Back to Government Affairs: Mobility and the U.S. Administration
February 13, 2017
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Dear Worldwide ERC® Member:
The hot news topic coast to coast since our last update has been on the executive order temporarily suspending nationals from seven countries. The order was signed by President Trump in the nation’s capital of the U.S., but a federal judge in Seattle, Washington and a federal appeals court in San Francisco, California lifted the suspension. In this Government Affairs Community Update, we have outlined and explained activity in the new administration’s agenda.
Twice a month, our special Government Affairs Community Updates will continue to inform you of U.S. governmental activity and its impact on global business and the mobility industry. We hope you will share this information within your company, and with your clients and colleagues, and we’ll be back with more essential 100 Days information and review on February 27.
Peggy Smith, SCRP, SGMS-T
Worldwide ERC® President and CEO
The timing for tax reform continues to be uncertain. Although House Speaker Paul Ryan has announced a goal of completing legislation in the House by the August recess, to date no legislative language has been proposed, and the outline of reform continues to be murky.
House Ways and Means Chairman Kevin Brady, in an appearance at a Bloomberg BNA tax briefing in Washington on February 7, said that lawmakers are still grappling with timing, as well as when specific legislative language will be drafted. When questioned as to the effective date of any tax reform legislation, Brady said “the assumption is that this is going to be done this year, [so] when exactly do the provisions take effect? The answer is we haven’t decided yet,” but left open the possibility that the new law might be made retroactively effective January 1, 2017. He also said that his committee is working on the assumption that full proposals will be delivered this summer.
Meanwhile, discussion continued to center around the House proposal for a business cash flow tax with a border adjustment. The border adjustment aspect of the proposal would tax imports (including imported products or materials used to manufacture products for both export and domestic use), but not exports. Along with numerous submissions concerning the workability of certain aspects of the proposal (for example, it would have to be significantly adjusted for companies in the financial services sector), opposition has developed from some business sectors. For instance, on February 1, a coalition of over a hundred businesses and trade associations in the retail sector announced a national campaign to defeat the tax, arguing that it would significantly increase prices for imported goods and adversely impact consumers. A competing coalition which claims to include more than 25 American businesses in various industries (named the “American Made Coalition”), whose members are not disclosed, has weighed in on the opposite side.
In the Senate, there is also some doubt being expressed concerning the border-adjustable business tax. Senate Finance Committee Chairman Orrin Hatch said on February 1 that senators have concerns about who would bear the tax and whether it would be consistent with international trade obligations. He wondered whether it would adversely affect certain industries. Hatch also remarked “no one should expect the Senate to simply take up and pass a House tax reform bill, and that’s not a bad thing. I’m simply saying that a major concern on tax reform is producing a bill that can get through the Senate, and this is likely going to require a separate Senate tax reform process, which will almost surely end up looking different from what passes in the House.” Unlike the House, the Senate has no currently articulated version of tax reform.
For his part, President Trump has been mostly silent on the details of tax reform, although he has been quoted as expressing some skepticism concerning the border adjustable business tax. He has also suggested, however, the possibility of levying a 20% tax on Mexican imports to pay for a proposed border wall along the Southwest border.
The President’s only other recently expressed views on tax policy were to reiterate on February 2 a pledge to eliminate a tax code provision that bars specific endorsement or opposition to candidates for public office by houses of worship. A drafted but unpublished executive order would implement that policy administratively by prohibiting the IRS from enforcing the provision.
Moving Expense Deduction
Worldwide ERC® representatives met with American Moving and Storage Association (AMSA) officials on January 27 to develop a strategy in defending the moving expense deduction. Both organizations have given this effort a high priority, and are engaged in identifying and seeking political support from members of Congress whose constituencies benefit from the deduction.
The Joint Committee on Taxation (JCT) staff on January 30 released the 2016 version of its regular reports on tax expenditures. That document, along with a similar publication from the Treasury Department, is relied upon by Congress to determine the costs of a large number of tax provisions identified as “tax expenditures,” some of which are then targeted for elimination as part of tax reform. Tax expenditures are generally defined as special benefits that depart from taxation under a “normal” tax system. The JCT report includes dozens of provisions, some of which are of interest to the mobility industry, including the Foreign Earned Income Exclusion, the mortgage interest deduction, the exclusion for capital gains on sale of a principal residence, the deduction for property taxes, the exclusion for forgiven principal residence mortgage debt, and the deduction for private mortgage insurance.
In contrast, the deduction for moving expenses has never been included as a tax expenditure by either the JCT or Treasury. Although the reason is not clear, it appears that neither JCT nor Treasury consider the deduction a “special” benefit that departs from items that should be a routine part of a regular tax system.
The deduction has not been mentioned as a potential target for elimination as a part of the House Republican tax reform plan, and its omission from the tax expenditure report provides a compelling argument that it is a functioning part of the tax code that supports a strong economy by enhancing worker mobility. Worldwide ERC® and AMSA will continue to make the case that the deduction belongs in a reformed tax code.
