And the race is on. Less than two weeks ago, the GOP-controlled Congress fired the starting gun on a historic debate that has not occurred in more than 30 years. The full House already is poised to vote on their version of tax reform and the Senate Finance Committee will mark-up its package this week, all with an aim toward presenting the president a bill to sign by the end of 2017. Thus far, the pace of the race – controlled by Republican leadership and the chairs of the House and Senate tax-writing committees – suggests it will be a sprint to the finish. As GOP leaders enter what they hope will be the final stretch after Thanksgiving, they are sure to be met with challenges that quickly could turn this debate into a marathon.
Prime Insight. GOP leaders are moving quickly to get a bill to President Trump before the end of the year. A secondary benefit to speed is stifling the ability of outside interests (and their own rank-and-file members) to coalesce and organize in opposition to the legislative proposals. In a noteworthy break with leadership from traditional allies of the GOP, the National Association of Home Builders and the National Association of Realtors have come out in staunch opposition to the House and Senate bills and are working aggressively against the House proposal.
Despite the accelerated pace at which the debate is moving, from a practical standpoint, Congress is still in the early stages of the legislative and negotiating process. Substantial differences between the House and the Senate proposals, a growing regional rift from Republicans in high-tax states, and more thorough analysis by outside groups and deficit hawks, among other issues, will be sure to complicate negotiations in the weeks ahead. Tax writers will be unable to placate everyone (Members of Congress and business interests alike) and the question remains whether they’ll be able to come up with the magic formula that achieves a majority vote in both chambers. We expect any final bill to look markedly different from the initial House and Senate proposals – the result of negotiations aimed at shoring up majority votes.
The Horizon. House leaders are preparing the Ways & Means tax reform bill for a vote in the full House. The whipping of votes has started and even money suggests the House will pass the bill by a slim margin. Twenty-three Republicans would have to buck party leadership to bring the bill down. Several GOP Members from high-tax states already have indicated opposition to the House bill, and we expect at least several others in marginal districts also will vote against. House leaders will have an additional opportunity to alter the bill (and pick up votes) when the legislation goes through the Rules Committee, which is scheduled for November 15. Should the timing of Rules Committee consideration slip we will know the House whip count is short, spelling problems for the legislation.
The action is quickly moving to the other side of the Capitol as the Senate begins its consideration of tax reform. Finance Committee Chairman Orrin Hatch has stated his intent to complete his committee’s work on the bill by the end of the week, theoretically setting up a vote before the full Senate shortly after the Thanksgiving holiday. While the Finance Committee process will be front and center, statements this week from GOP Senators on their views regarding the bill will be closely watched. With a slim 52-48 majority and several Republicans signaling unhappiness with the bill, Senate GOP leadership has little margin for error in writing a bill that can pass their chamber. More clarity on the Senate vote whip count will develop as the next couple of weeks unfold.
Compounding Majority Leader McConnell’s issues is the December 12 special election in Alabama. Regardless of the outcome, a close McConnell ally will be leaving the Senate to be replaced either by a virulently anti-GOP establishment Republican or a Democrat. In either case, the Alabama special will create headaches for Republican leaders and easily could tip the scales on the prospects for tax reform.
Low Energy? Much to the surprise of many in Washington, the nearly 250-page tax proposal released by Chairman Hatch was entirely silent on energy tax policy. In contrast, the House bill includes an entire section of energy tax provisions. Will the Senate simply accede to the House language in the final negotiations? Will a reformed tax code not offer credits and incentives for energy-related activity? Or will Congress consider energy tax provisions in legislation separate and apart from tax reform?
At this stage in the proceedings, it is difficult to know where Congress is headed. That said, the idea of a separate package coming together before the end of the year that addresses some unique tax policy issues (including energy) is intriguing. Bipartisan pressure from within the Senate has been building to tackle several energy-related tax proposals, and there remain significant constituencies advocating for tax relief that was not addressed in either tax reform proposal. Incorporating these types of provisions into tax reform would require tax-writers in Congress to jettison other reform priorities. Therefore, one could make the case that a separate tax vehicle featuring energy provisions is on the horizon.
Prospects for Section 179D. Extension of the deduction was not included in either the House or Senate tax reform packages, which did not come as a surprise. Language expanding Section 179 expensing to include energy efficient heating and air conditioning property was included but does not incorporate the essence of the 179D deduction.
With many more steps in the process, however, opportunities may arise to extend and expand the deduction. Section 179D enjoys strong bipartisan support in both chambers and could be added when House and Senate leaders negotiate a final bill. Alternatively, should a separate tax package materialize before the end of the year, advocates for the extension would have a prime opportunity.
This is the time to leave no stone unturned. Companies seeking an extension of Section 179D must engage their Senators and Members of Congress in support of the deduction – and do so now.
Concord will be working to coordinate outreach to Capitol Hill; please contact Concord should your company be interested in advocating support for Section 179D.
