Tax Notes Today Federal reporters Jad Chamseddine and Asha Glover outline the tax issues Congress will likely tackle this fall.
Read the podcast episode's transcript below. The post has been edited for length and clarity.
David Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: legislative update. With Congress coming back into session ahead of what is expected to be a contentious election year, this may be the last chance for substantive tax changes for a little while. Here to talk to us about what is on the agenda and what to expect are Tax Notes Today Federal reporters Asha Glover and Jad Chamseddine. Asha, Jad, welcome back to the podcast.
Asha Glover: Hi, David. Thanks for having us.
Jad Chamseddine: Thanks for having us.
David Stewart: Jad, why don't we start with you and what we expect on the agenda this fall in the Senate?
Jad Chamseddine: Well, there are issues piling up and there's hope that some tax legislation will move. There's currently a retirement bill still pending before the Senate. Sens. Ted Cruz, R-Texas, and Pat Toomey, R-Pa., have holds on the legislation and so hopes have been dashed there.
David Stewart: Now you were previously on the podcast to talk about treaties and there's still some out there. Are we expecting any movement on the remaining pending tax treaties?
Jad Chamseddine: Yes, there is hope three pending tax treaties with Poland, Hungary, and Chile will get done this year. Senate Foreign Relations Committee Chair James Risch, R-Idaho, told me earlier this year that he thinks they're going to get done this year. But sources tell me some of the urgency is gone after having passed treaties with Luxembourg, Switzerland, Japan, and Spain earlier in the session.
David Stewart: Alright, so that covers what we're expecting out of the Senate. What's going on in the House?
Jad Chamseddine: There is some movement in the House on taxes, especially the Ways and Means Committee. Sources tell me there's going to be a hearing on energy tax credits, some dealing with credits for electric cars. There's also hope that some technical corrections from the Tax Cuts and Jobs Act will be addressed. That's a priority for House Ways and Means Chair Richard Neal, D-Mass., but movement has been pretty slow on those.
David Stewart: Now it seems that every year we get to talk about extenders. Is there some activity on extenders this year?
Jad Chamseddine: Yeah. Those were passed in the House, but are going nowhere in the Senate because they would raise the estate tax. Senate Finance Chair Chuck Grassley, R-Iowa, told me it's dead on arrival in the Senate. The Senate has its own agenda. They created a task force to address the extenders and will be having a markup at some point. There were talks about possibly having this happen in September. It doesn't appear that they're going to cut any of the extenders.
David Stewart: Have we learned anything new from this task force?
Jad Chamseddine: Not so much. They did say a couple extenders should be made permanent and certain credits for the beer and wine industry, especially smaller producers. There's a couple of bills on those in the Senate and the House that have bipartisan support. Also, credit for short-line railroads should be made permanent based on the reports.
David Stewart: Now I'm familiar with short-line railroads only in the context of Monopoly. Can you tell me what those are?
Jad Chamseddine: Yeah. Basically, those are classified as Class II and Class III railroads and usually connect to larger railroads known as Class I. There aren't many left. They're classified that way based on the amount of goods they haul. The smaller railroads generally connect smaller towns to the larger ones. A couple of bills also exist for those that would make the credit permanent. I spoke with the president of the American Short Line and Regional Railroad Association, Chuck Baker, who was happy about the report, but still concerned the extenders won't get done this year.
David Stewart: Is there any sense of when extenders might possibly get done?
Jad Chamseddine: There's some hope that they can stuff them into the spending bills that will need to be passed before September 30, but lobbyists' hopes have been dashed. There was optimism at the beginning of the year that they'll be done before the August recess. I wouldn't bet on them getting done in September.
David Stewart: Speaking of spending bills — Asha, can you tell us a little bit about what's going on with appropriations?
Asha Glover: Before Congress left, President Trump signed into law legislation that would increase the debt limit and raise budget caps. There was some concern that Treasury could run out of money before Congress returns from their August recess. Getting that budget deal done mitigated that issue. The measure didn't actually fund the government. Congress will still need to pass appropriations legislation for fiscal 2020 before the current fiscal year expires on September 30. In the past Congress, we've seen that continuing resolutions are usually passed in the September period and they kind of kick the can down the road and do a larger funding package in December. We will likely see that again when Congress will negotiate a longer-term package and that could include some tax things. We've seen that in the past during the PATH Act. There have been quite a few times where we've passed some tax legislation during that period before they leave for the end of the year. The most recent continuing resolution was passed in February and that's the one that expires in September. That measure was passed to kind of be the final solution to the government shutdown at the beginning of the year.
David Stewart: Now, are we expecting the continuing resolution to include anything on taxes?
