Washington Insider - Wednesday

By DTN's Washington Insider

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

China Asks For WTO Consultations with US Over Duties On Aluminum Foil

China has submitted a request for supplementary consultations under the World Trade Organization dispute-resolution mechanism with the U.S. over the October 27 decision by the U.S. Commerce Department to impose antidumping duties on imports of Chinese aluminum foil. China is arguing the U.S. made the determination based on what Beijing counters is an expired clause in their WTO accession agreement, which allows WTO members to use a third country's prices to determine if goods are being dumped.

"Regrettably, the United States has ignored the expiration of Article 15 ... and still persists in its erroneous practice of continuing to use the 'third country' method in its anti-dumping investigations on imported products of China in violation of its obligation to WTO rules," the ministry said, according to Reuters who first reported the China request November 6. The U.S. Commerce Department last week released a lengthy document outlining the process it used to make the duty decision, arguing China's economy is still not a market-based economy due to the level of control their central government exerts.

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Days Added To Next Round of NAFTA 2.0 Talks

A fifth round of North American Free Trade Agreement (NAFTA) 2.0 talks in Mexico City will take place November 15-21 rather than November 17-21 as originally planned. The extended days will give negotiators more time to discuss several issues covered under the 23-year-old trade pact.

The chief negotiators will still join talks on November 17 as previously scheduled. The agenda includes meetings on textiles, labor, services and intellectual property. Participants will again discuss the controversial topic of rules of origin in the second half of the round. The rules govern what share of a product must be sourced within NAFTA to receive the pact's benefits.

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Washington Insider: Working on a House Tax Reform Bill

The Washington Post is reporting that House Republicans on Monday again rejected President Trump’s push to use their tax bill to repeal a critical piece of the Affordable Care Act, instead making only modest changes to their legislation as they attempt to move it closer to a vote on the House floor.

House Ways and Means Committee Chairman Kevin Brady, R-Texas, offered an amendment that would tweak the way the bill would tax the earnings of investment managers, cross-border transactions by multi­national corporations and the endowments of private universities. However, his amendment did not make other, more costly changes to business taxation or repeal the Affordable Care Act’s insurance mandate.

“We will move to these important policies separately and immediately after conclusion of our tax reform efforts,” Brady said, referring to bipartisan efforts to repeal ACA taxes on medical devices, over-the-counter drugs and health insurance premiums.

Brady’s changes were adopted on a party-line committee vote late Monday. However, they were deliberated amid a battle over new evidence that their tax plan, which they are promoting as a middle-class tax cut, will instead deliver uneven benefits to American workers while delivering outsize benefits to corporations and the wealthiest tier of individuals.

Thomas A. Barthold, chief of staff of the nonpartisan congressional Joint Committee on Taxation, testified Monday that up to 38 million Americans with annual incomes between $20,000 and $40,000 would see an average tax increase starting in 2023 under the House GOP plan.

The Tax Cuts and Jobs Act, the legislative centerpiece of President Trump’s economic agenda, aims to deliver a $1.5 trillion tax cut to stimulate economic growth. The cliff in 2023, they argue, is due to the planned expiration of a tax credit that Congress will most likely act to extend. But several Democrats on the panel quizzed Barthold, who testified on his office’s fiscal analysis of the plan, relies on the apparent temporary nature of the bill’s benefits for some middle-class families.

That reflects the GOP plan’s substantial increase in the standard deduction — a Republican priority. But the drastic reduction in itemization could carry major implications for the housing and nonprofit sectors.

The suite of changes Brady unveiled Monday included a change to the way the federal tax code handles “carried interest,” a provision allowing investors to pay tax on some income at the lower capital-gains rate rather than the standard rate for earned income. Among those who take frequent advantage of the provision are managers of hedge funds and private equity firms.

Supporters say the provision is an incentive for better performance by investment managers, but critics say it’s a loophole for the super-rich.

The change, Brady said, would “make sure it really is focused on those long-term, traditional real estate partnerships” rather than hedge funds. But it would stop well short of the complete repeal long advocated by Democrats who argue that carried interest allows investors to recast ordinary income earned for services rendered as investment income subject to a lower rate.

Brady rebutted recent studies, including from the Joint Committee on Taxation. According to the JCT’s analysis, more than two-thirds of the $1.5 trillion tax cut would go to businesses and wealthy families who would avoid the estate tax.

The amendment unveiled Monday also appeared to address concerns from multinational firms who opposed a new 20 percent tax on certain transactions between corporate affiliates meant to discourage those firms from shifting profits to lower-taxed countries. It also reduced the reach of a new 1.4 percent tax on large university endowments, applying it only to institutions with assets of $250,000 per enrolled student or more, vs. the $100,000 threshold in the initial bill. Also protected is the current $5,000 per year exclusion for employer-provided dependent-care savings accounts.

The Ways and Means markup session could stretch into Thursday as committee Republicans and Democrats propose, debate and vote on amendments to the measure. Republican leaders hope to pass their bill through the House by Thanksgiving.

Lawmakers are exploring how to expand eligibility for a new 25 percent rate on pass-through income, in part to address the concerns of the National Federation of Independent Business, a lobbying group. But any expansion could explode the cost of a provision already estimated to cost roughly $450 billion over the coming decade, the Post said.

The NFIB said last week it would oppose the initial version of the bill because it “leaves too many small businesses behind” by leaving them ineligible for the lower rate. “We believe that tax reform should provide substantial relief to all small businesses, so they can reinvest their money, grow, and create jobs,” the group said.

Although the Congressional Budget Office estimated last year that a repeal would have a $416 billion positive deficit impact, updates to the nonpartisan scorekeeper’s model have significantly reduced that figure, according to GOP officials. One of the officials said Monday that the new analysis will not be available until later in the week.

The Senate Finance Committee is expected to unveil its version of a tax bill Thursday once the House committee’s proceedings end, the Post said.

Well, everybody is watching this bill and its Senate companion, but nobody really knows how it will all come out. Thus, the process should be watched closely by producers as it emerges, Washington Insider believes.

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(GH/BAS)

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