Delivering for Best-in-Class Wholesaler-Distributors
July 6, 2020

Tax issues in the 116th Congress:

It has been two and a half years since the President signed into law the Tax Cuts and Jobs Act of 2017 (TCJA), and the Treasury Department has finally completed its work writing regulations interpreting and implementing the statute. In that process, several issues arose about possible drafting errors in the language of the law, many of which could not be remedied by regulations but would have required 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 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 before the end of last 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 last 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, several 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 enacted last year applied to the individual rather than the business side of the tax code.

The tax agenda for the second session of the 116th Congress was being developed by Senate Finance and House Ways and Means Committee leaders this past spring, but all plans for a traditional tax debate were derailed – as was pretty much everything – when the Coronavirus pandemic forced the government at all levels to respond to the crisis.

Congressional programs addressing the economic shutdown and forced business closures included significant temporary and targeted tax provisions – including, for example, net operating loss carryback and the new “employee retention tax credit.” Many additional tax-related proposals have been suggested by members of Congress, the Administration, and stakeholder business groups.

As of this writing, it is not known what additional actions Congress will take in the area of tax policy as they continue to respond to the pandemic, and it is even less clear how many weeks or months will pass before we resume a normal tax policy debate.

LIFO:

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 continues to closely monitor the tax debate for any new threat to LIFO. While business tax increases are highly unlikely while the private sector suffers from the effects of the coronavirus pandemic, there is a growing concern among many about the massive federal spending being undertaken to address the crisis and the resultant increase in the federal debt and deficit. Addressing excess spending and debt is always accompanied by demands for new tax revenue, so we will remain on alert on this critical issue.

The upcoming federal elections are also a grave concern. Continued control of the Senate by business-friendly Republicans is seriously threatened in November. And if presidential campaign poll numbers are to be believed this year (and they clearly were not reliable in 2016), there is a very good chance that former Vice President Biden will occupy the White House next year.

Although Joe Biden was a generally moderate Democrat while serving in the U.S. Senate, he has been pulled significantly to the left by the dominant progressive wing of the modern Democratic Party, and his presidential campaign platform includes proposals for massive business tax increases. Should he win the presidency, our task in protecting LIFO is likely to again be challenging.

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