Washington Snapshot - September 21, 2017

In This Week's Edition of Snapshot

News from the Hill

So, What's Up with Tax Reform?

In the coming months, we will provide weekly updates with new developments in the tax reform process.

The month of September continues to show increased action around tax reform. The Senate Finance Committee held a second hearing to discuss an overhaul of the business side of the tax code. Witnesses included Tax Foundation President Scott Hodge, Urban-Brookings Tax Policy Center Fellow Donald Marron, Former Chair of the Tax Executive Committee at the American Institute of Certified Public Accountants Troy Lewis, and President & CEO of the Real Estate Roundtable Jeffrey DeBoer. Though the topic of charities did not come up in the hearing, it is a signal of the continued momentum and energy around tax reform in Congress.

Last week, House Ways & Means Chairman Kevin Brady (R-TX) shared that the “Big Six ” will be releasing an outline for tax reform with new details the week of Sept. 25. Members of the Big Six have remained tight-lipped about the specifics of what to expect from this outline, but that has not stopped any speculation. House Republicans will also be holding a half-day retreat next week to iron out some more of the details on messaging around tax reform.

The Washington Post reported this week that the Trump Administration is considering scaling-back some of the ambitious tax cut plans it had previously proposed—for example, keeping the top rate for individuals at 39.6% (as opposed to the suggested 35%), and maintaining the estate tax. This is in addition to a statement by Treasury Secretary Steven Mnuchin last week that cutting the corporate tax rate to 15% (as the President has called for) would be very difficult to accomplish due to the revenue challenges that it would create for a tax proposal that is already in desperate search of revenue-generating proposals. POLITICO Pro is also reporting that “President Donald Trump will host leaders from 10 to 15 conservative grassroots groups for dinner at the White House on Monday to lay out his pitch for tax reform.”

On Tuesday, Sens. Bob Corker (R-TN) and Pat Toomey (R-PA) signaled they have reached an agreement on a budget resolution for fiscal year (FY) 2018. The senators issued a joint statement that said, in part, “‘I am strongly committed to pro-growth tax reform that will lead to more jobs and higher wages and was glad to work with Chairman [Mike] Enzi [R-WY] and Senator Toomey at the request of Senate leadership to reach an agreement that will allow the committees of jurisdiction to begin their work to craft this important legislation,’ said Corker. … ‘I am confident the budget agreement I have reached with Chairman Enzi and Senator Corker will give the Finance Committee the headroom needed to write a pro-growth tax plan that reforms the code, causes the economy to surge, and ultimately results in reduced federal budget deficits,’ said Toomey.”

As the statement noted, this resolution will help the tax reform process to move forward. Republican leaders in Congress have been pushing a partisan approach for the tax code overhaul; reconciliation instructions included in a budget resolution will allow tax reform to pass the Senate with a majority vote, bypassing the need for Democratic support. According to POLITICO, Sen. Corker expects the Senate Budget Committee to hold a first vote on the proposal in the next couple of weeks.

On the House side of the Capitol, House Ways and Means Committee Chairman Brady underscored the importance of passing a budget resolution in order to proceed on tax reform. In an interview with Fox News, Rep. Brady said, “Well, I will tell you what—no budget, no tax reform. That’s clear. And if Republicans don’t unite and move this budget so that we can move tax reform, then I’m convinced that that President will look elsewhere for partners to deliver on this. So this budget is incredibly important.”

Repealing and replacing Obamacare is back on Congress’ agenda after many people thought the issue was dead for the year. With the recent ruling of the Senate parliamentarian, POLITICO notes that, “Republicans are up against a tight deadline. Their budget reconciliation bill, which allows them to overhaul Obamacare with a simple majority, expires on Sept. 30.” Because of that, Sens. Lindsey Graham (R-SC) and Bill Cassidy (R-LA) introduced a new version of legislation to repeal President Obama’s signature health care law. The article goes on to state that the legislation, “would overhaul or eliminate major sections of the health care law [Obamacare], including its subsidized insurance coverage and Medicaid expansion. Instead, states would receive block grants, or a lump sum of money from the federal government, which they could use largely as they see fit.”

