Congress is embroiled in a challenging month, with government funding, new taxes, and other high-profile and controversial issues facing lawmakers ahead of their scheduled August recess. The sudden passing of Senator Lindsey Graham (R-SC), Chair of the Senate Budget Committee, will further complicate the ability to move legislation. Among the issues of interest to NAIFA are potential tax proposals that would index capital gains, increase the deduction for non-corporate business income, and impose new tax rules on cryptocurrency; offsetting tax increases; and health care affordability.
Reconciliation: House Republicans are currently struggling to put together a new all-GOP budget (reconciliation) bill. They believe that they have a better chance of enacting their policies—including most tax proposals—if they do so in an all-Republican bill. But, so far, House GOP lawmakers have been unable to come to an agreement on what that package should include.
There is general House Republican agreement on the centerpieces of the bill: an increase in Defense spending (to deal with the cost of the war in Iran), an elections rules bill (the SAVE Act or the SAVE America Act), and a package to tackle “waste, fraud and abuse” including in Medicare and Medicaid. But there is as yet no agreement on the details of these ideas.
Below is a list of some of the issues that may find a home in a reconciliation bill, if one comes together. Note: a reconciliation bill sidesteps the Senate’s filibuster rules (although there are strict (and arcane) rules on what will qualify to go into a reconciliation bill). Thus, if a reconciliation bill does come together, it would be passed without Democratic votes (or Democratic input).
Indexing Capital Gains: Many lawmakers in the Republican-controlled Congress want to index capital gains, to avoid taxation on gains related to inflation rather than to an increase in asset value when assets are sold. The idea has some support among more centrist Democrats, too. But, it likely will score as a significant revenue loser and so lawmakers are struggling with what to do about the potential revenue loss. Some say the cost should be offset by revenue-increasing tax proposals; others want offsets—if any—to come solely from spending cuts. This is a live but as yet unresolved issue.
Non-Corporate Business Income Deduction: On the table for inclusion in a reconciliation bill is an increase in the section 199A deduction for non-corporate business income. This issue is also subject to the challenges posed by the revenue loss an increase in the 199A deduction would trigger. The size of the increase—if one can be included at all in a reconciliation package—will likely depend on available agreeable offsetting revenue.
Cryptocurrency Tax Rules: A new tax idea—whether and if so how to tax cryptocurrency transactions—is high on the tax writers’ list of possible tax provisions to include in a reconciliation bill. Two crypto issues—striking and mining—are at the center of efforts to fashion new tax rules in this space. (Striking and mining are actions used to record crypto transactions on the blockchain.) The biggest problem, so far, seems to be lack of knowledge about how striking and mining work. But the potential revenue from a new crypto tax makes it an appealing target for a bill that will need offsets to pass.
Health Care Affordability, House Republicans are looking at “rooting out waste, fraud and abuse” in the Medicare and Medicaid programs, and at shifting payment of Affordable Care Act (ACA) premium subsidies from insurers to individuals (through health savings accounts). This is a high-priority (and high-profile) issue that is hugely controversial given increasing health insurance costs, falling coverage due to increasing costs, and voter concern about the issue. It is also intensely partisan.
Prospects: Most if not all of these legislative initiatives are likely to fall short of enactment into law. There is substantial disagreement within both parties as well as between Republicans and Democrats, and between the House and Senate. And majorities in both chambers are tiny. The Senate is lukewarm on the idea, at best, but House GOP leadership wants this bill, as does President Trump. So, although Washington insiders, both on and off the Hill, believe that ultimately the effort to do another all-GOP reconciliation bill will fail, the possibility of it cannot be ruled out. NAIFA is watching this effort very closely.
NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org