AWFS is a client of LobbyIt. Each month, LobbyIt prepares the following report on public policy updates and activity for AWFS and its member companies.
AWFS Monthly Report
Greetings! During the month of December, Lobbyit continued to monitor the final developments in the GOP tax plan, finalized and sent a letter to the Secretary of Labor, and began preparations for 2018.
December in DC was filled with a flurry of activity as the GOP-led Congress rushed to wrap up their tax plan and a number of other must-pass pieces of legislation, including keeping the government open. They were successful in passing a tax plan but ended up kicking a few other things down the road. Please see below for a final rundown of key provisions in the tax plan.
The next couple weeks will be occupied with dealing with those postponed deadlines. Congress must come to an agreement on spending levels and pass a new spending bill that keeps the government open. This also comes at a time that the Democrats are pushing for a fix for DACA recipients in exchange for their votes, which are needed in order to pass the spending bills. This negotiation may go down to the wire and current reports indicate that Congress may be forced to push the 19th deadline even further, potentially into February.
While Congress is captured by spending negotiations, Lobbyit will be working to prepare for the upcoming AWFS Hill Day at the end of February. Though the Hill might be tackling funding issues, the Administration will still be analyzing apprenticeships through the Department of Labor’s Taskforce and some Members will still be engaged on workforce development issues. We will be working to identify key offices to meet with on the Hill Day and look to secure an Agency meeting for part of the AWFS contingent that comes to DC.
Final Version of Key Tax Bill Provisions
The House and the Senate reached an agreement on a final tax cut bill and passed it in late December. Mistakes have already been identified in the bill and there will likely be more and other unintended consequences discovered in the coming year. This will require bills to be passed to make changes, the vast majority of which will not be substantive. Lobbyit will monitor and provide updates as necessary.
State and Local Tax Deduction
Individuals will be able to deduct an aggregate of $10,000 of state and local government taxes. The legislation repeals the deduction of foreign property taxes. Corporations and passthroughs can continue to deduct their state and local income and sales taxes. The provisions apply to the 2018-2025 tax years.
During tax years 2018 through 2025, the bill modifies the tax treatment of certain businesses organized as passthroughs, which can include sole proprietorships, partnerships, limited liability companies, and S corporations. They continue to pay tax through the individual income system, but are allowed a deduction for 20 percent of their domestic qualified business income.
The deduction is limited to either 50% of the “W-2 wages” they paid or 25% of W-2 wages plus 2.5% of the cost of their tangible, depreciable property. The IRS still needs to set guidelines for valuation and acquisition timing of property.
The wage limit wouldn’t apply to taxpayers with income of $157,500 or less for individuals, or $315,000 or less for joint filers, indexed for inflation. The limit would phase in for taxpayers with incomes greater than those thresholds. For partnerships and S corporations, the deduction would apply at the partner or shareholder level, based on their allocable share of W-2 wages.
The deduction would be limited for certain professional services businesses, including those in health, law, and accounting. It would only be fully available for service businesses with income of $157,500 or less for individuals or $315,000 or less for joint filers (indexed to inflation), and would phase out for incomes greater than those thresholds. Engineering and architecture businesses wouldn’t be considered service businesses.
Dividends from cooperatives and real estate investment trusts (REITs) and income from publicly traded partnerships would be deductible.
Alternative Minimum Tax
The measure would retain the AMT for individuals but increase the exemption amount and phaseout thresholds so fewer people would pay it. The corporate AMT would be repealed. The AMT is levied on certain individuals with exemptions or special circumstances that allow them to pay a lower standard income tax. Taxpayers calculate their liability twice — once under the rules for the regular income tax and once under the AMT rules — and then pay the higher amount.
From 2018 through 2025, a higher AMT exemption would apply to income, beginning with $109,400 for joint filers and $70,300 for other taxpayers in 2018.
The exemption would phase out at $1 million for joint filers and $500,000 for other taxpayers. Thresholds would be adjusted for inflation using the chained consumer price index.
In 2017, the exemption is $84,500 for joint filers and $54,300 for individuals. The phaseout threshold is $160,900 for joint filers and $120,700 for individuals.
Obamacare Individual Mandate
The measure effectively repeals the individual mandate by eliminating the penalties used to enforce it. The individual mandate is repealed beginning in 2019.
The bill would allow full and immediate expensing of capital investments placed in service after Sept. 27, 2017, and before Jan. 1, 2023, in most cases. The provision would apply before Jan. 1, 2024, for certain property with a 10-year recovery period, transportation property, and certain aircraft.
After 2023, “bonus depreciation” would phase out by 20 percent per year through 2026 (or through 2027 for property that qualified for an extra year of full expensing). The measure would expand the types of property eligible for bonus depreciation to include used property when first acquired by the taxpayer.
The bill would expand “Section 179” expensing, which allows businesses to immediately expense some of the costs of qualifying property such as off-the-shelf computer software and some real property. Current law specifies that as much as $500,000 can be expensed unless more than $2 million in property is bought, in which case there’s a dollar-for-dollar reduction in the deductible amount. The thresholds are indexed for inflation.
Under the measure, as much as $1 million could be expensed under Section 179, while the phaseout threshold would be increased to $2.5 million. Both amounts would be indexed to inflation.
Eligibility for Section 179 expensing would be expanded to include furniture, as well as nonresidential roofs, heating and air conditioning systems, and fire and alarm systems.
The measure would double the basic exemption from the estate, gift, and generation-skipping transfer taxes to $10 million during the 2018 through 2025 tax years. The exemption was $5 million as of 2011 and $5.49 million in 2017 after adjusting for inflation.
