Blog Posts Tagged With Budget Reconciliation

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The Latest from the JCT

The Joint Committee on Taxation (“JCT”) released two documents over the weekend comparing the House and Senate Bills – one describing the differences and similarities between the two bills, and a second focusing on the effect that those differences have on the revenue generated by each bill on a static basis.  The JCT’s revenue comparison finds that both bills cost roughly the same amount before factoring in economic growth – with the House Bill clocking in at $1.4455 trillion over ten years with the Senate Bill at $1.4468 trillion.

The JCT also released its dynamic score of the final House Bill yesterday, estimating that the House Bill would increase the level of real GDP relative to the baseline forecast by 0.7% on average throughout the 10-year budget window.
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JCT Scores Tax Bill Reported Out of Ways and Means Committee

Last weekend the Joint Committee on Taxation released its updated score of the House tax bill as reported out of the Ways and Means Committee.  The updated estimate predicts a loss of $1.436 trillion in revenue over the 10-year budget window, within the guidelines established under the Joint Budget Resolution that controls whether the legislation will be eligible for the filibuster-proof reconciliation procedures in the Senate.  Almost $600 billion of the loss in revenue results from the House bill’s preferable treatment of pass-through business income, and another approximately $475 billion in net revenue loss results from the House bill’s corporate and international tax reforms.
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JCT Releases Score of Senate Finance Committee’s Mark of Tax Reform

The Joint Committee on Taxation has released its score of the Senate Finance Committee Chairman’s Mark tax reform proposals. Although formal bill text is not expected to be available prior to next week, the Joint Committee presumably relied on the detailed section-by-section summary released by the Joint Committee last night.

Under JCT’s analysis, the proposals are expected to reduce federal revenues by $1.495 trillion over the 2018-2027 budget window, within the framework established under the governing Joint Budget Resolution. The JCT’s estimates do not extend to periods beyond the budget window, during which the bill’s effects must be deficit neutral in order to be passed by majority vote under the rules for reconciliation.  
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CBO Scores Initial Chairman’s Mark of the House Tax Bill

Today the Congressional Budget Office released revised estimates of the deficit and debt effects of the House tax bill as amended by Chairman Kevin Brady’s (R-TX) mark from last week.  Under the CBO’s analysis, the initial Chairman’s Mark of the tax bill would increase the deficit by $1.7 trillion during the ten-year budget window, greater than the $1.5 trillion increase authorized by the Joint Budget Resolution (see our prior post on the Senate’s passage of the resolution here).  These estimates do not reflect the revisions made by the Chairman’s amendments adopted on Monday, which reportedly further decrease expected revenues.
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House Passes Budget; Clears Way for Tax Reform

The House passed the Senate’s FY 2018 budget this morning 216-212, clearing the way for tax reform to move forward through the budget reconciliation process. This would allow the Senate to pass a tax reform bill with a bare majority vote instead of the 60 votes required to bring a bill to a vote under ordinary procedures. The House’s passage of the budget matches the timeline laid out earlier this week by House Speaker Paul Ryan (R-WI). Following this timeline, we have been told to expect to see a full tax bill next Wednesday, November 1.
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Senate Jumps Over Procedural Hurdle; Passes Budget with Tax Reform Instructions

Tax Reform cleared a major procedural hurdle last night when the Senate passed a budget 51-49. Perhaps more important, Senate and House Republicans also reached an agreement on how to reconcile the differing House and Senate budget bills, which may eliminate the need for a conference committee. As expected, the Senate’s version of the budget contains instructions for tax reform, opening the door for Republicans to pursue tax reform with a bare majority through the budget reconciliation process.

The Senate budget resolution does provide some interesting (although not unexpected) clues as to the content of tax reform legislation.

For example, the Senate’s budget resolution allows the tax reform bill to add up to $1.5 trillion to the deficit over 10 years, which House Republicans confirmed would carry through to the final negotiated resolution.
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What is in a Baseline? Current Law vs. Current Policy

Revenue neutrality has traditionally been among the stated goals of Congressional Republicans with respect to tax reform. This goal generally requires that any rate reduction, new tax incentives, or policy changes (e.g., territoriality) be funded with new revenues from elsewhere in the system. Recently, though, some lawmakers have started asking how to properly define “revenue-neutrality” (and whether it can be defined in a way that requires less new revenue to offset the revenue lost as a result of tax reform).  (Others are now questioning whether revenue neutrality is a worthwhile goal at all.)

At issue is how the status quo or “baseline” is defined for purposes of comparing proposed reforms. 
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(Re)Setting the Stage for Comprehensive Tax Reform: Big Six Send First Signals

The Legislative Calendar: Six Months In.  With yesterday’s late night last ditch failed effort by the Senate to pass a so-called “skinny” repeal of the Affordable Care Act, the Republican controlled chamber has nearly run the clock on its strategy for passing major legislation by majority vote, which relied on reconciliation instructions under the FY 2017 budget resolution (a process we highlighted back in December). Congress will soon need to adopt budget resolutions for the 2018 fiscal year if regular order is to be readopted and any progress is to be made on the President’s budget proposals (which are traditionally only a starting point for negotiations).
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President Trump To Announce Tax Reform Principles

The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15%
  • Repeal the corporate AMT
  • Deemed repatriation of accumulated offshore earnings taxed at 10%
  • No destination-based cash flow tax
  • Shift toward territoriality?