Asha Glover: No. As Jad said, Republican senators are interested in passing an extenders package. Before recess, Senate Republican Whip John Thune said that lawmakers are interested in putting forth a separate tax bill late in the year that could include an extenders package and delays or repeals of some Affordable Care Act taxes, including the "Cadillac" tax on high-cost healthcare plans. It is also possible that some sort of tax title could be folded into a year-end omnibus appropriations bill. Like I said before, the solar industry has started urging Congress to pass multi-year extensions for the Section 48 and Section 25D solar investment credits before they begin phasing out at the beginning of 2020. Those credits were extended for five years under the PATH Act in 2015.
David Stewart: Jad, recently President Trump said that he wants to start indexing capital gains to inflation. Have we heard anything from Congress on this issue?
Jad Chamseddine: This falls in the administration’s wheelhouse, but there's definitely support among Republicans. Sen. Cruz and several of his colleagues are urging Treasury Secretary Steven Mnuchin to do that, but Grassley has not cast his support behind this issue, which says a lot. Democrats are also up in arms about this and say it would be another tax cut for the rich.
David Stewart: And have we heard anything new about Trump's tax returns and efforts to get those in Congress?
Jad Chamseddine: There has been slow activity as you would expect with any lawsuit. Currently there are two lawsuits pending. The big one is the House Ways and Means Committee suing the Treasury Department to produce Trump's tax returns between 2013 and 2018. House lawyers just filed a motion for summary judgment and another motion to expedite the suit. The Ways and Means Committee held a closed-door meeting before the August recess that showed Congress can ask for the president's tax returns by looking at how the Joint Committee on Taxation got President Richard Nixon's tax returns in the 1970s while he was still president. Democrats want those returns before the next election, but this issue could reach the U.S. Supreme Court. Some say that it's unlikely to be resolved before November 2020. Another suit is by Trump trying to prevent New York from producing his state tax returns if the House Ways and Means Committee asks for them. Trump had a small victory there in that the judge said while he rules in the issue of jurisdiction in the case, New York can't produce the tax returns.
David Stewart: Turning to look a bit into the future with the 2020 election just a bit over a year away, where do you things stand among the Democratic candidates?
Asha Glover: Well, we are starting pretty early this year. This has been a really busy year for Democratic presidential candidates. The big names are still in the race: Sens. Elizabeth Warren, Bernie Sanders, Kamala Harris; former Vice President Joe Biden; New York Mayor Bill de Blasio; former Housing and Urban Development Secretary Julian Castro. There are a lot more names still in the race. Andrew Yang, the founder of Venture for America, who proposed a value added tax, which is really popular in Europe, to pay for his universal basic income program, is still in the race. His program would guarantee a $1,000 per month for Americans over 18. As you would imagine, a lot of people are kind of excited about that. But we have also lost a couple of people. We've also seen some people enter the race with former Illinois Rep. Joe Walsh announcing his bid for the Republican nomination against President Trump.
David Stewart: What are some of the tax proposals that we're seeing from the candidates?
Asha Glover: A lot of what we're seeing are tax proposals that are targeted towards lower- and middle-income Americans. These proposals have basically been floated to pay for policies such as universal healthcare, moving towards 100 percent renewable energy, and affordable housing. A few people have put out tax-centered proposals. de Blasio offered a wide-ranging tax plan that would require inheritances over $1 million to be taxed at normal income tax rates and restore the 35 percent corporate tax rate. Something that's also rising in popularity is increasing the tax rate on capital gains. Castro would increase the rate on capital gains to 40 percent for individuals earning $400,000 or more annually. de Blasio would equal the tax rates of capital gains in ordinary income. Biden wants to end the step-up in basis to pay for community college. We're looking at quite a few plans that have those capital gains, but another thing that's been increasing in popularity is the wealth tax. We heard earlier in this year Rep. Alexandria Ocasio-Cortez, D-N.Y., floated a wealth tax and a lot of the lawmakers in the Senate who are also running for president have embraced that idea.
David Stewart: Turning to the issue of climate change, I understand that several candidates have come forward with some plans that involve tax policy.
Asha Glover: Yeah. A lot of the way that people want to pay for getting the U.S. to renewable energy is by creating some sort of tax. A lot of those taxes look at the fossil fuel industry. Sanders has a plan that will cost about $16.3 trillion over 15 years and that would be funded in part by eliminating subsidies for the fossil fuel industry. He also said that his plan would bring in new income tax revenue because 20 million new jobs would be created to combat climate change. And he wants to increase taxes on high-income earners and corporations, which a lot of the presidential candidates have said that they want to do. Biden's climate plan would cost $1.7 trillion over a decade and would be paid for by reversing parts of the TCJA.
David Stewart: Alright, I guess we've got a full year of covering these various presidential plans ahead of us. I'm sure we'll have you back to talk about them a bit more. Asha, Jad, thanks for being here.
Asha Glover: Thanks for having us.
Jad Chamseddine: Thanks for having us.