Capitol to Capitol | Nov. 6, 2017

Tax Reform – More Tricks than Treats

DYK?

To date, 54 individuals have served as Speaker of the U.S. House of Representatives. Theodore M. Pomeroy of New York has the distinction of serving the shortest term of any of them—only one day. On Mar. 3, 1869, the closing day of the 40th Congress (1867–1869), Pomeroy’s colleagues elected the four-term congressman as speaker as a sign of respect.

House Republicans d├ębuted their long-anticipated plan for a sweeping overhaul of the federal tax code last Thursday, outlining a $1.5 trillion plan. The unveiling of the 429-page bill (H.R.1), dubbed the “Tax Cuts and Jobs Act,” kicks off what is sure to be a strenuous drive to get legislation to President Donald Trump by the end of the year. The major changes the bill proposes for personal income taxes:

  • Eliminates the state and local tax deduction almost entirely (allows taxpayers to deduct state and local property taxes up to $10,000).
  • Reduces the number of tax brackets from seven to four.
  • Nearly doubles the standard deduction.
  • Cuts the mortgage interest deduction in half for new homes, capping it at $500,000.
  • Repeals the Alternative Minimum Tax (AMT).
  • Doubles the exemption on estate taxes and repeals it entirely after six years.
  • Eliminates the itemized deduction for medical expense.
  • Eliminates interest deduction on qualified student loans.

Major changes the bill proposes for corporate income taxes:

  • Lowers the corporate tax rate from 35 percent to 20 percent.
  • Creates a new 25 percent maximum tax rate on pass-through business income.
  • Allows businesses full expensing of short-lived capital investment, like equipment and machinery, for five years.
  • Eliminates the corporate alternative minimum tax.
  • Moves to a territorial tax system, in which foreign-source dividends and profits of U.S. companies are not subject to U.S. tax upon repatriation to bring offshore money back to the U.S.

NCSL’s brief analysis on the main proposals of the bill can be found here. The bill is loaded with contentious proposals that are sure to be challenged by a plethora of business groups, special interests, Democrats and Republicans, state and local governments, and taxpayers.

How Will This Affect the States?

The proposed plan would have significant effects on state and local governments. The most notable would be the elimination of the deduction for state and local income taxes and a partial deduction on property taxes. NCSL released the following statement in response to the House tax plan last week: 

NCSL President and South Dakota state Senator Deb Peters (R) said, "This is an attack on the sovereignty of the states. We are opposed to the modification, which is essentially an elimination, of the state and local tax deduction (SALT). SALT is one of the six original federal tax deductions and has been a staple of the federal tax code and the state-federal fiscal relationship for over 100 years. We will continue to fight for the more than 43 million Americans who claim this deduction every year.’”

After hearing from Congress and the administration for months that municipal bonds were safe, the bill proposes to eliminate all private activity bonds, which allows tax-exempt municipal bonds to be issued on behalf of a government for a project built and paid for by a private developer. The projects financed with this type of debt are typically things in the public interest, such as low-income housing, hospitals or airports.

Other items of note that will affect state and local governments:

  • Eliminates the sale of municipal bonds for professional sports stadiums and privately-run infrastructure projects.
  • Removes a federal subsidy for state and local government to offer incentives and concessions to businesses that locate operations within their jurisdiction.
  • Eliminates the Work Opportunity Tax Credit.

Among these problems are proposals that could also create challenges for state and local governments, as many states couple their state income tax systems with the federal government’s and state legislatures will likely need to change their own tax laws.

With the failed effort by Congress to repeal and replace the Affordable Care Act, the pressure is on for the Trump administration and the congressional Republican leadership to have a win with passage of a tax bill. Republicans are hoping to move it quickly through the House, with a committee markup scheduled for today. House Speaker Paul Ryan (R-Wis.) is confident that they will send it to the Senate later this month. Senate Republicans are working on their own plan and anticipate its release this Thursday.

NCSL Contact: Max Behlke, Jake Lestock

NCSL, States, Businesses, and Members of Congress File Amicus Briefs to Overturn Quill

On Thursday, Nov. 2, a plethora of states, national organizations, including the National Conference of State Legislatures, business groups, and even members of Congress filed amicus briefs in support of the U.S. Supreme Court granting certiorari in South Dakota v. Wayfair. NCSL along with the state and local organizations filed a brief through the State and Local Legal Center that argued that the court should grant cert as the 1992 Quill decision has caused severe financial harm to state and local governments, resulting in a loss estimated in 2015 to be more than $25 billion in uncollected sales taxes. Quoting Justice Anthony Kennedy in DMA v. Brohl, this situation for the states grows “more urgent” with time.

Also filing briefs in support were state attorneys general from 35 states, Tax Foundation, American Farm Bureau, International Council of Shopping Centers, National Association of Realtors, Real Estate Roundtable, National Retail Federation, Retail Industry Leaders Association, American Booksellers Association, National Association of Wholesalers, South Dakota Retailers, Streamlined Sales Tax Governing Board, Multistate Tax Commission, American Lighting Association, American Supply Association, American Veterinary Medical Association, Auto Care Association, Home Furnishings Association, Jewelers of America, National Association of College Book Stores, National Ski and Snowboarding Retailers Association, and the National Sporting Goods Association.

Of interest was the brief filed by the Senate and House sponsors of the Marketplace Fairness Act and the Remote Transactions Parity Act, which argued that while legislation has been introduced to overturn the Quill decision, “Congress has been unable to reach a consensus on a legislative solution …To redress this legislative imbalance, the court should grant the Petition and overturn Quill.”

NCSL Contact: Max Behlke, Jake Lestock

Ensuring a New Partnership – Federalism Convocation

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President Gerald Ford’s birth name was Leslie Lynch King Jr. Ford was born on July 14, 1913, in Omaha, Neb. His parents, Leslie Lynch King and Dorothy Ayer King, separated soon after his birth and after they divorced his mother moved with her son to Grand Rapids, Michigan. There she met and married a local paint salesman, Gerald Rudolph Ford, and they began calling her son Gerald R. Ford Jr. (though his name wouldn’t be legally changed until 1935).

Ford had a close relationship with his stepfather, despite learning at 13 that he was not his biological father. When he was 17, Ford met Leslie L. King for the first time; he later spoke bitterly of the encounter (King had neglected to pay his court-ordered child support) and said he had never truly forgiven his father.

A group of chairs and vice chairs of State Legislative Intergovernmental Relations Committees met in Washington last week to establish a forum within NCSL for the chairs and members of these committees. The legislators agreed on a course of action to enhance the role they play in their states on federalism as well as establishing a new partnership with Congress, the administration and other state and local organizations.

On the second day of the convocation the legislators met in formal session with the members of the U.S. House of Representatives’ Speaker’s Task Force on Intergovernmental Affairs. Task Force chairman, Representative Rob Bishop (R-Utah) and NCSL President Seantor Deb Peters (R-S.D.) opened the conversation about the process of working together to avoid unwarranted pre-emption and unfunded mandates. The legislators made the case that Congress should always include state legislators as witnesses at hearings dealing with state federal issues. Bishop also made the case that state legislatures should call their congressional delegation back home on a regular basis to continue the dialog between Washington and the states. Joining Peters for the meeting with the House Task Force were Representatives Ken Ivory (R-Utah), Tyler Vorpagel (R-Wis.), Derek Skees (R-Mont.), Russell Ober (R-N.H.) and Vice Speaker Mark Nakashima (D-Hawaii).

NCSL Contact: Neal Osten, Molly Ramsdell

NCSL Policy Deadline for NCSL Capitol Forum Is Nov. 13

NCSL advocates before Congress, the White House, and federal agencies on behalf of state legislatures in accord with the policy directives and resolutions.  All new policy directives and resolutions, as well as amendments to existing directives for consideration at the NCSL Capitol Forum, must be submitted to the attention of the NCSL Washington Office directors, Neal Osten and Molly Ramsdell (dc-directors@ncsl.org), by 5 p.m. on Nov. 13, 30 days prior to the start of the NCSL Capitol Forum Policy Setting Business Meeting.

More on the NCSL Policy Process.

NCSL Contact: Neal Osten, Molly Ramsdell

Where Will the Chips Fall on Children’s Health Insurance?

