Washington Insider - Thursday

Working on a House Tax Reform Bill

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

NAFTA Worries Continue for US Agriculture

Concern continues to run high within U.S. agriculture over the possibility that the U.S. will either exit NAFTA or that the NAFTA 2.0 talks will end up negatively impacting the sector.

Those concerns have prompted a major push in Washington by ag interests to emphasize to lawmakers and the Trump administration how important NAFTA is to the sector – Canada and Mexico represent some of the top destinations for U.S. agricultural exports.

While indicating a "contingency plan" would not be needed, USDA Secretary Sonny Perdue told reporters in Washington that he was working on such a plan. "We're talking with the administration and Congress about some mitigation efforts if that were to occur; about how we could protect our producers with that [farm] safety net based on prices that may respond negatively to any kind of NAFTA withdrawal," Perdue said. Pulling out of the trade deal could have "some tragic consequences" for U.S. agriculture, but he noted producers and the sector can adapt to changes in the market.

Perdue said he still expected the NAFTA 2.0 talks will come to a successful conclusion. But he acknowledged "there'll be some nervous bumps in the meantime."

House Ag Chair Assures Ag Interests on Importance of NAFTA

U.S. agriculture interests expressed their concerns to leaders of the House Agriculture Committee in a meeting Tuesday afternoon, and panel Chairman Mike Conaway, R-Texas, assured the groups that congressional leaders are well aware of the importance of the 23-year-old NAFTA accord. "They all represent districts as well that have trade interests," Conway said at a briefing after the meeting. "I don't think I necessarily need to help them understand it, but certainly to the extent that the voice of agriculture needs to be there, I am doing that."

The ag interests meeting with lawmakers were "pretty candid... actually, they were very candid in their comments to the members about ... how they'd like to see the administration move forward," Conaway said. Ranking member Collin Peterson, D-Minn., voted against NAFTA in 1993 but expressed a hope the Trump administration does not "screw up" positive parts of the agreement. However, he was not optimistic about the push to expand U.S. access to the Canadian dairy market. "Having met all the Canadians, I wouldn't bet the ranch on getting anything done" on that," Peterson said. "That's been the situation since Day One."

Washington Insider: The Search for Tax Revenue

The national media is focused steadily on the work on proposed tax reforms again this week—and Bloomberg is no exception. In addition, that group is reporting that an emerging “revenue hole” is pushing the House leadership to reconsider, yet again, repealing Obama Care.

Bloomberg noted that the House tax-writing committee entered its third day of work earlier to hammer out the details of the Republican tax cut plan. That led the House Ways and Means Chair to propose to revise one of the GOP tax bill’s offshore provisions--an estimated $74 billion revenue hole--which is sending tax writers scrambling to find additional revenue.

Bloomberg said this could lead them to “pursue a risky strategy to make up the shortfall: repealing the 2010 Affordable Care Act’s individual mandate.” As a result, House Republicans are edging closer to accepting President Donald Trump’s suggestion to combine their tax legislation with a repeal of the mandate that all individuals purchase health insurance.

If that strategy were to succeed, it would give House tax writers an estimated $416 billion in offsets for the deep rate cuts they want, but it also risks alienating GOP senators who voted down a measure that would have repealed the so-called individual mandate last summer, Bloomberg says.

Consideration of the individual-mandate repeal began to gain traction late Tuesday as Republican members of the House Ways and Means Committee came under pressure from GOP colleagues to preserve popular tax credits and deductions, Bloomberg says.

It may gain even more traction after a report showed that changing one of the international provisions--effectively gutting a controversial proposal to tax U.S. companies’ payments to related foreign affiliates--along with some other last-minute changes made earlier--would increase the 10-year deficit that the tax bill would produce by $160.7 billion, to $1.57 trillion, according to the Joint Committee on Taxation. The tax legislation must stay under the $1.5 trillion limit set in Congress’s 2018 budget resolution to avoid the threat of a Democratic filibuster in the Senate that could kill it.

Still, House Freedom Caucus Chairman Mark Meadows, R-N.C., doubted that the repeal of the ACCA mandate would be included in the House bill.

“There is a concern about having the health-care debate and tax reform happen simultaneously,” Meadows said earlier Tuesday. “House leadership hasn’t specifically said that but the indication, if I’m reading between the lines, is there’s no way it gets in the House version,” he told Bloomberg.

Whatever solution to that gap is adopted, it will likely be made behind closed doors. Despite the public debate this week, many of the most difficult decisions are being negotiated in secret between party leaders and individual members.

In addition to changes to international tax provisions, some GOP members want to restore the adoption tax credit, while others wanted to raise the mortgage interest deduction cap for new homes to $750,000 from $500,000. Yet others want to simplify rules that restrict which partnerships and other pass-through businesses can qualify for a tax rate of 25 percent.

The third day of the markup was expected to include more back-room negotiations, as well as additional votes on amendments proposed by Democrats, as lawmakers continue working their way through the 425-page tax bill.

It remains unclear what changes, if any, will be made to the bill by the time it is expected to be approved by the committee on Thursday. But Brady has said that once it reaches the full House for a vote, the legislation won’t be open to amendment. That means there is almost no time left to revise it. And there also is very little time left for the Senate committee to complete its plans for their version of a tax bill, which could be significantly different from the House version.

The House markup was expected to continue to work toward a final committee vote today, Bloomberg said. Still, possible changes to the bill’s provisions repealing the adoption credit and itemized deductions for medical expenses are to be discussed.

In the Senate, Republicans are said to be considering fully repealing individual federal tax deductions for state and local taxes--including property taxes and preserving the estate tax, which would both conflict with the House legislation. Republicans on the Senate Finance Committee also are trying to finalize their version of a tax bill so that it could be unveiled today.

The Ways and Means Committee voted down several Democratic amendments including limiting the debt increase under the bill after two years, restoring the state and local tax deduction, ending the SALT break for businesses if individuals cannot use it, raising the corporate tax rate enough to offset the cost of the bill, and restoring tax breaks for adoption and for employers who hire veterans.

So, the debates are continuing and the pressures from funding shortages, the time deadlines and policy disagreements are increasing steadily. Certainly, these debates are extremely important for producers and should be watched closely as they proceed, Washington Insider believes.

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

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