Affordable Care Act
On February 10, the United States Senate confirmed Congressman Tom Price as the new Secretary of Health and Human Services (HHS). The vote was 52 to 47 along party lines. While repealing and replacing the Affordable Care Act will take an act of Congress, newly sworn-in HHS Secretary Price will have the administrative authority to modify those pieces of the ACA which Congress left up to the discretion of the Secretary.
As to the timing of the repeal and replacement of the ACA, President Trump recently stated that effort could go into next year. However, some changes could come sooner, with Price now in place as HHS Secretary and reports the Trump Administration is working on proposed regulations to modify the health exchanges to help insurers.
President Trump issued an executive order on January 30 requiring all agencies to identify two regulations to repeal for every new regulation they wish to add. The President had already frozen new and proposed regulations in a memorandum issued January 20.
The new order is very broad, and led to confusion as to what exactly was covered. For future years, all regulations that would “increase incremental cost” must be offset by elimination of existing rules of the same incremental cost.
The Office of Management and Budget (OMB), which is responsible for managing the federal regulation process, responded on February 2 with a memorandum scaling back the order somewhat. For example, OMB’s memo limits the 2-for-1 rule to regulations that are “significant regulatory actions.”
IRS regulations, in the past, generally have not been treated as significant regulatory actions. This is because the vast majority of IRS regulations merely assist taxpayers by interpreting, explaining, and amplifying requirements imposed by the underlying statute; the statute, not the regulations, imposes incremental costs. As a general matter, the demand for tax regulations greatly exceeds the supply, as tax professionals, businesses, and industries seek guidance. Consequently, it is somewhat reassuring that apparently, OMB does not intend to require the IRS to eliminate two rules for every one that it publishes. Nor does the OMB definition of regulations include other everyday IRS guidance such as revenue rulings, notices, revenue procedures, and the like.
For other agencies, however, it may be very difficult to promulgate needed rules under the order. Until OMB issues further guidance, the federal regulatory environment will remain uncertain, including the fate of numerous rules already proposed.
President Trump has not yet signaled whether he will try to remove Richard Cordray as director of the Consumer Financial Protection Bureau (CFPB). The looming question is whether he could merely remove Cordray at will or whether he would need cause.
The U.S. Court of Appeals for the DC Circuit is currently determining whether to rehear the case of PHH v. CFPB which resulted in favor of PHH and determined the President could remove the director at will. If the Court turns down the request by the CFPB, then Cordray has stated he will abide by the decision. If the Court does rehear the case, it will likely take several months - if not longer - for a decision. If the President were, in the meantime, to remove Cordray for cause, it would likely result in an intense battle with congressional Democrats.
House Financial Services Chairman Jeb Hensarling has recently stated that Republicans will likely need to use executive actions and legislative maneuvers to make changes to the financial system. Later this month, he is expected to introduce his legislation to overhaul aspects of the Dodd-Frank Act, which included making the CFPB more accountable to Congress and lessening the powers of the CFPB Director.
While withdrawing from the Trans-Pacific Partnership (TPP) agreement was the first executive action by President Trump, he has not yet taken action on the North American Free Trade Agreement (NAFTA). President Trump made withdrawal from the TPP and renegotiation of NAFTA two of his top campaign pledges. Unlike the TPP which Congress had not formally considered, Congress approved of NAFTA so the President must give Congress 90 days’ notice before the Administration can begin formal talks.
On February 10, President Trump met with Japanese Prime Minister Shinzo Abe to discuss the relationship between the two countries and how to address trade in light of the U.S. withdrawal from the TPP.
With the U.S. Court of Appeals for the 9th Circuit ruling in favor of a lower court freeze on the temporary ban of certain nationals of seven countries from entering the U.S., the Trump Administration is currently determining its options. While the U.S. Supreme Court in the past has tended to favor the authority of the President in matters of national security, the Court currently has only eight members, and a split decision would uphold the Appeals Court ruling. There are reports that the Administration is looking to possibly avoid another court consideration and instead issue a new executive order.
On January 27, President Trump signed Executive Order: Protecting the Nation from Foreign Terrorist Entry into the United States. The order instituted a temporary 90-day ban from entering the U.S. on nationals from Iran, Iraq, Libya, Somalia, Sudan, and Yemen, and a 120-day suspension for the Refugee Admission Program on refugees from those countries. The order also indefinitely banned nationals and refugees from Syria.
The ban initially applied to green card holders from the seven identified countries, but the Department of Homeland Security issued a clarification that green card holders were exempt from the ban. On February 3, U.S. District Judge James Robart in Seattle, Washington issued a temporary restraining order that freezes the government from continuing to execute the order. On February 9, the U.S. Court of Appeals upheld the lower court ruling.
The ban has direct significant implications for the workforce mobility industry.
Worldwide ERC® will be hosting a webinar on February 14 on the ramifications of the executive order, as well as a reported order being drafted specifically on high-skilled immigration. To register for the webinar, sponsored in partnership with Fragomen, please click here to register.
Our next Government Affairs Community Update/First 100 Days will be delivered to Worldwide ERC® members February 27, 2017.
Additional post-election information can be found in: