What to Expect in Washington for 2017
With the elections behind us, and Congress finishing up work for the year, attention is turning to what to expect with a new president and a new Congress in 2017. One of the first items on the agenda in the new year will be increasing the debt limit that allows the federal government to continue borrowing to meet its existing financial obligations. On a related topic, Congress could look to reform the budget process and may consider a comprehensive reform of the tax code.
Raising the debt ceiling, a vote Congress has historically done grudgingly, in recent years has been very difficult. Members of Congress have used votes on debt ceiling increases as leverage in reaching an agreement on funding the federal government.
Currently suspended through March 15, 2017, if the debt ceiling is not extended before then—a likely scenario— the Treasury Department will then use “extraordinary measures” to allow for extra time before the debt ceiling is reached. The Bipartisan Policy Center estimates that lawmakers have until at least the middle of next summer before action will be required.
The previous two suspensions of the debt ceiling ended in the spring with the Treasury Department using extraordinary measures until the fall before action had to be taken by lawmakers. In 2013, a suspension in the month of May allowed the Treasury Department to continue borrowing until October. In 2015, a suspension in March allowed the Treasury Department to continue borrowing until November.
It is possible that any agreement on raising the debt ceiling could be tied to a new budget agreement. House Speaker Paul Ryan (R-WI) has endorsed a move away from the current annual budgeting process to a biennial process. Any change to the budgeting process would likely have to include an increase to the current spending caps that remain in place until 2021. The budget deficit increased modestly in 2016 following a decline for four straight years.
A change to biennial budgeting would likely be met with skepticism by members of the House and Senate Appropriations Committees that annually approve funding for federal programs. Despite support for biennial budget from House Republican Leadership, Senior Republicans on the House Appropriations Committee such as Reps. Hal Rogers (KY) and Tom Cole (OK) are opposed to the idea.
Scrutiny of the budget process may be closely tied to tax reform. It is likely that reform of the tax code will receive renewed scrutiny in the new Congress. Recently, Speaker Ryan said that an overhaul of the tax code would be the first priority next year, and that he may use the budget reconciliation process to move the legislation.
Use of the budget reconciliation process would make it easier to advance tax reform legislation in the Senate should it be approved in the House. Under traditional Senate rules, for procedural reasons, 60 votes are typically needed to move forward with any legislation. However, under the budget reconciliation process, only 50 votes (a simple majority) are needed.
Sen. Ron Wyden (D-OR), Ranking Member on the Senate Finance Committee, has also expressed an interest in moving forward with comprehensive tax reform efforts next year. Any reform effort would have to address both individual and corporate income tax rates. According to the Joint Committee on Taxation (JCT), U.S. based multinational corporations have approximately $2.6 trillion in profits offshore to avoid paying corporate income taxes.
Several corporate tax reform proposals would have a transition tax rate over a period of years that is lower than the current corporate income tax rate. For example, President Obama has proposed a transition tax rate of 14% over a 10-year period as U.S. companies repatriate their earnings. That transition rate is substantially lower than the current 35% corporate rate, and would be needed to entice U.S. companies to repatriate their earnings.
Should an agreement be reached on repatriation of foreign earnings, there would still need to be consensus on what to do with the additional revenue. Some have favored using additional funds for infrastructure investment, while others have suggested the money should be used for deficit reduction.
Most economic experts agree that reform of the tax code is needed to make American businesses more competitive. As Congress looks toward 2017 and working with a new president, changes to the budgeting process and tax code may provide an early opportunity for Democrats and Republicans to work together. NLBMDA will continue its engagement with Capitol Hill to ensure that any comprehensive tax reform proposal does not unfairly disadvantage S-Corporations and/or family-owned companies.