The IAPMO Group Washington Update—October 6, 2017

October 11th, 2017 | Posted by IPIA Admin in Uncategorized
This week: The House passed a fiscal year 2018 (FY18) budget resolution, a prerequisite to passing tax reform legislation later this year. The Senate passed various nominations, including Randal Quarles to serve as Vice Chairman for Supervision at the Federal Reserve (see below).

Next Week: The House will vote on President Trump’s request for $29 billion for further recovery efforts related to the recent hurricanes. The Senate will be in recess until October 16.

  Tax Credits For Plumbers Training. Improvements Discussion. Republicans want to make education tax credits “easier to use” in tax reform, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said this week. In 2016 there were two tax credits—the American Opportunity Tax Credit and the Lifetime Learning Tax Credit—available to individuals, in addition to tax deductions for tuition, fees, and student loan interest. The Sept. 27th Republican framework vowed to preserve higher education tax credits, but left the details up to the tax-writing committees. Lawmakers also want to help families whose children go to trade schools for vocations like welding or plumbing, Brady said in remarks at the Women Impacting Public Policy congressional luncheon this week. Some Ways and Means members have previously said they were reviewing former Chairman Dave Camp’s (R-Mich.) education proposals. Camp proposed repealing the tuition deduction and making the American Opportunity Tax Credit permanent, a step Congress took in 2016.House Speaker Paul D. Ryan (R-Wis.) said today in a Facebook Live event that 529 plans, which help families save for college, “are very helpful and successful.” College savings is another area lawmakers want to make simpler, he said. 

  Infrastructure Outline Could Come Next Week. A legislative outline of the Trump administration's long-anticipated infrastructure plan could be made public as early as next week, the House Transportation and Infrastructure chairman told reporters this week. The administration most recently has shifted talk on the timing for the $1 trillion infrastructure proposal from the autumn to after a tax overhaul effort. “We hope they're going to make it public in the next week or so,” Chairman Bill Shuster (R-Pa.) said. “It will be more of an outline or principles.” Shuster's counterpart in the Senate, Commerce Science and Transportation Committee Chairman John Thune (R-S.D.), didn't confirm that timeline, instead telling reporters the administration for some time has been “telegraphing the fall.” Shuster said he has been working with the administration for months and expects the infrastructure proposal to move closely with the tax effort underway in Congress. Infrastructure could be used to sweeten the deal on the tax overhaul, Shuster said. The Transportation Department didn't respond to a request for comment on the legislative outline or the timing. The White House budget proposal for the agency included funding for an infrastructure package.

  Prerequisite to Tax Reform Advance. As has been noted before, the passage of an FY-18 budget resolution has become a de facto pre-condition for passage of any tax reform legislation this or next year. The budget will contain reconciliation instructions that allow Republicans to pass a tax bill with a simple majority in the Senate instead of the super majority of 60 votes that is typically needed. Both the House and Senate advanced budgets this week, keeping the momentum for tax reform alive this week. The House passed its budget resolution yesterday, while a Senate committee advanced its own version. The two resolutions differ, which means that either the two chambers will have to reconcile their differences or the House will have to vote again on the Senate version. The news would be much bigger if Republican infighting was preventing progress on a budget, but Republicans thus far have been able to narrowly push these measures through. A final budget should be approved in November, and this will serve to check another box in the long and winding road to enact a tax reform bill.

Global Surtax More Clear. Last week’s tax reform framework mentioned the need to prevent “shifting profits to tax havens” and the need for new rules to “level the playing field” between U.S. corporations and foreign corporations. A Senate Finance Committee hearing this week shed greater light on the meaning of this point, which had generated some confusion. The hearing featured a witness invited by committee Republicans who outlined an idea to expand the taxation method for income deferred by U.S. corporations and to impose a surtax on U.S. subsidiaries of foreign corporations. The witness indicated this proposal would prevent future inversions, U.S. tax base erosion, and the gaming of the tax code by foreign corporations. He added that the absence of such a mechanism would encourage more companies to structure in a manner that would allow them to avoid U.S. corporate taxes. This concern is not new and was part of the reason that a border adjustment tax (BAT) was previously under consideration. When the BAT proposal was put to bed, most said at the time that another proposal with a similar aim will replace it. This surtax could be that replacement.

