Capitol to Capitol | Nov. 27, 2017

Three Storylines Dominate the Remainder of 2017 in Washington

This week, Congress returns to a Washington that will be dominated by three storylines for the remainder of 2017: tax reform, a possible government shutdown and sexual harassment. 

Tax Reform

By the end of next week, we should know whether or not Congress will be able to deliver to President Donald Trump his “huge tax cut” for Christmas. But for that to happen, Senate Majority Leader Mitch McConnell (R-Ky.) will need to secure at least 50 votes in his chamber, which at the moment he does not appear to have. At least six GOP senators have raised concerns about specific provisions in the tax bill as it is currently drafted.

DYK?

Congress passed a national income tax in 1894, which was ruled unconstitutional the following year by the U.S. Supreme Court in Pollock v. Farmers’ Loan & Trust Company. The court said it was a direct tax not apportioned according to the population of each state, in violation of Article I, Section 9, of the Constitution. After the Pollock decision, two forces, Populists and Prohibitionists, joined together to get Congress and at least 36 states to make the income tax legal via the 16th Amendment. Populists thought more people, especially those with higher incomes, should pay taxes. Prohibitionists realized the income tax was needed to replace lost taxes on alcohol sales.

In broad fiscal terms, the House and Senate tax bills are similar in that, when possible economic growth is not considered, the two bills will add $1.4 trillion over 10 years to the federal debt. The two plans have significant differences, however, in how they would reduce taxes. The House-passed bill includes $1.1 trillion of business tax cuts, $200 billion of individual tax cuts, and $151 billion from estate tax repeal. The Senate legislation has $900 billion of individual tax cuts, $700 billion of business tax cuts, $83 billion from estate tax cuts, and $318 billion of savings from repealing the individual mandate.

This week, Senate Republicans are expected to release changes to the tax bill that passed the Senate Finance Committee on Nov. 16. Keep in mind that the total size of the tax plan cannot be more than $1.5 trillion over a decade, so adding new benefits could force Republicans to find ways to raise additional revenue.

The first policy hurdle for Republicans will take place Tuesday afternoon when the Senate Budget Committee meets to merge the tax bill with a separate measure that raises revenue by allowing drilling in the Arctic National Wildlife Refuge. This provision was added as an enticement for Senator Lisa Murkowski (R-Alaska), who has yet to commit to the overall tax package. The Budget Committee’s action would typically be viewed as a procedural move, but as Republicans only hold a one-seat majority on the committee, a no vote from any of the committee’s Republicans could swiftly halt the advancement of the tax package.

Assuming the tax legislation clears the Senate Budget Committee, the Senate could then begin consideration of amendments on the Senate floor, a process known as “vote-a-rama.” After the “vote-a-rama,” the Senate would be able to vote on final passage, which could come as early as this Thursday. Assuming that the Senate passes a tax measure, it is unclear what would happen next. Either both the House and Senate would form a conference committee to resolve the differences in the legislation, or the House could simply vote on the Senate bill as passed. But for either of those scenarios to be realized, the Senate must first pass a bill.

If Republicans want to secure their first major legislative victory this year, they will have to navigate these hurdles:

