Capitol to Capitol | Oct. 23, 2017

After Budget, Next Steps for GOP Will Be More Taxing 

Last Thursday, the Senate passed a budget resolution on a party-line vote (51-49) with every Republican voting “yes” with the exception of Senator Rand Paul (R-Ky.), a fiscal hawk who explained that while he supports tax cuts, he also believes that Congress should reduce federal spending and reform entitlement programs, such as Medicaid and Medicare. Unlike the House- passed budget resolution, which was revenue neutral, the Senate budget allows for tax cuts that reduce revenue and increase the deficit by $1.5 trillion over a decade. The difference stems partly from how the House budget ties $203 billion in spending cuts and other deficit-reducing maneuvers to offset revenue reductions, while the Senate budget has just one such offset, which generates federal revenue by potentially allowing the opening of Alaskan land to oil production. 

DYK?

Martin Van Buren is the only U.S. president to learn English as their second language. Van Buren was born on Dec. 5, 1782 in Kinderhook, New York (about 20 miles south of Albany), to parents who were fifth generation Dutch. As a result, the Dutch language, which had prevailed for many generations in that part of New York state along the Hudson River, was the first language learned by the future president, who, perhaps ironically, was also the first president to be born a citizen of the United States and not a British subject.

This week, instead of both chambers conferencing to reconcile the differences with the two budgets, the House appears poised to adopt the Senate plan to accelerate the tax reform effort by two to three weeks. The director of the Office of Management and Budget (OMB), Mick Mulvaney, said on Fox News Sunday that "we may save as many as 10 or 12 legislative days, which is a big deal. It sounds like it's not much, when you're only here in the end of October, but in the congressional calendars, that's a long time." 

As soon as the House adopts the Senate budget, which could come as early as this week, House Ways and Means Chairman Kevin Brady (R-Texas) has indicated that he will release the text of the House Republican tax framework, which is rumored to be more than 1,000 pages long. After it is released, House leadership has indicated it plans to quickly vote and pass the tax legislation, as soon as the end of November, so there is little time for opposition voices to kill the effort. However, the legislation’s fate in the Senate is anything but certain given that Republicans hold a slim 52-48 majority.

For instance, Senator Bob Corker (R-Tenn.), has previously said he will not ultimately vote for a tax measure that adds to the deficit, which is what the Senate budget resolution would do. And the votes of Senators Rand Paul (R-Ky.), Susan Collins (R-Maine), and John McCain (R-Ariz.) will likely remain in doubt up until the final vote. The administration has been courting moderate Democrats, including Senators Heidi Heitkamp (N.D.), Joe Manchin (W.V.), and Joe Donnelly (Ind.), who all happen to be up for re-election next year in states where President Donald Trump won big in 2016.

Needless to say, passing the budget resolution will seem easy compared to what Republicans will face to get the tax legislation signed into law. Not to mention, Congress still has other items on its plate that it needs to address that may affect the tax reform effort. Notably, it will need to pass a spending bill by Dec. 8 or the government will shut down – a situation that will very likely be used as leverage in tax discussions. Stay tuned.

NCSL Contacts: Max Behlke, Jake Lestock

What’s in the Tax Plan?

While a tax bill has yet to be released in either chamber, rumors on Capitol Hill are swirling about what may be included in the legislation. Here is a very brief list of possible provisions that might be included in the possible 1,000-page tax bill:

  • Eliminating or modifying the State and Local Tax (SALT) deduction.
  • Eliminating the Alternative Minimum Tax (AMT) that is currently levied on high-income individuals.
  • Collapsing the existing seven individual income tax brackets into three with rates of 12, 25 and 35 percent.
  • Adding a fourth bracket for individuals with a tax rate of 39.6 percent, or possibly 40 percent, for incomes over $1 million.
  • Capping annual contributions to at least some retirement accounts at $2,400 a year
  • Lowering the corporate tax rate to 20 percent.
  • Creating a special 25 percent. rate for “pass-through” businesses, such as partnerships and S-corporations.
  • Allow businesses to write off 100 percent of their business investments, known as “expensing.”

NCSL Contacts: Max Behlke, Jake Lestock  

SALT Deduction on Chopping Block for Tax Reform

During the consideration of the budget resolution, West Virginia Senator Shelley Moore Capito (R) offered an amendment, that was ultimately adopted, that directed the tax writing committees to consider “reducing federal deductions, such as the state and local tax deduction” as part of tax reform. To be clear, the Capito amendment does not explicitly call for eliminating the SALT deduction, but the amendment’s passage does indeed signal that the deduction is on the chopping block.

DYK?

In a nod to Colonel Sanders’ World Famous recipe, KFC, the Louisville, Ky., based chicken restaurant chain, only follows 11 people on Twitter - the five “Spice” Girls and six men named “Herb.” 