Gun Control Comeback? In the wake of the Las Vegas tragedy, many lawmakers and other opinion-makers have renewed their call for increased gun control measures. Familiar measures, such as a requirement that private gun sellers screen potential buyers through an FBI database (presently only licensed gun dealers must use this background check) and a ban on high- capacity magazines, have been re-proposed this week. Most Republicans and some rural Democrats will not support these bills, and they have a clear majority in the House and Senate. The Las Vegas shooting is, however, halting the progress of a gun bill that otherwise would have been considered in the House this year. That legislation would loosen restrictions on the purchase of suppressors (or silencers – 1.3 million are currently registered with the government). Additionally, there is growing momentum to restrict the sale of “bump stocks,” devices that enhance a semiautomatic rifle’s firing capacity, but this would be a very modest measure, which has even recently been supported by the NRA

Administration Update.

  Trump Administration to Continue March Toward Deregulation. The Trump administration will continue its push to end what it characterizes as unnecessary and burdensome regulations as a way to promote economic growth and job creation. President Donald Trump had been scheduled to give an address on deregulation but canceled the speech in the wake of the mass shooting in the early morning hours in Las Vegas. Vice President Mike Pence delivered remarks instead to the roughly 300 invitees gathered in the East Room of the White House, including those from think tanks, industry groups, universities, and businesses. After the speech, 10 federal departments hosted sessions at their headquarters to discuss their regulatory agendas. The Environmental Protection Agency, which already has held several public sessions, did not participate. Although Trump has spoken about deregulation many times, Pence's speech was a firm commitment to continue that part of the administration's agenda. Behind the podium was a visual representation of the number of pages in the Federal Register in the 1960s compared to the number of pages today, with a piece of red tape connecting the two stacks. The Vice President noted that the difference is about 20,000 pages then, compared with 200,000 pages now, he said.

  New Regulatory Sheriff in Town. The Treasury Department continues to conduct an ongoing review of the existing financial regulatory system. It issued an initial report in June recommending changes to bank regulations that will be followed by reports in the coming weeks on other topics (e.g., capital markets, insurance, asset management). As important as the Treasury efforts are in terms of setting the agenda, reforms can only be executed through changes in laws and regulations. With bipartisan discussions in the Senate proceeding slowly and likely to produce only modest results, most of the focus will be on reform efforts at the regulatory agencies. An important preliminary step in advancing these efforts was taken this week with the Senate’s approval of Randal Quarles to be the Vice Chairman of Supervision at the Federal Reserve. He will be the first Trump appointee to the Fed, but certainly not the last given that Chair Yellen’s term expires in February and that there will soon be three other vacancies on the Board. However, the addition of Quarles (a respected and experienced policy maker, investor and bank lawyer) will be particularly consequential since he will be the linchpin of a multi-year regulatory reform process that will include changes to the Volcker Rule and the CCAR stress test process as initial priorities.

  Social Media Woes. Congressional committees probing the potential impact of Russian interference on U.S. elections last year have ramped up their confidential conversations with social media companies whose platforms may have been abused by Russian (and possibly other foreign entities) to influence U.S. voters in last year’s elections. While much of the focus to date at the committees and in the press has been on activity on Facebook and Twitter, the investigation has broadened to include other companies. The abuse of U.S. social media platforms for foreign political purposes is a new phenomenon and will require a lot of work by investigators to unpack. The conversation will ultimately turn to what obligations the companies have to prevent that abuse in the future. Many expect this to be just the tip of the iceberg of this story, which will feature prominently in the ongoing investigations into suspected Russian involvement in last year’s elections. Equifax and Wells Fargo were in the hot seat this week in congressional hearings, but it won’t be long before some of the big technology companies have their own invitation to answer questions about their role in allowing bad actors to influence U.S. voters last year.

Iran Nuclear Deal. By October 15, President Trump must decide whether to certify Iran’s compliance with the 2015 agreement over the scope and pace of its nuclear weapons program with other major powers (Russia, China, France, Britain and Germany in addition to the U.S.). The President has spoken consistently of his opposition to the terms of the agreement, but the certification process focuses on whether Iran has complied with the deal, not on the quality of the deal. Some of the President’s top advisors have spoken publicly in favor of the certification, including his secretaries of State and Defense. The press reported late this week that the President planned to not certify Iran’s compliance, which would trigger a 60-day process for Congress to consider whether to re-impose sanctions on Iran—the sanctions that were removed as a result of the 2015 deal. We do not believe Congress would re-impose those sanctions, however, which could signal a lack of unity on Iranian policy between the President and Congress. A lack of certification would seemingly isolate the U.S. and put it in a difficult position with the other agreement signatories, including major European allies. Regardless, this will be major news next week and likely have an effect of escalating U.S.-Iran tensions and again calling into question whether the U.S. is becoming too isolated in the world.

  Industry Update.

  Clean Water Act Case in Supreme Court. Starting this week the Supreme Court is back in session! There’s one water case on the high court’s docket for the fall session. Oral arguments are scheduled for next week in National Association of Manufacturers v. Department of Defense. At its heart, the case is about legal territory: which court has the jurisdiction to hear challenges to the EPA’s Clean Water Rule. Federal lawyers had argued that the case should be delayed because the EPA, under the Trump administration, is now trying to wipe the rule off the books. Some legal observers noted that an indefinite delay would be a means of invalidating the rule without going through the required repeal process.

Colorado River Agreement Reached. After a long negotiation representatives from the United States and Mexico signed an agreement designed to help both sides respond to a diminishing Colorado River. Minute 323, as the agreement is known, is the latest update to a treaty signed in 1944. The agreement defines cuts in water deliveries that Mexico will take when Lake Mead, the river’s keystone reservoir, drops below certain thresholds. The agreement allows Mexico to store water in the big reservoir. It also establishes a preventative conservation program, in which both countries would reduce water use before Lake Mead gets perilously low. The water conserved is supposed to be made available when Mead rises above 1,110 feet (current level: 1,082 feet), but being able to use all the conservation deferment seems like a convenient fiction given the downward hydrological trend lines in the basin. This provision is contingent on Arizona, California, and Nevada deciding how to split their conservation share. The United States also committed dollars, pledging $31.5 million for conservation projects in Mexico. Almost half of the conserved water will go to U.S. users. One-third will nourish Mexican wetlands and rivers, and the rest will prop up reservoirs.

New Study Finds Link Between Drought and Civil Unrest. After studying nearly 1,800 riots that took place over a 20-year period in sub-Saharan Africa, researchers from the University of Geneva identified a systematic link between drought and riots. The study determined that although political, economic, and social issues create tension, drought can “add fuel to flames,” increasing the risk of rioting anywhere from ten percent to fifty percent. For example, when a period of drought hits a particular region, it has been shown that there is a drop in agricultural production and income; food becomes scarcer and prices rise; and towns no longer receive adequate supplies -- all of which leads to outbreaks of rioting. The researchers, who controlled for a very wide range of ancillary variables, found that a period of drought increases the overall possibility of rioting by 10% in a given month in any region, whether it is a desert or not, and regardless of whether it is close to a city.

  State News.

Gerrymandering Under Fire. A legal challenge targeting gerrymandering, the practice of state legislatures drawing congressional district lines to favor the political party in power, was the subject of a Supreme Court hearing this week. Specifically, the court heard a case challenging Wisconsin’s congressional districts and seeking a determination over whether individuals could file suits in the future against states for creating politically-inspired congressional districts. The court will issue a ruling in June, and it could shake up how the states draw the lines separating congressional districts. While the current legal challenge takes aim at the actions of the Wisconsin legislature, the ruling in the case likely will have an impact on every state. The result could be that gerrymandering is curtailed, limited or affirmed. States will next draw their congressional district lines for the 2022 elections after the 2020 census.

  Dain M. Hansen
Senior Vice President
Government Relations
The IAPMO Group
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Suite 825 East
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