  • A Government Shutdown: If Congress does not pass a funding bill by next Friday, Dec. 8, the federal government will shut down. If the government shuts down before Congress passes its tax overhaul, it will almost certainly push consideration of the tax bill into 2018.
  • Individual Mandate Repeal: The Senate bill repeals the requirement in the Affordable Care Act (ACA) for individuals to have health coverage, which the Congressional Budget Office (CBO) projects would save the government $338 billion over the next 10 years. Repeal of the individual mandate, however, could potentially have an immediate impact on penalties, insurance premiums and health insurance decisions for millions of Americans. Senators Susan Collins (R-Maine) and Jerry Moran (R-Kan.) have expressed concerns about including the insurance provision in the tax proposal, but if it is removed, Republicans will be forced to find hundreds of billions of dollars revenue.
  • Tax Treatment of Small Businesses: Senators Ron Johnson (R-Wis.) and Steve Daines (R-Mont.) have expressed concerns that the tax overhaul unfairly disadvantages small businesses, which are often called “pass-through” businesses. However, lowering the tax rates for these businesses, which account for the bulk of U.S. businesses, would likely cost hundreds of billions of dollars and would raise the price tag of the legislation substantially.
  • State and Local Tax (SALT) Deduction: The House tax legislation eliminated the ability for individuals to deduct their state income and sales taxes from their federal tax returns, but it retains the ability of taxpayers to deduct up to $10,000 in property taxes. The Senate tax bill, as currently drafted, eliminates the SALT deduction entirely for individuals. Like the House bill, however, it allows corporations to deduct their state and local taxes. Senate Republicans are currently in discussions to amend their legislation to allow individuals to deduct up to $10,000 in property taxes as well as curbing the ability of corporations to deduct state and local taxes from their taxable income. However, allowing individuals to deduct $10,000 in property taxes could cost more than $100 billion over 10 years and would likely force Senate leadership to find new money to offset the provision.
  • Sunset of Individual Tax Breaks: The Senate legislation sunsets almost all of the individual tax provisions after 2025 to meet the fiscal requirements of Senate rules. While multiple Republicans have stated that they expect the tax cuts for individuals to be extended in future years, Republican fiscal hawks are concerned that extending these provisions would add even more to the public debt.
  • Public Debt: Deficit hawks, including outgoing Senators Bob Corker (R-Tenn.) and Jeff Flake (R-Ariz.), have voiced concerns about the tax legislation’s effect on the federal debt. While the estimates of how the House passed tax legislation, the Tax Cuts and Jobs Act, would affect the deficit and debt vary, they nearly all agree that the bill would add to the federal debt, which at $20.5 trillion, is 105 percent of the nation’s GDP:
    • The Tax Policy Center projects the House-passed legislation would increase the debt as a share of GDP by 5 percent by 2027.
    • The Tax Foundation projects that the bill would be much closer to revenue-neutral after accounting for economic growth.
    • The Penn Wharton Budget Model’s (PWBM) projects the legislation will increase public debt by $2 trillion over the next decade.
    • The Committee for a Responsible Federal Budget (CRFB) has detailed the cost the House and Senate tax bills by provision here.
  • Dec. 12 Alabama Special Election: The Dec. 12 special election in Alabama for Attorney General Jeff Session’s former Senate seat could complicate matters for Senate Republicans if they fail to pass a tax overhaul before the election. If Democrat Doug Jones prevails, Republicans’ slim two-seat majority in the chamber will be cut in half. However, if Republican Roy Moore, who has faced a series of allegations of sexual assault and harassment, prevails, Senate Republicans may be forced to shift their focus from tax reform to whether or not to expel their newest member from the chamber.

NCSL Contacts: Max Behlke, Jake Lestock  

Funding Fight May Shut Down the Government

Republican and Democrat leaders in both chambers are in talks to pass a year-end spending package that would fund the government through the remainder of the fiscal year, which ends on Sept. 30, 2018. But first, Congress will need to pass a short-term spending bill, likely through the end of December, to stave off a government shutdown when the current spending bill expires on Dec. 8. A short-term spending bill is all but inevitable given that congressional leaders have yet to agree on the spending numbers that are necessary for the appropriations committees to be able to draft the legislation.

Given that the spending bill is a “must-pass” measure, Democrats will be able to wield a great deal of leverage on what is in the bill. At the top of the Democrats’ list of demands is a provision that would codify the Deferred Action for Childhood Arrivals (DACA) program into law. DACA is an Obama-era immigration program that afforded children illegally brought into the United States a path to citizenship. However, the inclusion of DACA into a spending package would almost certainly cause a backlash among conservatives in Congress and could jeopardize the legislation’s chances of passage. Other areas of contention include additional aid for hurricane-ravaged states and territories and the possible funding of a wall along the U.S.-Mexico border.

The fight over government funding will continue to build over the coming weeks. Republicans certainly want to avoid a government shutdown, but it remains to be seen how willing they will be to capitulate to Democrats demands and whether Democrats are willing to let the government shut down in December. Stay tuned.

NCSL Contacts: Max Behlke, Jake Lestock

Sexual Harassment Controversies Flood Congress

DYK?

In 1827, the noted magazine editor and prolific writer Sarah Josepha Hale—author, among countless other things, of the nursery rhyme “Mary Had a Little Lamb”—launched a campaign to establish Thanksgiving as a national holiday. For 36 years, she published numerous editorials and sent scores of letters to governors, senators, presidents and other politicians. Abraham Lincoln finally heeded her request in 1863, at the height of the Civil War, in a proclamation entreating all Americans to ask God to “commend to his tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife” and to “heal the wounds of the nation.” He scheduled Thanksgiving for the final Thursday in November, and it was celebrated on that day every year until 1939, when Franklin D. Roosevelt moved the holiday up a week in an attempt to spur retail sales during the Great Depression. Roosevelt’s plan, known derisively as Franksgiving, was met with passionate opposition, and in 1941 the president reluctantly signed a bill making Thanksgiving the fourth Thursday in November.

