Washington Insider -- Tuesday

Offsetting Tax Cuts

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

USDA Announces Details on US Beef to China

The U.S. and China have announced details have been worked out to facilitate shipments of U.S. beef to China under an action plan announced May 11 by US Secretary of Commerce Wilbur Ross and Secretary of the Treasury Steven Mnuchin.

Establishments are required to participate in the Agricultural Marketing Service (AMS) Export Verification Program for Bovine for the People’s Republic of China, an Agricultural Marketing Service (AMS) Beef Traceability Program.

Effective May 24, 2017, deboned beef, bone-in beef including kidney, liver, omasum, tendons, outside skirt, inside skirt, hanging tender, oxtails, beef bones, feet, cheek meat, head meat, oxlips, backstrap, tunic tissue, ground beef (made strictly in conformance with FSIS regulations excluding weasand meat), and tongues derived from cattle less than 30 months of age.

Beef exports to the People’s Republic of China must meet specified requirements under the USDA Export Verification (EV) Program. These requirements apply to U.S. companies —slaughterers, fabricators, and/or processors — that supply beef and beef products as listed on the USDA Food Safety and Inspection Service (FSIS) website.

Eligible beef products exported to China should not contain growth promotants, feed additives and other chemical compounds including ractopamine, prohibited by China’s law and regulation, according to FSIS. Beef shipments detected with prohibited substance or compounds at the port of entry will be rejected, returned to the U.S. or destroyed.

Biofuel Policy Moves to Forefront on Capitol Hill

Efforts to modify biofuel policy are seeing increased attention on Capitol Hill, including discussions over the future of the Renewable Fuel Standard (RFS), sales of higher ethanol blend fuel and biofuel tax credits.

Permission for summer sales of vehicle fuel with higher concentrations of ethanol are proposed in a Senate bill (S 517) which will be the subject of a Senate Environment and Public Works Committee hearing June 14. Meanwhile, the House is conducting multiple discussions with interest groups aimed at overhauling the broader RFS legislation.

While the two initiatives are moving in parallel, the Senate bill could ultimately play a critical role in and RFS revamp, House Energy and Commerce Environment Subcommittee Chairman John Shimkus, R-Ill., the House lawmaker leading the meetings, told Bloomberg BNA.

An overhaul could include sunsetting the RFS altogether or providing relief, possibly in the form of tax credits, for advanced biofuel producers, and a range of other proposals. However, Shimkus said the details of that effort are vague at best.

The Senate bill measure would waive summer restrictions on transportation fuel containing 15 percent ethanol, known as E15, and higher ethanol blends. The Environmental Protection Agency (EPA) restricted summer E15 sales as a way to reduce ground-level ozone pollution.

The bill could help advocates for increased biofuels push for a broad RFS revamp in the House, Shimkus argued. “It could be a helpful provision for us on a compromise plan,” he said.

Previous RFS overhaul bills, which did not receive hearings, sought to cap the amount of biofuel required for blending. Biofuel groups, including the Renewable Fuels Association (RFA), oppose any changes to the law while the oil industry sees the E15 waiver as strengthening a program they accuse of being dysfunctional.

Washington Insider: Offsetting Tax Cuts

Bloomberg reported late last week that Republicans searching for consensus on how to pay for tax cuts are beginning to weigh the possibility of attacking spending in “potentially sensitive” areas of the budget. For example, Senate Finance Chair Orrin Hatch, R-Utah, told Bloomberg he “prefers to find spending cuts to pay for a tax overhaul,” though he stopped short of guaranteeing any outcome, Bloomberg said.

“That’s what should be the solution, I’ll put it that way,” Hatch, a Utah Republican, said Thursday. “And I’m hopeful that the Republicans will work to do that. I’d like to find some spending cuts. We’re spending us into oblivion."

Bloomberg also noted that GOP leaders have not moved off their calls for revenue-neutral tax legislation -- that is, a bill that balances tax cuts with other provisions that would raise revenue.

However, “a growing number of Republican lawmakers is calling for abandoning that concept,” Bloomberg said. It cited Representative Jim Jordan, R.-Ohio, a leader of the ultraconservative House Freedom Caucus, who called for $400 billion in unspecified cuts to welfare programs to help cover the cost of tax cuts. That’s “the way to unlock the logjam in the House” on setting tax and spending levels in a budget resolution, Jordan said last week at an event sponsored by the Heritage Foundation, a conservative policy and advocacy group.

At issue is how to comply with Senate rules that require 60 votes for any bill that adds to the long-term budget deficit. Republicans have only 52 Senate votes and aren’t counting on Democratic support. So tax-overhaul legislation must either avoid increasing the deficit or set its changes to expire within 10 years.

In the House, Speaker Paul Ryan, R-Wis., has proposed financing tax cuts with new revenues but his proposal, especially a border-adjusted tax on U.S. companies’ imports and the elimination of their net interest deductions, face considerable opposition. No consensus has emerged on any other ways to raise revenue, however.

The political facts are that there is no consensus for the border-adjustment tax, Representative Mark Meadows, R-N.C., the Freedom Caucus chairman told Bloomberg.

Jordan and Meadows said the Freedom Caucus won’t insist on revenue-neutral legislation, meaning some tax provisions would have to automatically expire in 10 years. “Some of the tax cuts could be temporary, so you don’t have to get full revenue-neutral,” Jordan said.

Republican Senator David Perdue of Georgia, a staunch opponent of the border-tax proposal, also floated spending cuts as a possible offset for a tax-cut package. Representative Mark Sanford, R-S.C., floated a “hybrid” of offsets including revenue-raisers and spending cuts, particularly for entitlement programs.

Achieving spending cuts on a large scale is increasingly difficult. The costliest programs in the U.S. budget are Medicare, Social Security and defense spending, which President Donald Trump has promised not to cut. The “discretionary” part of the budget has faced deep cuts in recent years, and many Republicans are reluctant to go further. That leaves “mandatory” spending, which covers popular safety-net programs like unemployment benefits, food stamps and veterans’ benefits.

“If we don’t get after mandatory spending, we will bankrupt our country,” Representative Warren Davidson, R., Ohio. “And that is not compassionate and we should not let that happen.”

Some Republicans see no way out of the logjam other than to change the rules and allow deficit-raising tax cuts for a longer time horizon. Senator Pat Toomey of Pennsylvania cast doubt on the prospects for consensus on major spending cuts and instead has called for imposing a 30-year time horizon for budgetary changes that can add to the deficit.

“I hope we’re not going to hold ourselves to something that is revenue-neutral, because then we’re not going to get good tax reform,” Toomey said.

But Ryan and Senate Majority Leader Mitch McConnell haven’t revised their calls for revenue-neutral tax reform and the White House hasn’t taken a definitive position on that question—a lack of guidance has fueled a free-for-all political environment, Bloomberg notes. However, it also notes that the clock is ticking, and Republicans are eager to see some progress soon in order to keep hope alive of passing a tax bill in 2017.

So, it will be important to watch carefully how the administration proposes to address the conflict between campaign promises and toxic issues like deep program cuts. This is especially true as the debate over the next farm bill approaches and budget hawk scrutiny continues to intensify for those programs, Washington Insider believes.

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