Corporate Rates and Deductions
The graduated income tax with a top rate of 35 percent would be replaced by a flat 21 percent corporate income tax rate beginning in the 2018 tax year.
The bill specifies the accounting method taxpayers should use to normalize excess tax reserves that result from the rate reduction.
The alternative minimum tax (AMT) would be repealed, as proposed by the House bill. Corporations could continue to use their AMT credits to offset their regular tax liability. Credits would be partially refundable in tax years 2018 through 2021.
The conference agreement would modify several corporate accounting methods for smaller businesses.
It would allow corporations and partnerships with corporate partners with average gross receipts of as much as $25 million (indexed for inflation) to use cash accounting, under which a business recognizes income and deducts expenses when cash is exchanged instead of having to accrue income and expenses. Cash accounting is already available to all sizes of sole proprietorships, partnerships without a corporate partner, and S corporations.
The measure would also allow farm corporations and partnerships with gross receipts of as much as $25 million to use cash accounting.
Eligible businesses could use cash accounting even if they had inventories. Under current law, businesses with inventory must use the accrual method of accounting for tax purposes.
Businesses with average gross receipts of $25 million or less — instead of $10 million or less under current law — would be exempt from uniform capitalization (UNICAP) rules. UNICAP rules require businesses to either include certain direct and indirect costs associated with property they manufacture in their inventory or capitalize those costs into the basis of that property.
The conference agreement would also modify the accounting method that businesses with average gross receipts of $25 million or less use for long-term contracts.
Net Operating Loss Deduction
The bill would modify businesses’ ability to carry their operating losses to other tax years.
The net operating loss deduction carryover would be limited to 80 percent of a taxpayer’s eligible income, computed without consideration of the deduction itself.
The ability to carry back a loss to a previous year would be repealed, but losses could be carried forward indefinitely. The measure would make exceptions for farms — which could carry losses back two years — and property and casualty insurance companies — which could carry losses back two years and forward 20 years, as under current law.
Real Estate Provisions
The measure would temporarily reduce the cap on the amount of mortgage interest that taxpayers can deduct to $750,000 from $1 million for mortgages incurred on or after Dec. 15, 2017. If a mortgage incurred before Dec. 15, 2017, was refinanced, it would still be considered to have been incurred on the original date of the mortgage for purposes of the deduction.
The cap would be restored to $1 million in 2026, regardless of when the mortgage was incurred.
S. 206 – JOBS Act of 2017
Senator Tim Kaine (D-VA) introduced the JOBS Act of 2017 on January 24th, 2017. On the day it was introduced, the bill was referred to the Committee on Health, education, Labor, and Pensions. The bill currently has 6 cosponsors.
This bill amends title IV (Student Assistance) of the Higher Education Act of 1965 to establish the Job Training Federal Pell Grant Program. The Department of Education must award job training Federal Pell Grants to eligible students. An eligible student is one who does not have a degree, attends an institution of higher education (IHE), is enrolled in a job training program at such IHE, and meets all other eligibility requirements for a Federal Pell Grant. The maximum job training Federal Pell Grant award is 50% of the discretionary base maximum award specified in annual appropriations law.
Related bills: H.R.2451 – Pell Grant Preservation and Expansion Act
H.R. 1485 – Flexible Pell Grant for 21st Century Students Act
Representative Elise Stefanik (R-NY) introduced the bill on March 9th, 2017. On the day it was introduced, the bill was referred to the House Committee on Education and the Workforce. The bill currently has 36 cosponsors.
Amends the Higher Education Act of 1965 to provide students with increased flexibility in the use of Federal Pell Grants. A student who has received a Federal Pell Grant during an award year and is enrolled in an eligible program for one or more additional payment periods during the same award year, may receive an additional Federal Pell Grant for such additional period or periods.
S. 790 – Innovation for Tomorrow’s Workforce Act
Senator Orrin Hatch (R-UT) introduced this bill on March 30th, 2017. On the day it was introduced, the bill was referred to the Committee on Health, Education, Labor and Pensions. The bill has 1 cosponsor.
Amends the Carl D. Perkins Career and Technical Education Act of 2006 to encourage innovation. Creates a grant program to identify and support innovative strategies to improve career and technical education.
H.R.4078 – Expanding America’s Workforce Act of 2017
On October 19, 2017, H.R.4078 was introduced to the House of Representatives by Representative Duncan D. Hunter (R-CA) and referred to the House Committee on Education and the Workforce. Currently the bill has 2 cosponsors.
The purpose of this bill is to establish various programs to ease the burden on under-educated and financially deficient workers seeking to further their education.
H.R.4162 – Pell Grant Modernization Act
On October 27, 2017, H.R.4162 was introduced to the House of Representatives by Representative Glenn Grothman (R-WI) and referred to the House Committee on Education and the Workforce. Currently the bill has one cosponsor.
The purpose of this bill is to amend the Higher Education Act of 1965 to adjust the period of eligibility for Federal Pell Grants, and for other purposes.
H.R.4115 – PARTNERS Act
On October 25, 2017, H.R.4115 was introduced to the House of Representatives by Representative Suzanne Bonamici (D-OR) and referred to the Committee on Education and the Workforce, and in addition to the Committee on the Judiciary, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned. Currently the bill has one sponsor.
The purpose of this bill is to promote registered apprenticeships and other work-based learning programs for small and medium-sized businesses within in-demand industry sectors, through the establishment and support of industry or sector partnerships.
Until next month,