Washington Insider -- Tuesday

Spending and Tax Fight Continues

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

US China WTO Complaint on Tap This Week

On September 22, the U.S. will ask the World Trade Organization (WTO) dispute settlement body to launch an investigation into whether China violated WTO rules and unfairly imposed tariff-rate quotas (TRQs) for rice, wheat, and corn imports. The WTO will evaluate U.S. allegations that China set "impermissible" restrictions on farm imports, failed to provide sufficient information about its import quantities, and did not disclose changes to those import quotas.

As part of China's WTO accession agreement, Beijing pledged to set specific TRQ levels for various products by applying a lower tariff rate to imports up to a certain quantity and then applying higher duties to imports that exceed the threshold. If Beijing loses the case, it could be forced to accept increased amounts of U.S. grain imports or face billions of dollars in retaliatory trade actions from Washington. But any such outcome will still be well over a year or more away.

Mexico Said To Mull Targeting Pork If US Pursues NAFTA Provision on Produce

Mexican negotiators said to be readying a plan that would potentially target imports of U.S. pork if U.S. negotiators pursue a potential plan that would impact Mexican produce shipments to the U.S.

The potential protections on fresh produce that the U.S. is mulling as part of the NAFTA 2.0 negotiations has prompted Mexico work on a plan to protect certain products by making it easier for U.S. seasonal produce growers to launch anti-dumping cases against Mexico.

That is prompting Mexico to look at its own list of products it could examine for anti-dumping actions and that list could include pork, according to reports, if the U.S. were to formally propose the limits on produce. The next round of NAFTA talks get underway September 23 in Canada.

Washington Insider: Spending and Tax Fight Continues

While the pressure continues to build on appropriations bills needed to keep the government open for the next fiscal year, the path to agreement seems ever more murky. Bloomberg is reporting this week that Senate appropriators are slowly working to establish a more bipartisan negotiating position with appropriations bills that includes more funds and fewer conservative riders than the House-passed omnibus. Still, so far progress seems slight.

This is important since a spending deal will require 60 votes in the Senate, meaning that at least eight votes will be needed from members who caucus with Democrats.

At this time, the House’s roughly $1.2 trillion spending package is drawing Democratic opposition for language to block funds for Planned Parenthood, proposed cuts to domestic spending at agencies such as the EPA and the inclusion of money for portions of a wall on the U.S. border with Mexico.

Democrats also objected to busting defense spending caps mandated by the Budget Control Act while keeping limits for non-defense discretionary spending.

Senate Appropriations Committee ranking member Patrick Leahy, D-Vt., told the press last week that the House package "will not pass the Senate," and he criticized Republicans for not starting bipartisan negotiations on a spending deal, saying "I have been calling for these negotiations for months. It is time we get serious."

Sen. Shelley Moore Capito, R-W.Va, who chairs the Senate Financial Services Appropriations Subcommittee, told Bloomberg yesterday afternoon she didn’t realize the House had passed its appropriations package. She said House and Senate appropriators have talked about their bills but won’t start preconference work in earnest until the Senate Appropriations Committee has marked up the rest of its bills.

"We’re talking with them but we’ve been more concentrating on our own," Capito said. Four spending bills remain to be acted on by the Senate Appropriations Committee. The full Senate hasn’t acted on any spending bills.

Capito said she expects to mark up her financial services bill before the end of the month, which would mean the week of Sept. 25. She said appropriators pushed off work on their bills after Congress cleared the continuing resolution, which would fund the government through Dec. 8.

The Senate is likely to follow a schedule similar to that of the House when it comes to a budget resolution and tax-overhaul legislation, Senate Budget Committee member Ron Johnson, R-Wis., said. The Senate Budget Committee isn’t likely to release a budget resolution until the Congressional Budget Office has scored some of the key provisions in a tax outline offered by the "Big Six" members working on tax cuts, Johnson told reporters yesterday.

That initial set of bullet points will come late the week of Sept. 25, House Ways and Means Committee Chairman Kevin Brady, R-Texas, said last week. The "Big Six" group consists of Brady, Speaker Paul Ryan, Senate Majority Leader Mitch McConnell, Senate Finance Committee Chairman Orrin Hatch, R-Utah, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn.

Johnson said before putting out a budget resolution lawmakers want to see the static score, which wouldn’t account for economic growth that tax cuts might spur on key provisions in tax legislation. He expects the static score would show a loss of revenue because he doesn’t expect to increase some taxes in order to fully offset other tax cuts. But if the CBO accounts for economic growth using dynamic scoring, Johnson believes the plan would be revenue neutral.

Brady said on Wednesday he would like to "lower taxes on every American if it’s possible," which also would indicate a loss of revenue on a static basis. Johnson wouldn’t say whether he wants to see taxes reduced for every income bracket.

"I’m not laying out any red lines," Johnson said. "I’m not saying what I demand or who should or shouldn’t. We’ve just got to grow our economy."

Finance Chairman Hatch said his committee plans to craft its own tax legislation, not relying solely on the outline being developed by administration officials and congressional leaders. He said his committee won’t be "anyone’s rubber stamp." Hatch told CNBC that the Senate Finance Committee and House Ways and Means Committee will each work on tax legislation the way they see fit and then go to conference to produce a final piece of legislation.

Hatch also said Monday a 15% corporate tax rate seems unrealistic, despite President Donald Trump having campaigned on that number. "I sincerely doubt we will be able to get to that level," Hatch said.

Ryan mentioned last week that Republicans hope to be "at or below" a 22.5% rate. House Freedom Caucus members have withheld support for the budget until they see more details on tax overhaul. Freedom Caucus member Dave Brat, R-Va., said, in response to Ryan’s comments, that the proposed corporate tax rate figure “keeps creeping up."

“I’m not comfortable with it, but we’ll see," Brat said.

So, the administration’s tax proposal is eagerly awaited, and is certain to be highly controversial—and that debate could critically affect many other fights, so we will have to wait and see. This also is a fight producers should watch closely as it proceeds, Washington Insider believes.

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