K Street's Inside Track on Tax (Dec. 21)

Update 238 — K Street’s Inside Track on Tax;

Middle-Class Taxpayers Pay with Uncertainty 

Yesterday, President Trump and Congressional Republicans celebrated passage of a sprawling tax package costing $1.5 trillion over ten years.

And with Ways and Means Chair Brady’s technical corrections bill ready to go, lobbyists on K Street and elsewhere will return from the holidays with well-deserved bonuses and their work cut out for them in 2018.

Do they deserve the bonuses?  Let’s see…

Best,

Dana

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K Street Breaks the Bank 

With trillions of dollars on the line during the first major tax reform since 1986, K Street mobilized an army of lobbyists to advocate on behalf of its corporate clients.  According to Public Citizen, 6,243 — 57 percent — of DC’s nearly 11,000 registered lobbyists worked on tax reform in some capacity during the first three-quarters of 2017.

Republican tax reform proved to be an effective jobs program for K Street, and the number of lobbyists hired to advocate on tax issues reveals the significant influence corporate and special interest lobbies had on the tax writing process. Twenty-six separate industries hired over 150 lobbyists and 20 individual organizations hired over 50 lobbyists.

The top lobbying shops included those in healthcare-related industries (pharmaceuticals and insurance), technology (Microsoft, Google, and Amazon), and finance (securities and investment groups).

With the bill on its way to President Trump’s desk, the Tax Cuts and Jobs Act keeps on giving for Washington lobbyists. Even before the bill cleared the Senate, Ways and Means Chair Kevin Brady promised a corrections bill in early 2018. Corporations are prepared for this next round of lobbying.  Recent weeks have seen the Motion Picture Association of America, the Atlanta Hawks basketball team, and Altaba Inc. (formerly Yahoo!) all hire new lobbyists to focus on tax reform.

Among the countless cases of special treatment to specific industry lobbies:

Late Night Handwritten Love Letter Legislation

The eleventh-hour scramble to pass the Senate version of the tax bill was perhaps the most glaring example of K Street’s influence on the tax writing process.  A week of opaque deliberations among GOP leadership was capped off by a flurry of negotiations between party leaders and GOP holdouts in the final moments before passage. The final bill was hundreds pages of mistake-ridden text, with a number of provisions scribbled in illegible handwriting.

The process drew the ire of Democrats, who received the legislation mere hours before they were expected to vote on it. Sen. Tester angrily — and now famously — took to the Internet to highlight the absurdity of passing landmark legislation with indecipherable scribbles. Even worse, an alarming tweet from Sen. McCaskill revealed that lobbyists had access to the legislation long before most Senators. Sen. McCaskill tweeted a list of amendments to be included in the bill which she received from K Street, not from Republican leadership or anyone else involved in authoring the bill.

Lobbyists not only knew more about the contents of the bill than the Senators who would vote it into law, but they also knew about it earlier. They likely had more influence on writing the provisions than publicly-elected legislators.

*Source:  Public Citizen, Swamped, p. 4

Closed Door Conferencing

The Republican haste to pass tax reform meant that final negotiations in the Conference Committee were settled behind closed doors. Not only did this shut Democrats out of the process and keep the public in the dark, but it also allowed lobbyists to focus their efforts on a handful of tax writers. As one lobbyist put it, “you’re dealing with 14 people instead of 535 people.”

Large groups, like the Chamber of Commerce and the Business Roundtable, were present from the onset of the reform process, and pressed hard for the dramatically-reduced 21 percent corporate tax rate. These groups were also instrumental in repealing the corporate Alternative Minimum Tax, another last-minute change to the Senate bill. The Chamber devoted two blog posts to what it described as a “bombshell” provision, and the corporate AMT was quickly eliminated in conference.

Some lobbyists found success by promoting the pet projects of individual politicians. Senator Corker, the last remaining Republican holdout, drew fire over the weekend after announcing his support for the bill with a change to allow real estate developers to escape the limitation on large businesses using the 20 percent pass-through deduction. Dozens of GOP lawmakers stand to gain from the preferable treatment of real estate income — to say nothing of Trump family, which stands to benefit handsomely from that change.

Other specific industry groups battled for gains with mixed results. The Americans Against Double Taxation pushed against the $10,000 cap on state and local tax deductions, but only managed to secure inclusion of all state and local taxes under the limit, instead of just property taxes. Homebuilders and real estate lobbyists fought to preserve the $1 million mortgage interest deduction, but fought a Pyrrhic battle, as the deduction was cut 25 percent to $750,000 and homeowners cannot deduct interest on a home equity credit line up to $100,000.

Lobbyists for the pharmaceutical industry inveighed against the House bill’s elimination of the orphan tax credit, but only managed to save half of the credit.  While the green energy lobby was able to stave off the House bill’s cuts to energy tax credits, industry insiders are concerned that base erosion measures in the final bill will undermine investment.

The Senate Parliamentarian proved a stumbling block for some lobbyists. The repeal of the Johnson Amendment, which would have allowed religious organizations to advocate for specific candidates without paying taxes, was scrapped last week. An obscure exemption that would have allowed Berea college, a small school in Mitch McConnell’s home state of Kentucky, to avoid a new endowment tax was axed on Tuesday. Both provisions were deemed in violation of the Byrd Rule violation.

A Second Bite of the Apple

Tax experts have already stumbled upon a number questionable provisions in the bill text. Even before the final version of the bill was finalized, Chairman Brady announced that a technical corrections bill was in the making, an unusual move so early in the process. While the move may irk policy experts, K Street is salivating at a second opportunity to influence legislation.

The Credit Union National Association has already promised the organization it represents that it will fight to change an executive compensation provision in the final bill when Congress takes up the correction bill. Heather Podesta, a Democratic lobbyist, described technical corrections as “the next big fight.” The Tax Cuts and Jobs act might be on President Trump’s desk, but how the bill will be interpreted and enforced by the IRS will have a lot to do with the specifications laid out in the corrections bill. For lobbyists who didn’t get wishes fulfilled the first time around, this represents a second bite of the apple.

This assumes a corrections bill is forthcoming. Historically, passing corrective legislation was considered standard operating procedure, but that changed when Republicans refused to consider changes to the Affordable Care Act. Because Republicans moved their tax legislation along party lines via reconciliation, it is unlikely Democrats will support a corrections bill that would require eight or nine of them to reach the 60 votes needed to pass.

For many lobbyists this would not necessarily be a bad thing — lobbyists and tax lawyers thrive off of poorly constructed legislation, and the Tax Cuts and Jobs Act has plenty of it.

State of Play/Next Steps

President Trump has agreed with Republican leaders not to sign the tax bill into law until early January, to avoid triggering a PAYGO sequester requiring spending cuts to spending programs. Delaying the official signing is a wise move. Congress must approve temporary spending extensions by the end of the week to avoid a partial government shutdown.

Lost in the end-of-year K Street tax blitz are two million children, who will lose access to CHIP care without a federal budget extension by Friday.

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