Washington Insider -- Thursday

Tax Break Controversies

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

USTR Formally Publishes Suspension of December 15 Tariffs On China

The Office of the U.S. Trade Representative (USTR) on Wednesday in the Federal Register published the formal notice that suspends indefinitely the tariffs that were to go into effect on a host of Chinese goods December 15.

“On December 13, 2019, following months of negotiations, the United States and China reached a historic and enforceable agreement on a Phase One trade deal that requires structural reforms and other changes to China's economic and trade regime, including with respect to certain issues covered in this Section 301 investigation,” USTR said. “In light of progress in the negotiations with China, and at the direction of the President, the U.S. Trade Representative has determined that the action announced on August 20, as modified by the August 30 notice, is no longer appropriate. Specifically, and in accordance with the President's direction, the U.S. Trade Representative has determined to suspend indefinitely the imposition of additional duties of 15% on products of China covered by Annex C of the August 20 notice, which otherwise would have been effective on December 15, 2019.”

Further, USTR said they expect to issue another notice in the near future “reducing the rate of additional duty” on good from China that were covered under Annex A of the notice published August 20 “in light of progress in the negotiations.”

USTR also said that if further modifications are needed, they will take into account comments and testimony that have previously been provided by stakeholders.

More Time to Comment on USDA’s Hemp Rule

The comment period on USDA’s interim final rule for hemp production has been extended until January 29, 2020.

USDA took the move after requests from several stakeholders who felt that more time was needed to offer their views on the regulation.

The comment period had been set to end December 30.

USDA’s Ag Marketing Service (AMS) has already received nearly 1,200 comments on the rule, many of them raising concerns that the sampling and testing protocols are unworkable and could undermine the growth of the hemp industry.

Washington Insider: Tax Break Controversies

As the Congress works to authorize federal spending for the current fiscal year amid the bitter, ongoing political fights, it is also working to authorize the array of tax credits that negotiators typically work out annually.

This year’s package was unveiled Tuesday, and, “as usual, is intended to transcend partisan bickering and allow lawmakers to dole out special-interest tax breaks credits “that were set to expire or had already ended.”

The temporary nature of those benefits tends to set off a year-end scramble, NYT says, with lawmakers trying to aid businesses and entities that have come to depend on them.

Among the biggest changes tucked into this year’s agreement is the elimination of taxes intended to fund the Affordable Care Act, including a tax on medical devices, health insurers and generous health plans. That tax had never gone into effect and the House voted overwhelmingly to repeal it this year.

The health insurance tax, which applied to health insurers and the medical device tax, has been sporadically carried out, NYT said.

This year’s deal, which passed the House as part of an overall spending plan for eight agencies 297 to 120 on Tuesday, also extends tax benefits for railroad track maintenance, racehorse and racetrack ownership, hiring and investment on Native American reservations and some victims of natural disasters. A one-year extension was given to winemakers, beer brewers and liquor distillers allowing them to avoid tax increases of as much as 400 percent.

It also extends a handful of credits for renewable energy, like wind production, but does not include an extended credit for the buyers of electric cars, the Times emphasized.

Congressional staff and lobbyists were referring to Tuesday’s agreement as a “skinny” deal, which fell short of both Democratic and Republican ambitions and could have included additional aid to low-income families and fixes for errors written into the sweeping package of tax cuts signed in 2017.

This year’s deal also highlights the inability of the administration’s tax cuts to reduce businesses reliance on targeted credits and other breaks. The 2017 tax package that cut the corporate rate to 21% was intended to reduce the need for specialized tax breaks that had been good for lobbyists but costly and inefficient for taxpayers.

Those provisions were usually made temporary for budgetary reasons and allowing lawmakers to provide breaks without adding to the 10-year federal budget deficit. But many have routinely been renewed “continuing to add to America’s fiscal woes,” the Times said.

The provisions in the current deal could add more than $427 billion to the federal debt over the next decade, according to the congressional Joint Committee on Taxation. Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, said “there isn’t a single credible justification to defend it.”

Negotiators reached the deal hours before they were set to vote on spending legislation to keep the government fully funded through the end of the fiscal year. The extenders, through a procedural maneuver on the House floor were to be attached to one of the spending packages up for a House vote that then will go to the Senate which expects to take up the legislation before government funding expires on Friday, the Times said.

Congressional staff said that a broader agreement including more tax credits had been “at hand” earlier but that White House officials and Treasury Secretary Steven Mnuchin ultimately rejected it. Secretary Mnuchin pushed for any larger deal to include the relief for restaurant owners, they said, but Democrats were unwilling to support it without more in return on their priorities.

The deal as agreed to includes a few reversals from the 2017 law. It eliminates a tax increase that hit the children and spouses of deceased members of the military, along with a new tax that was set to hit churches and other nonprofit organizations that offer parking to their employees.

Other tax break winners include movie, television and theater producers and “energy efficient” homes—as well as owners who install electric charging station or other types of renewable refueling in their principal residence. However, supporters of renewable energy generally panned the package, saying it does little to incentivize a shift to cleaner power.

So, we will see. Politico emphasized that the House bill included a $15 billion tax break for biodiesel through 2022 that Sen. Chuck Grassley, R-Iowa, and other Midwestern members were pushing to benefit “states where biodiesel plants shut down throughout the year.”

The bill would also renew through 2020 a 46-cent-per-gallon credit for production of cellulosic and algae-based fuels and it would extend a special allowance for biofuel plant property.

So, we will see. Clearly, the current package includes significant benefits for producers and should be watched closely as it proceeds, 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.

If you have questions for DTN Washington Insider, please email edit@dtn.com