When Congress reconvenes after their month-long recess today, members will face an agenda full of “must-pass” legislation.
That may push consideration of a much-anticipated tax reform bill – a key policy focus for financial executives — further into the fall and possibly farther out on the scale of probability.
As soon as lawmakers return to Washington D.C. the clock will be ticking on several critical issues that need to be tackled by September 30, when legislation that authorizes spending for key government programs are set to expire. Even these bills face significant debate that could spill over partisan maneuvering long after they are passed.
This packed agenda has left many observers wondering where tax reform fits into picture . Prior to the August recess, it was expected that House and Senate leaders would join the White House in releasing a detailed framework of its tax reform plan in September, but last week it was announced that the President would defer to Congressional tax writers to formulate the tax reform proposal.
With all these fiscal issues directly affecting financial executives, here is what Congress will need to address in the coming weeks.
The federal government will shut down if funding for fiscal year 2018 is not approved by the House and Senate and signed by the President by midnight on September 30. It is expected that Congress and the Administration will approve a temporary measure that will fund the government for several months while they work out some of the more contentious issues contained in a long-term funding bill, including funding of the controversial “border wall” that was a cornerstone of President Trump’s 2016 presidential campaign. The President recently threatened to hold up the funding bill if it doesn’t include an allocation for the border wall and it remains to be seen if he would follow through on that threat. Congressional leaders must also be able to satisfy conservative members who may oppose any spending increases contained in the temporary bill.
Debt Limit Extension
The federal government is expected to reach its debt limit in late September or early October unless Congress acts to raise the limit. Faced with the prospects of a federal government unable to pay its bills, Congress is expected to extend the debt ceiling but may have to devote valuable time to the issue. The Trump Administration has called for a “clean” debt limit increase that would raise the ceiling without corresponding spending cuts. House conservatives, including members of the Freedom Caucus, have indicated they would oppose a clean bill that doesn’t include spending reductions.
As if Congress didn’t already have enough on their plate, it will now have to craft a disaster relief package in the wake Hurricane Harvey to provide assistance to victims of the storm and flooding that has devastated parts of Texas and Louisiana. While the full impact of the storm is still being assessed, Congress is expected to act quickly on a relief bill. What remains unclear at this early stage is how Congressional leaders will move the package. One option is to include disaster relief in the temporary government funding legislation. In the past, some Capitol Hill conservatives have opposed disaster relief legislation for including excessive spending but Congressional leaders may be able to offset that opposition by attracting more Democrats to vote in favor of the government funding bill if it contains disaster relief for Hurricane Harvey.
In addition, Congress must also address several other programs whose funding is set to expire on September 30th, including the Federal Aviation Administration (FAA), Children’s Health Insurance Program (CHIP) and the National Flood Insurance Program.
When Treasury Secretary Steven Mnuchin predicted in February that Congress would enact comprehensive tax reform by August, many observers were skeptical that a major tax package could make its way through the legislative process in such a short time.
That skepticism proved accurate and now with a jam packed September agenda, it seems inevitable that Congress’ consideration of tax reform will have to wait even longer. Congressional leaders and the White House now hope that their tax package will be taken up by the House in October, followed by the Senate in November.
While that timeline seems realistic, what is less clear is what the final tax package will include. Now that Congressional leaders have dropped their desire to include a border adjustment tax – and the $1.2 trillion it would generate over 10 years — the scope of the expected cuts to corporate tax rates will likely be scaled back to the 20-25 percent range. It remains to be seen if the legislation willonly focus on rate reduction or will attempt true tax reform by including major changes to tax code such as establishment of a tax rate for pass-through income, repatriation of foreign profits, a shift from a worldwide system to a territorial framework, immediate expensing and disallowance of the deduction of net interest expense. These questions could be answered when House and Senate tax committee leaders release their detailed framework later this month.
Brian Cove is FEI’s Managing Director, Technical Activities.•