With the clock ticking down on the 2017 calendar and Congress facing a daunting legislative calendar that includes hot button issues like tax reform and government funding, sexual harassment controversies have taken a front row seat. Congressional leaders are under mounting pressure to respond quickly to sexual misconduct allegations involving members on both parties.

In the past few weeks, both parties have faced allegations against prominent male members, with ethics inquiries into harassment opened against Representative John Conyers (D-Mich.) and Senator Al Franken (D-Minn.) as well as recent allegations against Representative Joe Barton (R-Tex.). Conyers, the House’s longest-serving member, has announced that he’s stepping down as the ranking Democrat on the House Judiciary Committee while he’s investigated by the Ethics Committee.

The flood of allegations against members has brought to light how House members have been allowed to set the policies for their own workplaces, which has fostered abuse. Capitol Hill veterans expect that more sexual-harassment settlements by lawmakers will be uncovered in the weeks to come.

In response to these recent events, the Senate passed a resolution mandating annual anti-harassment training for senators and staff, and the House will vote this week on mandatory sexual-harassment training for members and staff, with an administration committee hearing Dec. 7 on further protections for staff.

House Passes Flood Insurance Reform Over Objection of Coastal Members

House Republicans ultimately mounted enough support to pass hotly contested reforms to the National Flood Insurance Program. Passed over the objections of coastal members from both parties, the reform works to shore-up a financially strained program that has been facing unprecedented stress after the recent hurricanes.

The 237-189 vote was the product of months of debate and infighting among House Republicans. Fiscal hawks said the reforms did not go far enough to shore-up the program while coastal Republicans were concerned about raising the costs of premiums and limiting the scope of coverage. The reform opens up the flood insurance markets to private insurance companies.

To what extent private industry will enter the market remains to be seen. Proponents hope that private markets will both increase options for homeowners and relieve taxpayer burden. Skeptics do not think that private insurance will help the problem and will only cherry-pick the least risky properties, thereby exacerbating the program’s current problems.

The flood insurance vote was Congress' first attempt this year to pass a long-term renewal of the program before it expires on Dec. 8. The Senate, however, is not expected to take up the package in its current form. Senate leaders are currently negotiating their own set of program reforms.

NCSL Contact: Ethan Wilson

Trump Appoints Mulvaney to Lead CFPB on Friday, Lawsuit Follows on Sunday

DYK?

Andrew Jackson’s inauguration party was so wild that Jackson snuck out of the White House and spent the night at a hotel. Finally, servants dragged tubs of punch out on the lawn to lure out the crowds.

On Friday, Trump named White House Budget Director Mick Mulvaney as acting director of the Consumer Financial Protection Bureau (CFPB). The appointment, however, is at odds with outgoing CFPB director Richard Cordray’s appointment of an interim director. The conflict has effectively exposed a partisan clash centered around Cordray, an Obama appointee, and Mulvaney, Trump’s lead budget officer.

Leandra English, who was appointed as deputy director of the CFPB on Friday, which positioned her to become interim director after Cordray’s resignation, filed a lawsuit yesterday challenging Trump’s decision. The lawsuit seeks a declaratory judgement and temporary restraining order to block the White House’s appointment of Mulvaney. English claims that Trump does not have the authority to make the appointment.

On the other hand, the White House, citing an opinion from CFPB’s general counsel, claims that it is well within its authority to name the acting director for the agency. “Now that the CFPB’s own general counsel—who was hired under [outgoing director] Richard Cordray—has notified the bureau’s leadership that she agrees with the administration’s and DOJ’s reading of the law, there should be no question that Director Mulvaney is the acting director,” White House Press Secretary Sarah Sanders said in a statement.  The White House is also leaning on a recently issued opinion by the U.S. Department of Justice’s Office of Legal Counsel. The opinion claims it is within the powers of the president to appoint an acting director.

NCSL Contact: Ethan Wilson

Also of Note …

  • Section 702 of the Foreign Intelligence Surveillance Act's (FISA), which authorizes the government to collect electronic communications of foreigners outside of the U.S. and acquire foreign intelligence information and has become arguably the most significant collection tool available to the U.S. Intelligence Community, expires on Dec. 31. More from CBS
  • Children's Health Insurance Program (CHIP): Five states are at risk of running out of funding for their individual programs by late December. More from The Hill

Read the Nov. 13, 2017, Capitol-to-Capitol.

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NCSL's Washington staff advocate Congress, the White House, and federal agencies on behalf of state legislatures in accord with the policy directives and resolutions that are recommended by the NCSL Standing Committees and adopted by the full conference at the annual NCSL Legislative Summit Business Meeting. As a result of the advocacy that is guided by these policies positions, NCSL is recognized as a formidable lobbying force in state-federal relations.

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