President Trump’s late-December signature of the sweeping tax-overhaul bill capped off the biggest year for the tax-policy world in three decades. But 2018 will have its own battles, as Congress and the Internal Revenue Service grapple with the regulatory and administrative fallout from the bill and lawmakers gear up to push new tax legislation.
Congress passed the $1.4 trillion, 500-plus-page tax bill about two months after House tax writers introduced the first version, a light-speed timeline compared to the 18 months of deal-making done for the 1986 tax overhaul. The haste, combined with the size and complexity of the legislation, means that as taxpayers and the IRS deal with the implementation of the new bill, they’ll find scores of drafting errors and loopholes that need fixing in a so-called technical-corrections bill.
Congress passed a major technical-corrections bill for the 1986 legislation in late 1988 with strong support from both sides of the aisle. But the partisan climate in Congress is different today, and it’s unclear whether Democrats, left out of the bill-writing process last year, will go along with a technical-corrections bill. Republicans need Democratic support in the Senate, where the measure requires 60 votes. Democrats could try to secure rollbacks of some of the bill’s less popular tax breaks or seek new revenue raisers.
“Let’s see what they are prepared to offer in terms of offsets within the framework of what they’ve just constructed,” House Ways and Means Committee ranking member Richard Neal said.
Analysts expect a flurry of rulings by the IRS over the next few years to clarify the more obscure language in the tax bill. But rulings can take time, and in the case of serious errors, the IRS and Congress may need to take more immediate action. The 1986 tax-bill implementation could serve as a guidepost for what may happen this year.
About a month after Congress passed the 1986 bill, Larry Gibbs, then IRS commissioner, got a call from a Hill staffer saying that there had been a major tax loophole created in language related to estate executors who sell shares to employee stock-ownership programs.
“It was just an oversight. The provision was not written correctly, and it opened a tremendous loophole in the employee stock-ownership-plan area, ESOPs, and it’s big enough that we were very concerned that it’s going to lead to a substantial revenue loss that no one participated or intended,” said Gibbs, now a senior counsel at Miller & Chevalier.
Gibbs and lawmakers ultimately agreed that Congress would put out a statement saying it would implement the fix in legislation, while the IRS said it would enforce the corrected language retroactively, an effort to deter taxpayers from taking advantage of the loophole. Congress ultimately passed legislation closing the loophole in late 1987.
The new tax-overhaul bill comes as the IRS already grapples with diminished funding.
For years, the agency has been the subject of criticism from Republicans in the wake of the 2013 scandal over targeting of tax-exempt groups, and that’s been reflected in their funding measures. Lawmakers have cut IRS funding by about $1 billion since 2010—down to $11.2 billion last year—and have worked to put in more restrictions on the agency’s oversight of tax-exempt groups.
Much of that GOP criticism over the past few years was aimed at its commissioner, John Koskinen, whom President Obama appointed after the 2013 scandal. But Koskinen’s term ended late last year, and President Trump appointed David Kautter, the current assistant Treasury secretary for tax policy, to serve in a dual role as acting commissioner. That could soften Republicans’ position on providing more funding to the agency. House Ways and Means Committee Chairman Kevin Brady said he’s been meeting with Treasury Secretary Steven Mnuchin on how to best roll out the tax bill administratively, including the possibility of additional resources for the IRS.
“Under a new acting commissioner, if they can make that case in conjunction with Treasury, we’ll listen to it,” Brady said. “But the assumption is not, ‘We’re opening up the pocketbook.’ The assumption is, ‘We need to know what it takes to implement this effectively and efficiently.’”
Those challenges come as Congress plans even more changes at the agency. Brady has said that he hopes to push for a major administrative overhaul of the IRS in 2018, an effort he says will improve customer service at the agency.
And there are other tax bills on tap in 2018 that have been affected by last year’s overhaul.
Shortly after singing the tax bill, Trump again said his administration would push for an infrastructure plan in the new year. A proposal—which could near $1 trillion—may come as soon as January.
“Infrastructure is the by far the easiest,” Trump told reporters on Dec. 22. “People want it—Republicans and Democrats.”
But the major funding mechanism for a bill to repair the nation’s roads, bridges, and waterways, a one-time tax on repatriating foreign earnings, was used to partially offset the cost of lower rates in the tax bill. The White House is still eyeing an increase in the federal fuel tax of 18.4 cents per gallon of gasoline and 22.4 cents for a gallon of diesel, The Hill reported in December, but that idea runs afoul of conservative Republicans in Congress. Lawmakers haven’t raised the gas tax since 1993.
Brady has also said the tax bill is only the first in a series of changes to the tax code, and to expect further measures in the years to come addressing issues left out of the bill.
“We know there are areas that weren’t included, such as pensions and benefits, retirement and multi-employer plans, for example,” Brady said in December. “A lot of work was done in the savings area to streamline all that process, and education savings that weren’t part of the final [version]. Plus, as businesses assess the international policies, we’ll learn more about what needs to be fine-tuned there as well.”
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