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August 2, 2019

FISCAL LANDSCAPE
President Trump Signs Debt Limit, Budget Caps Deal After Senate Passage; Congress In Recess Until Sept. 9

INFRASTRUCTURE
Senate Committee Advances Five-Year Transportation Bill

TAX POLICY
Republican Senators Urge Treasury to Index Capital Gains to Inflation


FISCAL LANDSCAPE

President Trump Signs Debt Limit, Budget Caps Deal After Senate Passage; Congress In Recess Until Sept. 9   

President Trump signed major bipartisan legislation today that allocates more than $2.7 trillion in discretionary federal spending over two years; suspends the debt ceiling until July 2021; and permanently eliminates the prospect of strict "sequestration" spending caps imposed under the Budget Control Act of 2011. ( The Hill , Aug. 2) 

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After passing the budget deal yesterday, the Senate left for summer recess, following the House's exit last week.  Congress will reconvene on September 9.

  • The legislation – a result of weeks of negotiations between Democratic congressional leaders and the White House – passed the Senate yesterday by a vote of 67-28 after the House last week approved it 284-149.  (Roundtable Weekly, July 26).  President Trump tweeted yesterday in support of the bill. 
  • Senate Majority Leader Mitch McConnell (R-KY) yesterday commented on the bill: "In recent weeks, key officials on President Trump's team engaged in extensive negotiations with Speaker Pelosi and the Democratic House.  Given the exigencies of divided government, we knew that any bipartisan agreement on funding levels would not appear perfect to either side. But the administration negotiated a strong deal." (CNN, August 1) 
  • Notably, the budget deal puts an end to the threat of sequestration, which would have imposed a mandatory 10 percent cut on all programs if budget targets were not met.  Senate Minority Leader Chuck Schumer (D-NY), said yesterday, "For too long, the arbitrary, draconian limits of sequester have hampered our ability to invest in working Americans and in our military readiness. This deal ends the threat of sequester permanently. That is huge." (Schumer Floor Remarks, August 1) 
  • President Trump has indicated he wanted to eliminate budget brinkmanship in Washington that last year resulted in the longest partial government shutdown in U.S. history – while obtaining a two-year budget allocation until after the 2020 presidential election.  (Wall Street Journal, August 1) 
  • After passing the budget deal yesterday, the Senate left for summer recess, following the House's exit last week.  Congress will reconvene on September 9. 
  • Policymakers will face a tight deadline upon their return as they will need to set federal appropriations for individual agencies and departments for FY'20.  Current FY'19 funding runs out on September 30, as does legislative authority for the National Flood Insurance and EB-5 investment programs.  

If Congress and President Trump cannot agree on how to allocate the $1.37 trillion in discretionary money allotted for the new fiscal year beginning October 1, a stopgap funding measure (or "Continuing Resolution") may be required.

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INFRASTRUCTURE

Senate Committee Advances Five-Year Transportation Bill   

The Senate Environment and Public Works Committee (EPW) unanimously approved a bill on Tuesday to authorize $287 billion over five years to repair and maintain the nation's surface transportation.  The bipartisan measure also aims to expedite the infrastructure permitting process, help address climate change, and grow the economy.  ( EPW Committee news release , July 30)  

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  The Roundtable on April 29 submitted  infrastructure policy recommendations  to House Committee on Transportation and Infrastructure Chairman Peter DeFazio (D-OR) and Ranking Member Sam Graves (R-MO ).    

  • America's Transportation Infrastructure Act of 2019 (ATIA, S. 2302) is not the comprehensive infrastructure overhaul that Republicans and Democrats have long sought. (Roundtable Weekly,May 3, 2019.)  However, it makes progress toward shoring-up the Highway Trust Fund (HTF) – the nation's largest financing source for roads, bridges, tunnels, and mass transit.  Congress must reauthorize and capitalize the HTF before it runs out of money by the end of September 2020, at the height of the presidential election season. (ATIA summary and section-by-section analysis)  

  • The ATIA would also codify Trump Administration measures to cut lengthy project permitting times.  EPW Chairman John Barrasso (R-WY) and Ranking Member Tom Carper (D-DE) stated their bill "will speed up project delivery by codifying key elements of the President's 'One Federal Decision' policy, without forgoing important environmental protections. Cutting red tape will allow important highway infrastructure projects to be built quicker and smarter."  (July 29 CNN joint op-ed)

  • President Trump tweeted his support of S. 2302 on July 30, praising the EPW Committee's 21-0 vote as a bipartisan achievement. 