Senator Rand Paul (R-Ky.) was the only Republican to oppose Capito’s amendment because he does not support any tax plan that will raise taxes on individuals. In an Oct. 4 op-ed in Breitbart, Paul wrote that “The problem comes because in [the GOP] plan they’ve eliminated the deductions many Americans take for their state and local taxes, and they’ve also eliminated the personal exemption. This could put many Americans in the $50,000-$200,000 range in a trap where their taxes would go up—some very significantly.” Paul’s vote signals that it will be politically difficult to remove any tax provision that could result in a tax increase for middle-class taxpayers.

Repealing the SALT deduction is estimated to raise $1.3 trillion over 10 years. For that reason, it’s key to helping offset the steep tax-rate reductions for businesses and individuals called for in the GOP tax framework. However, a full repeal of the deduction has faced strong opposition within the Republican conference, including from over two dozen members from high-tax states whose constituents would be adversely affected. To assuage these members, as well as the president who has expressed concern about how eliminating the deduction may raise taxes on the middle class, the Republicans have been discussing possible options short of full repeal, including:

  • Imposing an income cap on the deduction, which some GOP House members envision as a way to protect middle-income taxpayers.
  • A phased-down elimination of the deduction over a period of months or years.
  • Allow individuals to keep deducting the cost of the property taxes they pay while eliminating the break for their other state and local taxes.
  • Read NCSL’s Oct. 6 letter to Congress urging preservation of the State and Local Tax (SALT) deduction in tax reform.

NCSL Contacts: Max Behlke, Jake Lestock 

Budget Deficit Grows to $666 Billion in FY 2017

The U.S. Treasury Department reported last week that the federal government spent $666 billion more than it collected in FY 2017, which ended on Sept. 30. The shortfall, which was the largest since 2013, was $80 billion more than the previous fiscal year. By the numbers, the government spent a total of $3.981 trillion, about 3.3 percent more than FY 2016, which is due in part by higher Social Security and Medicare spending as well as larger interest payments on the debt. At the same time, it took in $3.315 trillion in tax receipts, up 1.5 percent from the previous year. As it currently stands, the Congressional Budget Office (CBO) has stated that within the next five years, the government will regularly be adding $1 trillion to the debt and interest payments on the debt are projected to triple as interest rates return to normal levels and that’s before there are any changes to the tax code.

You can be sure that adding to the deficit will be fodder for the upcoming tax debate, considering that the Senate budget authorized tax cuts that would add $1.5 trillion over 10 years and the Committee for a Responsible Federal Budget has estimated that the tax reform legislation will add $2.2 trillion over the same time period. The chief of staff to the Joint Committee on Taxation (JCT), has stated that the increased debt could undercut the benefits of any tax changes because higher deficits means more borrowing by the federal government. And, the more the government borrows to fill the holes in the government’s budget, some economists say it will increase borrowing costs for everyone, which would create a drag on the economy. As reported by Politico, the Tax Foundation disagrees with JCT “it’s wrong about deficit-boosting tax cuts pushing up interest rates, and is therefore understating the benefits of cutting taxes.”  

NCSL Contacts: Max Behlke, Jake Lestock 

DeVos Announces All Fall ESSA State Plan Submissions Approved for Peer Review

On Oct. 17, U.S. Education Secretary Betsy DeVos announced that all second-round state plan submissions under the Every Student Succeeds Act (ESSA) are complete and ready for peer review. There were two deadlines for ESSA state plan submission—April and September of this year—and 16 states and the District of Columbia submitted plans back in April. Of these, Arizona, Connecticut, Delaware, the District of Columbia, Illinois, Louisiana, Maine, Nevada, New Jersey, New Mexico, North Dakota, Oregon, Tennessee and Vermont have been approved for implementation.

Michigan and Colorado have yet to receive the green light from DeVos. Colorado has until today to resubmit its state plan with adjusted school quality ratings and Michigan’s plan is currently going through a second round of peer review with additional accountability criteria. The remaining 34 states and Puerto Rico have submitted their plans for the second round and, as DeVos announced, are set to advance to the peer review process. Experts and stakeholders will now examine the plans to be sure they’re in compliance with the law, and ultimately offer notes and recommendations to the Secretary.

NCSL ContactsJoan WodiskaLucia Bragg

Education Department Warns of New Cybersecurity Threats to Schools

On Oct. 16, the Education Department implored schools and higher education institutions to strengthen their cybersecurity protections following what they described as recent extortion threats made to schools. Tina Rodrigue, adviser for cybersecurity for the department’s Federal Student Aid Office, issued a memo to schools  describing a “new threat, where the criminals are seeking to extort money from school districts and other educational institutions on the threat of releasing sensitive data from student records.” These have included threats of violence and bullying directed at students if demands are not met. The memo provides information on how schools can improve cybersecurity measures as well as steps to take once a threat is received.

