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Author: Sarah Castro

Reviewed 9/22

Memorial Day Recess, Health Care & Tax Reform Slowly Move, Omnibus Already?

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The House and Senate are in recess to observe Memorial Day this week. Members returned to their home districts to work as efforts continue behind the scenes in DC on health care and tax reform.

Health care continues to be a big unknown in the Senate. According to the most recent impact analysis released by the Congressional Budget Office (CBO), the amendments to the AHCA do little to improve the bill. The AHCA would lead to 14 million people without insurance in 2018 and 23 million uninsured in 2025. The bill also hurts the Medicaid program, cutting $834 billion over 10 years.

The bill is now with the Senate where various Senate Republicans have indicated that any health care measure will undergo a dramatic overhaul in the coming weeks. Senate Republicans ca not ignore CBO completely — they have to pay attention to the cost estimates to make sure they comply with budget rules.

A specific timeline for the bill has not yet been set or made public. Currently, Senate staffers are drafting legislation intended to jump-start conversation when the Senate reconvenes next week.

House and Senate leaders and the White House going to try to put their heads together and cook up a single tax plan – instead of allowing each chamber to craft its own bills, like Republicans are doing now on health care and as happened with the 1986 tax revamp. However, the timeline to accomplish reform is slipping due to several factors (including the need to raise the debt ceiling much earlier than previously anticipated) and a failure to reach consensus about what provisions should actually change. All politicians hate the tax code, but there is not agreement on which provisions exactly what they hate. Voters gripe about complexity but are opposed to losing any breaks that benefit them.

Looming over tax reform is federal government’s need to raise the debt ceiling now, several months before Congress was prepared to act. At the beginning of 2017, Treasury estimated that the Department could use extraordinary measures until the Fall so that the federal government could continue to operate.

Now, senior White House officials are requesting Congress address and raise the debt ceiling prior to the August Recess. The request sets up a potentially monumental political fight. It is something that will not just be a fight between Republicans and Democrats but within each of the parties. The GOP is torn over whether to combine spending cuts with the debt ceiling lift, and Senate Democrats are already signaling they may push for their own concessions since their votes are going to be needed to avoid a devastating government default.

Rumor of the Week! House Appropriators are floating the idea of passing a 12- bill omnibus before the August Recess. Such a move would certainly accelerate the FY 2018 process, which is significantly behind this cycle due to the late completion of the FY 2017 appropriations in May. To complete such a package would put tremendous pressure on the House Appropriations committee to craft, mark up and combine all 12 bills (none of which are currently in public draft form) and would be a significant accomplishment if any of the bills were already available. FY 2018 begins October 1 and right now, lawmakers have just 12 legislative days planned when both chambers will be in session in September. Stay tuned!!

ED’s COO of Finanical Aid Quits

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Tuesday night, James Runcie, chief operating officer of the Office of Federal Student Aid, quit \over what he said were simmering management problems at the agency that culminated in a dispute with DeVos over her insistence that he testify Wednesday before a congressional oversight panel.

Politico has the story. 

Administration’s FY2018 Budget Would Restrict F&A, Contains Salary Cap

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Two provisions of note in the President’s Budget released Tuesday:

Within the NIH section of the Major Savings and Reforms provision, the Budget includes an indirect cost rate for NIH grants that will be capped at 10 percent of total research. This approach would be applied to all types of grants with a rate higher than 10 percent currently and will achieve significant savings in 2018. It would also bring NIH’s reimbursement rate for indirect costs more in line with the reimbursement rate used by private foundations, such as the Gates Foundation, for biomedical research conducted at U.S. universities. In addition, the Budget proposes that NIH will streamline select Federal research requirements for grantees through targeted approaches. In tandem, the Budget supports burden reduction measures that will further reduce grant award recipient costs associated with research.

In the Budget’s Appendix document (on page 480 under general provisions), Section 202 proposes to lower the NIH allowable salary cap from the current Executive level II (2) to Executive level V (5). If the this recommendation is enacted, the cap will drop to $151,700, which is a 21% cut in currently supported salary levels.

Tax Provisions in the FY 2018 Administation’s Budget Proposal

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In an effort to set the agenda for tax reform later in the 115th Congress, the New Foundation for American Greatness Budget for FY 2018 does contain a number of tax provisions in various sections. The White House Budget provides few specific details about the Administration’s plans for tax reform, noting that details “will be released at a later date.” No Green Book has been issued.

Core principles:

  • Lower individual income tax rates
  • End the Alternative Minimum Tax
  • Expand the standard deduction
  • Protect charitable giving

 

Specific provisions within the FY 2018 Budget include:

  • Exclusion of scholarship and fellowship income — Scholarships and fellowships are excluded from taxable income to the extent they pay for tuition and course-related expenses of the grantee. Similarly, tuition reductions for employees of educational institutions and their families are not included in taxable income.
  • Tax credits and deductions for post-secondary education expenses — The budget would not allow credits for particular activities, investments, or industries.
  • Deductibility of student loan interest — The budget accepts current law’s general rule limiting taxpayers’ ability to deduct non-business interest expenses.
  • Qualified tuition programs — The budget generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.
  • Exclusion of interest on student-loan bonds —The budget generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.
  • Exclusion of interest on savings bonds redeemed to finance educational expenses —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.
  • Discharge of student loan indebtedness — Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income.
  • Education Individual Retirement Accounts (IRA) —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.
  • Parental personal exemption for students age 19 or over —Under the baseline tax system, a personal exemption would be allowed for the taxpayer, as well as for the taxpayer’s spouse and dependents who do not claim a personal exemption on their own tax returns. To be considered a dependent, a child would have to be under age 19.
  • Exclusion of employer-provided educational assistance —Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income because they represent accretions to wealth that do not materially differ from cash wages.
  • Exclusion of interest on bonds for private nonprofit educational facilities —The baseline tax system generally would tax all income under the regular tax rate schedule. It would not allow preferentially low (or zero) tax rates to apply to certain types or sources of income.
  • Expensing of research and experimentation expenditures (normal tax method) —The baseline tax system would allow a deduction for the cost of producing income. It would require taxpayers to capitalize the costs associated with investments over time to better match the streams of income and associated costs. Research and experimentation (R&E) projects can be viewed as investments because, if successful, their benefits accrue for several years. It is often difficult, however, to identify whether a specific R&E project is successful and, if successful, what its expected life will be. Because of this ambiguity, the reference law baseline tax system would allow expensing of R&E expenditures.
  • Credit for increasing research activities —The baseline tax system would uniformly tax all returns to investments and not allow credits for particular activities, investments, or industries.
  • Exclusion of employee meals and lodging —Under the baseline tax system, all compensation, including dedicated payments and in-kind benefits, would be included in taxable income.