Delivering for Best-in-Class Wholesaler-Distributors
January 10, 2020

Tax issues in the 116th Congress:

It has been more than two years since the President signed into law the Tax Cuts and Jobs Act of 2017 (TCJA), and the Treasury Department has completed most of its work writing regulations interpreting and implementing the statute. In the process, a number of issues arose about possible drafting errors in the language of the law, many of which cannot be remedied by regulations but would require Congress to pass a “technical corrections” bill.

Congressional Democrats made it clear from the beginning that they would not work with the Republicans on technical corrections, arguing that since the GOP passed the bill with no input from Democrats, they (Democrats) were not going to cooperate in any effort to fix the errors. In what appeared to be a breakthrough, however, last summer the new Democratic House Ways and Means Committee Chair, Richard Neal (D-MA), held a hearing on three new tax bills, during which he said that the Committee would consider a technical corrections bill at the end of the year.

That would have been very good news for the many taxpayers impacted by specific provisions of the TCJA, including a number of NAW member companies concerned about the unintended – or intended but inappropriate – consequences of the Global Intangible Low Tax Income provisions – known by the ridiculous acronym GILTI.

Unfortunately, when Congress returned to Washington in September to begin their Fall work session, hope for a separate technical corrections bill faded. The tax-writing committees focused instead on an “extenders” package to deal with tax provisions that would otherwise have expired. They also worked on a retirement savings bill – the SECURE Act – which had strong bi-partisan support but had stalled in the Senate.

When the Congress adjourned in December, there was in fact no separate tax bill enacted.  Instead, a number of tax provisions — including the retirement savings SECURE Act — were added to the year-end spending bill.

In addition to the significant retirement plan changes, the tax provisions of interest to our members were the long-sought repeal of three taxes enacted as part of the ObamaCare bill (see separate Health Care issue brief).  But other than the extension of a few business tax credits, most of the tax law changes apply to the individual rather than the business side of the tax code.

In the good news category, despite the many threats to repeal the business tax cuts made by Democratic candidates in the 2018 mid-term elections, there was no appetite to revisit the major provisions of the TCJA in 2019. Despite their majority control of the House today, discussion of major tax hikes on business and upper income earners seem to be limited to presidential campaign promises, and efforts to change the 2017 law seem focused on reversing the law’s $10,000 cap on the deduction of state and local taxes.

An additional tax measure is being pursued by the pass-through business community and its allies in Congress: they are pushing for a change in the law that would make permanent the 20 percent deduction, Section 199A of the code. Under current law Section 199A will expire at the end of 2025 and the top pass-through tax rate will return to 39.6 percent. While business support for Section 199A permanence is strong, that provision, too, is unlikely to be enacted in this Congress.

LIFO:

Finally, as a possible area of some concern, the House was expected to consider a “clean energy” tax package last fall, which was expected to include new and/or increased taxes on the oil and gas industry. Among the energy taxes Congress has previously considered – and once passed only to have President George W. Bush threaten to veto it – is repeal of LIFO for the energy companies. The NAW-led LIFO Coalition will vigorously oppose any effort to repeal LIFO, since successful repeal for the oil companies would set a dangerous precedent for repeal for other industries.

NAW has managed the LIFO Coalition since repeal was first proposed in 2006 by a Republican senator, and repeal has been repeatedly sought since by the Obama Administration and Republican tax writers. We long believed that the threat of repeal was far greater in the context of comprehensive tax reform than it had ever been.

Our battle to preserve the use of LIFO was rewarded in 2017 when neither the House nor the Senate included repeal in their tax reform legislation, even though we had been clearly told by Senate Finance Committee staff that repeal was likely to be included in their reform bill. As we have done multiple times over the last decade, NAW and our colleagues in the LIFO Coalition asked our member companies to contact the Senate Finance Committee members to urge them not to include repeal in their bill. NAW member companies rose to this challenge, and to good effect. The Finance Committee opted to leave LIFO alone, a clear and notable win for wholesale distribution and a case study in how businesses can impact public policy by actively engaging.

NAW will continue to manage the LIFO Coalition since repeal could come up again but keeping LIFO out of the tax reform bill was a huge success – thanks to each of you who helped us preserve LIFO.

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