Last week the House passed H.R. 3922, the CHAMPION Act. The bill funds several programs that have expired or are soon to expire, including the Children’s Health Insurance Program (CHIP). Offsets, which are a point of contention, would increase premiums for Medicare enrollees making $500,000, cut funding from the Public Health and Prevention Fund, delay a reduction in Disproportionate Share Hospital (DSH) payments and allow states to shorten the amount of time an individual on an exchange health insurance plan could make up a missed payment.

This summer,  the Senate Finance Committee introduced the S. 1827, the KIDS Act, bipartisan legislation that provides five years of funding for the program and winds down the currently enhanced FMAP rate. Currently, the Senate is trying to pass a bipartisan deal including offsets both sides can agree on. If the Senate cannot vote on passage before the end of the year CHIP funding could be included in a continuing resolution.

NCSL Contact: Haley Nicholson, Abbie Gruwell

House Republicans Progressing Toward Flood Insurance Reform

DYK?

On this day in 1860, Abraham Lincoln was elected the 16th president of the United States over a deeply divided Democratic Party, becoming the first Republican to win the presidency. By the time of Lincoln’s inauguration on March 4, 1861, seven states had seceded, and the Confederate States of America had been formally established. Coincidentally, also on this day, in 1861, Jefferson Davis was elected president of the Confederate States of America. He ran without opposition, and the election simply confirmed the decision that had been made by the Confederate Congress earlier in the year.

House Financial Services Chairman Jeb Hensarling (R-Texas) and House Majority Whip Steve Scalise (R-La.) have reached an agreement on legislation that would reauthorize the National Flood Insurance Program (NFIP). The agreement comes after more than two months of political in-fighting between Republicans representing vastly different geographic locations. 

Neither full details nor the actual text of the legislation were immediately available as the bill is being finalized. The agreement will likely include concessions sought by Scalise that would protect policyholders in repeatedly flooded regions from reforms designed to curb continued development in such areas. Republican lawmakers have been attempting to strike a balance between meaningful reform to the NFIP and continued subsidies to current and new policies in flood-prone areas. For example, Hensarling agreed to drop proposals that would have phased out coverage for new development in high-risk areas.

Despite growing compromise among Republicans, any reform to the NFIP still faces an uphill battle. Republicans in coastal and watershed areas have a history of putting up stiff opposition against reforms like curbing development in flood-prone areas, limiting or eliminating “grandfathered” policy pricing, and otherwise increasing premiums on current policy holders. 

The flood insurance program is set to expire Dec. 8.

NCSL Contact: Ethan Wilson

Also of Note …

  • Congress has exactly 33 days to pass a bill continuing funding for the federal government. The current continuing resolution expires Dec. 8.
  • Last week, lawyers representing Facebook, Google, and Twitter testified before three U.S. Senate and House committees on the topic of Russian involvement in the 2016 election. The tech companies revealed that Russian interference was much broader than first known. Members of Congress were generally unenthused by the tech companies’ responses on how they planned on fixing these issues. NPR
  • Trump formally announced Jay Powell as his nominee to be the next chair of the Board of Governors of the Federal Reserve System. Fox News
  • House lawmakers reintroduced the bipartisan Broadband Connections for Rural Opportunities Program Act (B-CROP), which would award grant funding to rural broadband deployment in areas of need. Politico
  • Trump’s Twitter account temporarily disappeared last Thursday after a Twitter employee, on his last day on the job, deactivated the president’s account. Washington Post

 

Read the Oct. 30 Capitol-to-Capitol.

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NCSL's Advocacy in Washington

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.

NCSL Staff in Washington, D.C.

  • Neal Osten | 202-624-8660 | Molly Ramsdell | 202-624-3584 | Directors
  • Max Behlke | 202-624-3586 | Budgets and Revenue
  • Danielle Dean | 202-624-8698 | Communications, Financial Services
  • Susan Frederick | 202-624-3566 | Law, Criminal Justice, and Public Safety
  • Ben Husch | 202-624-7779 | Natural Resources and Infrastructure 
  • Jon Jukuri  | 202-624-8663 | Labor, Economic Development and International Trade
  • Haley Nicholson | 202-624-8662 | Health
  • Ethan Wilson | 202-624-8686 | Commerce and Financial Services
  • Joan Wodiska | 202-624-3558 | Education