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The House and Senate are out of session through the November 8 election. As you may recall, lawmakers passed a continuing resolution before they left town to keep the government funded through December 9, setting up yet another spending battle when they return for the “lame duck” session between the election and the end of the year. Senate Majority Leader Mitch McConnell (R-KY) confirmed that tax extenders would be back on Congress’ legislative agenda when lawmakers return in November, including energy-related provisions that are a priority for Democrats and were skipped over during extenders negotiations last year. House Republicans had hoped last year’s deal that included many permanent provisions would eliminate the need for another year-end tax package, but that doesn’t seem to be the case with several recently-approved provisions in both the Senate and House still awaiting approval during the lame duck. We are working hard with our colleagues in the sector to make a final push for our long-standing provisions, i.e. the streamlined private foundation excise tax and expansion of the IRA rollover to include distributions to donor-advised funds.
Two weeks ago, House Speaker Paul Ryan (R-WI) told reporters he would be willing to push his agenda, including tax reform, through the legislative process using a tool known as budget reconciliation. This process allows lawmakers to avoid a Senate filibuster because only 51 votes in the Senate are required to pass legislation. The House will likely remain in Republican control, so if Republicans retain their majority in the Senate, even by a slim margin, they could conceivably use the reconciliation process to pass almost anything.
The method is obviously controversial and is usually reserved for the 11th hour, making it all the more noteworthy that Speaker Ryan is bringing it up now. Democrats used it back in 2010 to finish passing the Affordable Care Act and Republicans used it to pass President Bush’s tax cuts in 2001 and 2003. Any such legislation can still be vetoed by the President, which would require a two-thirds vote to override. So if Democrats retain the White House with only slim Republican margins in the House and Senate, a successful use of reconciliation would be difficult.
The possibility of budget reconciliation being a viable option will depend heavily on the outcome of the election.
On Tuesday, the Tax Policy Center (TPC) came out with a report stating that the two Presidential nominees’ tax plans are mirror images of each other. The wealthy would be the big winners under Donald Trump’s tax reform plan, while the same group would bear nearly all of Hillary Clinton’s tax increases. Additionally, Clinton’s mix of hikes and cuts would make the code more complex, while Trump’s would simplify the code. The Trump campaign said the Tax Policy Center is “deeply biased” and called the study “fraudulent.” TPC also said Clinton’s proposals would increase revenue by $1.4 trillion over a decade and revenues would fall by $6.2 trillion under Trump’s plan.
On Wednesday, the Tax Foundation said it agreed with the TPC estimate that Clinton’s plan would generate $1.4 trillion using conventional budgeting techniques. However, when accounting for the macroeconomic effects of the plan, the Tax Foundation said her plan would increase revenue by just $663 billion. The Tax Foundation predicts her proposals would reduce long-term growth by 2.6 percent.
The first and only vice presidential debate was on Tuesday, October 4, between Senator Tim Kaine (D-VA) and Governor Mike Pence. Senator Kaine said Trump’s tax plan would significantly raise taxes on the middle class and Clinton’s plan would actually help the same group. Governor Pence cited tax reform from the 1960s and 1980s as proof that lower rates boost economic growth.
On Sunday, October 9, Hillary Clinton and Donald Trump participated in the second presidential debate at Washington University in St. Louis. The two candidates discussed many issues, among them taxes and the economy, foreign affairs, and health care. On the topic of taxes, Donald Trump said he would get rid of the carried interest loophole to ensure the wealthiest Americans are paying their fair share in taxes. He also said he’d lower corporate taxes to stop businesses from leaving the country, but claimed Hillary Clinton wants to raise everyone’s taxes “really high.” Clinton responded that she wouldn’t raise taxes on anyone making less than $250,000 a year. Neither candidate addressed charitable priorities, including the charitable deduction.
The last debate is next Wednesday, October 19, at 9:00 pm EST at the University of Nevada, Las Vegas.
On Monday, Republicans convened by conference call to talk about rescinding their endorsement of Donald Trump. According to reports, Speaker Ryan told lawmakers to do what was necessary in their districts, but that he wouldn’t continue to defend the nominee. Several GOP lawmakers denounced Trump, with some even calling for him to be replaced as the Republican nominee.
As for the Senate, the Cook Political Report race ratings haven’t changed much in the past few weeks. Of the 24 Republican seats up for reelection, six are still considered “toss-ups” while two “lean Democrat.” Of the 10 Democratic seats up, just one (Nevada) is a “toss-up” and the rest are likely or solid Democrat. Democrats only need to take four or five Republican-held seats to take control of the Senate. That said, whichever party ends up in control of the higher chamber will likely only hold it by a slim margin, making any kind of legislating difficult, including tax reform. If the past few years of the Obama Administration are any indication of what that could mean, we expect to see more executive orders and regulations from the next administration, regardless of who wins the election.
On taxes, this Presidential election is shaping up to be a battle of the billionaires. And like the rest of the campaign, this fight isn’t pretty.
Donald Trump has implied that his payment of taxes and questions about his charitable giving are nothing out of the ordinary for the very wealthy. Meanwhile, fellow billionaires Warren Buffett and Dallas Mavericks owner Mark Cuban are having none of it.
During Sunday’s debate, Trump said, “Of course I do. Of course I do” when he asked if he had used a nearly $1 billion loss to avoid paying taxes. That might seem like an eye-popping number but he likely didn’t do anything illegal. He then claimed that Clinton’s wealthy donors did the same. “Many of her friends took bigger deductions. Warren Buffett took a massive deduction,” he argued.
That prompted Mark Cuban to say, “After military service, the most patriotic thing you can do as a wealthy person is pay your taxes. That keeps the roads paved, the military paid, and kids going to school, and he obviously doesn’t understand that concept.”
Warren Buffett also fired back with information on his own tax returns dating back to 1944, when he was 13 years old and owed $7 in taxes. According to Buffet, he has never carried forward a loss in his 72 years of paying taxes, contrary to what Trump claimed.
Buffett also noted that he made total charitable contributions of $2,858,057,970 in 2015 (not a typo) of “which more than $2.85 billion were not taken as deductions and never will be.” He then called on Trump again to release his taxes.
These debates and allegations ensure that taxes – and particularly taxes paid by the wealthy – will stay on the front burner for the next few weeks until the election and likely beyond. We don’t know about you, but Tuesday, November 8 can’t come soon enough.
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