NCSL Contacts: Joan Wodiska, Lucia Bragg

DOL Announces Members of the President’s Task Force on Apprenticeship Expansion

DYK?

On this day in 1981, the U.S. national debt crossed the $1 trillion mark for the first time. When Ronald Reagan took office in January of that year, the gross domestic debt, as a percentage of the nation’s annual income, had reached its lowest point since 1931: 32.5 percent. However, ever since, the national debt has soared and it now exceeds $20 trillion. 

On Oct. 16, the U.S. Department of Labor (DOL) announced  the members of Trump’s Task Force on Apprenticeship Expansion. The 20-member Task Force, includes South Dakota Governor Dennis Daugaard, Iowa Governor Kim Reynolds, and U.S. Chamber of Commerce President and CEO Tom Donohue  In June, Trump issued an executive order establishing the Task Force.  Labor Secretary Alexander Acosta will chair the task force, while U.S. Department of Education Secretary Betsy Devos and U.S. Department of Commerce Secretary Wilbur Ross will serve as vice chairs. Shortly after the announcement, DeVos issued a statement expressing her interest in “working with state and local educators, business and industry leaders and other key stakeholders as we continue our work to put the needs of America’s students and businesses first.”

NCSL Contacts: Jon Jukuri, Lucia Bragg

Health Care Subsidies Still in Limbo

After an announcement from the administration that they would no longer be making Cost Sharing Reduction (CSR) payments, Congress re-engaged in legislation that would appropriate funding for them over the next two years. Trump initially signaled his support of Senator Lamar Alexander (R-Tenn.) and Senator Patty Murray’s (D-Wash.) work on bringing health care legislation to the floor that would address the CSR payments and also provide states more flexibility on 1332 waivers. Since then, the president along with Speaker of the House Paul Ryan said they could not support the legislation as currently drafted. Alexander and Murray continue to pursue a deal on the legislation and acknowledged the concerns of lawmakers who do not want insurers to “double-dip” and receive duplicative payments if they’ve already raised premiums in response to CSR payments being cut off. Senate Majority Leader Mitch McConnell (R-Ky.) recently signaled his willingness to bring this bill to the floor if they have the president’s assurance that he will sign it.

NCSL Contact: Haley Nicholson

Supreme Court Preview Webinar 

It is rare for the Supreme Court to have such an interesting docket so early in the term. But it is not rare that the interesting cases--including gerrymandering, public sector union dues, free speech and the free exercise of religion--affect states and local governments.

Join Todd Kim, District of Columbia solicitor, Ashley Johnson, Gibson Dunn, who co-wrote a merits brief on behalf of Governor Chris Christie in a sports gambling case, and Kevin Daley, Supreme Court reporter for the Daily Caller News Foundation, in a discussion of the most important cases, so far for states and local governments, to be decided in the Court's 2017 term. 

Date:  Tuesday, Oct. 24, 2107
Time:  1 p.m. (ET)

Registration is required.

This is a FREE webinar, open to the public. If you’re not available for this day and time, sign up anyway and you will receive a recording of the webinar. The SLLC will not apply for CLE credit in the 50 states for this event.

Register here.

Also of Note …

  • The Senate is pushing ahead on a $36.5 billion hurricane relief package that would give Puerto Rico a much-needed infusion of cash. The measure also would replenish rapidly dwindling emergency disaster accounts and provide $16 billion to permit the financially troubled federal flood insurance program to pay an influx of Harvey-related claims.
  • A full investigation is underway surrounding the ambush attack in Niger that left four U.S. special forces dead and two others injured.
  • The Environmental Protection Agency (EPA) is backing off from changes regarding the Renewable Fuel Standard (RFS) after significant pushback from Midwestern GOP senators and a direct intervention from Trump.
  • The Trump administration will make its official declaration of the opioid crisis as a national public-health emergency, which will include an executive document directing federal agencies to take actions addressing the crisis, a massive advertising and public-relations campaign to reach Americans, and a request for funds from Congress.
  • Federal Reserve Governor Jerome Powell is the leading candidate to become the chair of the U.S. central bank after Trump concluded a series of meetings with five finalists Thursday, Also, Janet Yellen left the White House last Thursday afternoon following a meeting with Trump about her possible reappointment as Fed chair.
  • Speaker Paul Ryan (R-Wis.) roasted Trump at the annual Al Smith dinner in New York on Thursday night, joking about how he copes with the president's use of Twitter.

Read the Oct. 16, 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