  • The bill now moves to the Finance Committee, chaired by Sen. Chuck Grassley (R-IA), to figure out how to pay for it through tax revenues and other means.  Additionally, the Senate Banking Committee, chaired by Mike Crapo (R-ID), must also mark-up sections dealing with mass transit programs.  The Senate's No. 2 Republican, John Thune (R-SD), said funding the bill will be a "heavy lift" and that any broader infrastructure package is "really unlikely."  (POLITICO Morning Transportation, Aug. 2)

  • One financing source reportedly off-the-table is an increase to the "pay-at-the-pump" gas user fee that capitalizes the HTF.  Congress has not raised the so-called "gas tax" since 1993, and its buying power has been significantly diminished since then by inflation and gains in fuel efficiency.  Grassley said the Finance Committee will not consider how to pay for the ATIA until Senate Majority Leader Mitch McConnell (R-KY) "says he's willing to let a gas tax increase on the floor."  (BGov Tax, July 31)

  • The Real Estate Roundtable's infrastructure policy agenda recommends a responsible increase to the gas user fee to sustain the Highway Trust Fund for the long term; streamlined permitting goals; and support for infrastructure innovations (such as driverless and electric vehicles) that respond to the nation's changing demographics and accommodate increased demands for transit-oriented development.

Roundtable President and CEO Jeffrey D. DeBoer discussed the role of public-private partnerships to develop infrastructure projects on  CNBC's Squawk Box  in June 2017 .  ( Roundtable Weekly , June 9, 2017)  Congressional committees have also received statements from The Roundtable outlining our infrastructure priorities. ( Roundtable Weekly,   May 3, 2019  and March 22, 2019 ).    

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TAX POLICY

Republican Senators Urge Treasury to Index Capital Gains to Inflation  

Twenty-one Senate Republicans led by Ted Cruz  (R-TX) this week urged Treasury Secretary Steven Mnuchin to use his regulatory authority to eliminate inflationary gains from the calculation of capital gains tax liability.  ( Letter to Secretary Mnuchin , July 29)

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The Treasury Department may have the legal authority to adopt inflation indexing through regulatory guidance.  The term "cost" in the tax code's capital gains provisions arguably is ambiguous and not plainly limited to historical cost,   i.e ., the price originally paid for a capital asset.  

  • Capital gains tax is generally based on the difference between the sale price of a capital asset and its original cost, adjusted for certain factors such as depreciation.  Capital gain liability includes an amount that reflects general price inflation, in addition to the true economic gain.  Especially for long-held assets such as real estate, capital gain thus overstates a taxpayer's economic income.  
  • The Republican Senators' letter suggests that indexing capital gains for inflation "would unlock capital for investment, increase wages, create new jobs, and grow the economy."  
  • The Treasury Department may have the legal authority to adopt inflation indexing through regulatory guidance.  The term "cost" in the tax code's capital gains provisions arguably is ambiguous and not plainly limited to historical cost, i.e., the price originally paid for a capital asset.  
  • Supporters of the proposed plan include President Trump's National Economic Council Director Larry Kudlow, who is leading a White House task force examining the proposal. (Wall Street Journal, March 20, 2018) 
  • Stephen Moore, former advisor to President Trump's 2016 campaign, also recently wrote that President Trump wants to move forward with capital gains indexing.  (Washington Times, July 14, 2019) 
  • However, a 1992 memorandum written by President George H.W. Bush's administration determined that Treasury did not have the power to index capital gains by regulation. (Justice Dept. Opinion - Sept. 1, 1992).  In contrast, more recent legal analysis has found support in subsequent case law. (Harv. J. Law & Pub. Policy, 2012).  
  • Conservatives such as Americans for Tax Reform President Grover Norquist cite a 2002 Supreme Court decision in a case between Verizon Communications and the Federal Communications Commission to show Treasury can act unilaterally on the issue.  (Americans for Tax Reform - June 26, 2019) 
  • Congressional Democrats have come out strongly against the proposal.  A recent letter to Secretary Mnuchin from 15 Democratic Senators stated, "We urge you to reject reported plans to use questionable authority to - yet again - lavish tax cuts upon our country's wealthiest, while middle class families and working people continue to see costs rise and wages stagnate."  (Senate Democratic letter, July 12).  House Ways and Means Committee Chairman Richard Neal (D-MA) on Wednesday stated, "If the Trump Administration unilaterally changes the capital gains tax structure, it wouldn't just be bad policy, it would be executive overreach."  (Ways and Means news release, July 31)   

Senate Finance Committee Ranking Member Ron Wyden (D-OR) this week also responded to the proposal, stating, "The Office of Legal Counsel has plainly stated that the Treasury secretary does not have the authority to index capital gains tax rates."  (Senate Finance news release, July 30).  Wyden added such an action would "absolutely" end up in court.  "We will oppose this strongly, because this is another backdoor effort to flout responsible tax policy," he told reporters. (TaxNotes, July 31 and New York Times, July 30) 

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For questions about Roundtable Weekly, please contact The Roundtable's Scott Sherwood at rweekly@rer.org or (202) 639-8400.

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