Reports from yesterday signaled that Majority Leader Mitch McConnell (R-KY) would bring the Graham-Cassidy bill to the floor for a vote sometime next week. If the Senate is able to pass the bill with a simple majority—a result which likely hinges on the votes of Sens. John McCain (R-AZ) and Lisa Murkowski (R-AK)—it will need to be quickly passed in the House without any changes and sent to President Donald Trump’s desk in order to beat the end-of-the-month deadline. If Republicans are again unsuccessful in repealing Obamacare, it would increase the pressure to pass some form of tax reform.

If the Graham-Cassidy bill does hit the Senate floor next week, it could spell a delay of the aforementioned rollout of new tax reform details by the Big Six. According to Axios, “Administration officials have been debating whether to delay the tax rollout until the first week of October to clear space for the Graham-Cassidy health care bill.” While no final decisions have been made, Axios goes on to note that the new details could still be released as planned as President Trump has made it clear he wants Congress to focus on tax reform as soon as possible.

Happening in the States

Exclusive from our colleagues at the National Council of Nonprofits.

National Council of Nonprofits logo

State Legislation in 2017

State legislators this year have introduced more than 11,660 pieces of state legislation that in one way or another refer to nonprofits. Twenty-four percent of those pieces have been enacted so far (a few legislatures are still in session). The legislation touches all types of organizations and all kinds of activities, from agriculture to transportation, and education to environmental, and housing to health. Resolutions were also passed celebrating Nonprofit Days in California and Delaware, plus commending the Mississippi Center for Nonprofits’ training and professional development work for nonprofits. More than a third of the “nonprofit” bills introduced addressed some aspect of taxing nonprofits (which could include foundations in some instances) – whether property tax, sales tax, or use tax – driven often by state and local financial shortfalls.

State Budget Woes Continue

Many states continue to experience significant fiscal challenges. Those challenges, as reported by Governing, include deep holes from multibillion-dollar deficits (such as in Alaska, Connecticut, Illinois, and Pennsylvania), because of fixed costs outpacing revenues, “systemic financial imbalance[s]” from previous one-time fixes, and extreme partisanship. The new fiscal year started on July 1 for most states (April 1 in New York; October 1 in Alabama and Michigan). Eleven states began their current fiscal years without final budgets in place. The following sampling reveals that serious budget woes continue in many states:

  • Connecticut: Almost three months into the new fiscal year, the state still has no budget. The governor’s recent budget proposal relied largely on tax increases to address the projected $3.5 billion deficit. It had appeared his budget would pass on a straight party-line vote last Friday, when suddenly a handful of Democrats flipped positions to vote for and pass the Republican budget that relies heavily on budget cuts and legislative involvement in all future union contracts. The governor quickly declared he would veto it.
  • Illinois: The state went without a budget for two years until July 2017. That impasse created a massive backlog of $15.3 billion in unpaid bills owed to, among others, healthcare providers and nonprofit contractors “that have had to lay off staff and borrow because they’re waiting to be paid.” Last week the governor agreed to issue bonds for $6 billion to refinance some of the state’s debt at a lower interest rate.
  • Kentucky: Earlier this month the governor “asked most state agencies to slash their budgets by more than 17 percent to cope with an anticipated $200 million revenue shortage.” That’s on top of “massive cuts” from recent budgets. One legislator observed, “The cuts are huge and I don’t see how they can be carried out without diminishing services to the public,” while the head of a state regulatory agency warned, “We can’t keep doing our statutory duties any longer with more cuts.”
  • Maryland: To begin preparing for a projected $750 million deficit next year, Maryland’s Board of Public Works voted to reduce state spending by $61 million for the current fiscal year.
  • Oklahoma: The governor has called the legislature into special session next week to address a known $215 million budget shortfall this year.
  • Pennsylvania: Last Friday, the governor announced that the Commonwealth was delaying payments of more than $1.7 billion it owed for Medicaid services already provided and to school districts for public pensions because of a projected $2.2 billion budget hole. According to the Associated Press, “It is the first known time that Pennsylvania state government has missed a payment as a result of not having enough cash.”
  • Washington: Although Washington State passed its biennial operating budget before the June 30 deadline, the accompanying capital budget remains unresolved. The capital budget contains approximately $4 billion in funds for construction projects, many of which are intended to be implemented by nonprofits across the state.
  • Wyoming: Facing a current $30 million shortfall in Medicare funding that is likely to grow as the state’s population ages, officials “say there are no good options to address the situation without harming other programs or potentially hurting already cash-strapped hospitals and nursing homes.” Next year the state will have an education funding deficit of up to $530 million.

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