November 16, 2017
Another busy week for our dynamic government affairs duo, with lots of press given to the Senate GOP’s tax bill, which now includes a repeal of the ACA’s individual mandate. Will complicating the bill by adding the mandate repeal prove to be a mistake with a tight deadline and several lawmakers—on both sides of the aisle—on the fence about supporting the legislation?
You name it, we’ve got it—Cadillac Tax, individual mandate, employer-sponsored insurance, and even flood and FATCA. Updates galore, plus this House/Senate tax comparison memo produced by our legal team at Steptoe & Johnson. Please note: as of this afternoon, the House passed its bill with 227 votes.
There’s a lot happening in short order in Congress on the tax reform front. Senate Finance Committee Chairman Orrin Hatch (R-UT) released his latest version of the tax reform draft this week, which the Senate Finance Committee is actively marking up. Lots of good news for us in the Senate Finance effort:
- Pass-Through Language
Hatch’s version provides a lot of relief to our concerns about pass-through entities (see the notes below). The W-2 limits on deductions is significantly scaled back, and the service business limitation is significantly relaxed from the earlier versions. We consider these provisions very helpful. We made a lot of noise over the past week along with the NFIB and others in the business community businesses that the pass-through language was a problem. This letter was sent the Senate Finance Committee on Tuesday. Prior to this development, Sen. Ron Johnson (R-WI) was the squeakiest wheel in the chamber on the pass-through issue and indicated that it needed to be solved. We’re curious to hear your thoughts on the latest proposal.
- Headline Changes of the Hatch Bill
The headline change is that virtually ALL individual tax relief originally-proposed by the Senate Finance Committee is now to be automatically sunset by the start of 2026, including the changes to individual tax rates, standard deductions, and the 17.4 percent deduction for domestic qualified business income.
Beyond that, with respect to the deduction provision for domestic QBI itself, the Chairman’s modifications expand the originally-proposed 17.4 percent deduction in the following two general ways, which appear to be significant expansions.
- First, the W-2 limit on such deductions is relaxed. Instead of the 17.4 percent deduction of domestic QBI of an individual being limited overall to 50 percent of W-2 wages allocable to such individual from pass-through entities or sole proprietorships starting from the first dollar of domestic QBI, the modification fully turns off such limit to the extent the individual has taxable income less than or equal to 500K (if filing MFJ) (and then such limit is turned on gradually as taxable income increases from 500K to 600K (if filing MFJ)).
- Second, the specified service business limitation is relaxed. Instead of such limitation turning on as taxable income of an individual begins to exceed 150K (if filing MFJ) and then fully turning on as taxable income reaches 200K (if filing MFJ), the modification increases these thresholds to 500K and 600K, respectively (if filing MFJ).
The original revenue estimate for this deduction provision was approximately 460B over 10 years. The revenue estimate for this deduction with the above modifications is approximately 100B less at 362B, presumably due to the new sunsetting mechanism also applicable to such deduction.
Sen. Tim Scott will be offering an amendment to the package this week to correct our FACTA withholding issue. As you know, we’ve been working for years to get Treasury to exclude non-cash value commercial p/c premiums from the FATCA regulations. Sen. Scott has been a big champion on this over the past year and is making waves at Treasury and now through tax reform. There are a lot of hurdles to getting the amendment adopted, most notably getting the amendment scored at zero from the Congressional Budget Office, which, as you can imagine, is overwhelmed with scoring amendments. There are more than 350 amendments being considered in the Senate Finance Committee this week. We’re working to get ours in the queue.
On Tuesday evening, the House of Representatives passed HR 2874, the 21st Century Flood Reform Act, by a somewhat bipartisan vote of 237-189. Coastal Republicans continued to buck party leadership and voted against the measure citing affordability concerns, while a few Democrats defied party leadership by supporting the effort. HR 2874 reauthorizes the National Flood Insurance Program for five years, opens access for the private insurance market—including the removal of the non-compete clause—and gradually phases out federal government subsidization of severe repetitive risk homes. The President has indicated that he will sign the bill into law if it comes to his desk, but for now, it’s up to the Senate to either consider HR 2874 or come up with its own legislation…by December 8. A complete analysis of the legislation is here.
The Council Launches New Drug Pricing Transparency Legislation Tracker
A number of the states, struggling to cover rising healthcare costs, have been addressing the issue rather than waiting for federal help. At least 176 bills on pharmaceutical pricing and payment have been introduced this year in 36 states, according to the National Conference of State Legislatures.
Our legal team at Steptoe & Johnson has compiled this state-by-state drug pricing transparency legislation tracker to highlight states that have either passed bills, or are close in the process.
ACA Reform Legislation Tracker
Our Affordable Care Act Reform Legislation Tracker, which includes six newly introduced legislation and other procedural updates, is updated as of November 10. Click here for a PDF.
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