaker proposals in the aftermath of Hurricane Harvey could also include a tax package.

“We’ll see a number of proposals to help with relief as a result of Harvey. Knowing what happened in 2005 with Rita and Katrina, we had a series of bills, including a tax package,” Boustany told Tax Analysts. He added that he modeled tax relief legislation he introduced last year, the Louisiana Flood and Storm Devastation Tax Relief Act of 2016 (H.R. 6137), on the Gulf Opportunity Zone Act of 2005.

The Gulf Opportunity Zone Act allowed for expanded expensing, including for the removal of debris; extended the net operating loss carryback period from two to five years; and provided benefits for temporary housing.

Boustany added that providing relief for victims of Hurricane Harvey could result in “a robust discussion about additional funding.”

Dylan F. Moroses and Stephen K. Cooper contributed to this article.

Follow David van den Berg (@TAtaxDavidVDB) and Asha Glover (@AshaSGlover) on Twitter for real-time updates.