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Mnuchin: Tax Reform Timing Likely to Slip and Other Hints at the Administration’s Thinking

Treasury Secretary Steven Mnuchin told the Financial Times yesterday to expect tax reform to slip past the August recess, stating that the previously announced timeline was “highly aggressive to not realistic at this point.” Mr. Mnuchin’s interview touched on other areas of tax reform as well, confirming that the Administration has not ruled out the DBCFT (and the ~$1 trillion of revenue it would purportedly raise) while implying that the Administration is also considering alternative revenue raisers.  When asked how the Administration would ensure tax reforms were deficit-neutral, Mr. Mnuchin also stressed the importance of economic growth in generating revenue, implying that the Administration may lean on dynamic scoring to meet the reconciliation process’s budget neutrality requirements.
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Fast Facts on the Budget Reconciliation Process

Because the 114th Congress never took up action on a FY 2017 budget, the current Congress has the opportunity to pursue two separate budget resolutions with reconciliation instructions (one for FY 2017 and one for FY 2018). This would give Republicans two opportunities to pass legislation without threat of filibuster in the Senate, which appears to be the plan to push through both legislation to repeal and replace the Affordable Care Act, as well as tax reform legislation. (Senate debate over budget bills produced in the reconciliation process is limited to 20 hours, so Republicans will not need a 60-vote supermajority to end a filibuster and bring the bill to a vote.)
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Details on the House Health Care Bill’s Numerous Tax Changes

On Monday night the House of Representatives unveiled legislation to repeal and replace the Patient Protection and Affordable Care Act (the “ACA”), which would reduce numerous federal taxes by eliminating almost all of the tax increases that were introduced as part of the ACA.  A copy of the bill is available here.  According to analysis released yesterday by Congress’ Joint Committee on Taxation, the bill, titled the American Health Care Act (“AHCA”), is expected to reduce taxes by approximately $600 billion over ten years.  Although the bill leaves untouched the economic substance doctrine that was codified with the ACA, the bill notably provides significant taxpayer relief by:

  • Repealing the 3.8% tax on certain net investment income under Section 1411 for taxable years starting after December 31, 2017
  • Repealing the 0.9% Medicare surtax under Sections 3101 and 1401 on wages above certain thresholds starting after December 31, 2017
  • Reducing to zero the penalty/tax on employers that do not offer qualifying health insurance, effective starting in 2016
  • Reducing to zero the penalty/tax on individuals who do not purchase qualifying health insurance, effective starting in 2016
  • Repealing the annual fees imposed on health insurance providers and certain manufacturers and importers of branded prescription drugs, effective starting in 2018
  • Delaying from 2020 to 2025 the imposition of an excise tax on certain high-value health insurance plans (commonly referred to as “Cadillac plans”)
  • Generally lowering the threshold for deductibility of medical expenses for taxable years starting after December 31, 2017 and extending through 2017 the lower threshold under current law for taxpayers aged 65 or older
  • Repealing the tax on medical devices under Section 4191 for sales after December 31, 2017
  • Repealing the limitation on salary reduction contributions for health flexible spending arrangements under Section 125(i) for taxable years beginning after December 31, 2017
  • Increasing the maximum contributions to Health Savings Accounts (“HSAs”) under Section 223 and lowering the applicable tax on distributions from HSAs includible in income for taxable years beginning after December 31, 2017
  • Expanding the definition of qualified medical expenses to include non-prescription over-the-counter medicine for purposes of HSAs, Archer MSAs under Section 220, and Health Flexible Spending Arrangements and Health Reimbursement Arrangements under Sections 105 and 106 for taxable years beginning after December 31, 2017
  • Repealing the sales tax on indoor tanning services under Section 5000B starting in 2018
  • Eliminating the limitation on deductibility of remuneration for services paid by health insurance providers under Section 162(m) for taxable years beginning after December 31, 2017

Unlike prior versions of the bill leaked to the press in recent weeks, the AHCA does not include a cap on the exclusion from income for employer-provided health insurance under current law.
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Setting the Stage for Comprehensive Tax Reform

Tax reform will be one of the top priorities for the 115th Congress. Hopes for pursuing tax reform to a successful conclusion are high, given one-party control of the government (and exuberant campaign promises). Following the 2016 election, Davis Polk laid out the background and context in which tax reform measures will be considered, with links to summaries of the leading proposals and details on the politics of tax reform. Although life in Washington has moved forward since this memo was published, the key points and players remain the same. Read on for things to watch.

Setting the Stage for Comprehensive Tax Reform, December 2, 2016

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