NUMBER OF THE WEEK: $4.1 Trillion
The estimated price tag of President Obama’s budget request for fiscal year 2017. The White House released its budget blueprint this morning with little fanfare from Congress. Republicans cast a nonchalant side-eye at Obama’s final budget plan, which has something old, something new, something borrowed, and almost all blue with big Democratic ideas on transportation infrastructure, climate initiatives, and new taxes. There are new proposals aimed at improving access to retirement savings plans; enhancing the nation’s transportation infrastructure with revenue from a new $10 per barrel oil tax; restructuring the Cadillac tax; and bolstering the Land and Water Conservation Fund. The president’s spending measures are fully offset according to Shaun Donovan, the director of the Office of Management and Budget.
The chairmen of the Senate and House Budget Committees announced that they would not hold hearings to review the president’s budget, drawing the ire of House Democratic leaders. However, other major committees have already scheduled hearings with top cabinet officials: Treasury Secretary Jack Lew, IRS Commissioner John Koskinen, and Health and Human Services Secretary Sylvia Matthew Burwell will be marching up to Capitol Hill this week to defend the budget request.
The release of the president’s FY 2017 budget plan comes as the congressional budget and appropriations process gets underway. With the looming presidential election, lawmakers are planning to move the budget resolutions and spending bills under an expedited schedule this year. House Speaker Paul Ryan wants to pass all 12 spending bills by July — a tough feat given that Congress has rarely ever completed the appropriations process on time.
Check out the special budget section below for a look at the top 10 most noteworthy policy proposals in the FY 2017 budget.
HERE COMES THE BUDGET
Overview of President Obama’s FY 2017 Budget Request (the “Budget”) Top 10 Policy Highlights
- Modernize and Invest in Domestic Transportation Infrastructure Programs. The Budget would provide about $320 billion to upgrade and invest in the nation’s transportation infrastructure. Under this initiative, funding for the Transportation Investment Generating Economic Recovery (TIGER) program would be doubled. The TIGER program helps fund road, rail, transit, and port projects across the country. The Budget also includes various initiatives to promote low-carbon emission technologies and improve access to alternative fuels. Obama’s 21st Century Clean Transportation Plan would largely be funded by a new tax on oil companies: the $10.25 per barrel tax on oil would raise about $319 billion over 10 years.
- Improve the Excise Tax on High-Cost Employer Coverage (Cadillac tax). The Budget would change the threshold for triggering the application of the so-called Cadillac tax by making the tax apply to the greater of the current law threshold or the average premium for a Marketplace gold plan determined on a state-by-state basis. The application of the Cadillac tax was deferred from 2018 until 2020 at the end of last year. This budget change would raise $1.26 billion over 10 years. The change to the threshold would keep the focus on the highest cost plans over the long term and would protect employers whose costs might be high merely because their business is located in a high-cost area.
- Strengthen the Retirement System for Workers: The Budget provides approximately $21 billion to facilitate greater access to retirement savings plans for those without access to a workplace retirement plan and for part-time workers. The Budget also provides more portable options for providing retirement benefits that are better suited to a 21st century economic model where workers are often self-employed or change jobs more frequently. Specifically, the president’s budget provides for the creation of open multiple employer plans (MEPs) that allow multiple employers to offer benefits through the same administrative structure, allowing them to lower costs and share the administrative and fiduciary burdens. The budget proposes removing the current MEP plan requirement that allows only employers in similar fields to form pooled retirement plans. The Open MEP model would also allow employees who move between employers participating in the same plan to continue to contribute to the same plan.
- Impose a 19% Minimum Tax on Foreign Income. This measure was in last year’s budget plan under the president’s proposal for international tax reform. The 19 percent minimum tax would apply to the foreign earnings of CFCs. The Administration explains that the minimum tax would be a part of its efforts to stem the tide of corporate inversions. The tax would raise about $350 billion over ten years — one of the major revenue raisers in the Budget.
- Double the Investment in Clean Energy R&D. The Budget would increase federal investment from $6.4 billion in 2016 to $12.8 billion in 2021. Under this initiative, new funding would target early stage R&D, but the investment portfolio would include other R&D activities like basic research and demonstration. The Budget goes across 12 agencies to provide funding for doubling its clean energy R&D efforts.
- Make Changes to Medicare. The Budget includes changing payments to Medicare Advantage plans by using competitive bidding to set payment rates, expanding competitive bidding for durable medical equipment, and encouraging Medicare beneficiaries to seek high value care by developing additional alternative payment models and bundled payments to structurally reform Medicare. Changes to Medicare providers would save $3.4 billion in 2017 and $56 billion over 10 years.
- Medicaid Expansion. The Budget also extends the three-year incentive for states that have not expanded Medicaid, to expand their programs. Under the proposal, the federal government would cover the full cost of expansion for three years, regardless of when the expansion occurs. The expansion would cost about $2.6 billion over ten years.
- Strengthen Community Colleges with New Tax Credit and New Partnership with States. The Budget would create a new Community College Tax Credit to encourage U.S businesses to invest in community colleges. Businesses that help community colleges to bolster job training programs and fine tune their curriculum could qualify for a one-time tax credit: $5,000 for employers that hire a qualifying graduate for a full-time position. Through state partnerships, the Budget would also provide two years’ of tuition-free community college for students. The $61 billion “America’s College Promise” would also provide grants to select black colleges and universities and other minority-serving institutions.
- Streamline and Expand Higher Education Tax Incentives. The Budget would provide about $49 billion to simplify and better target tax benefits for education. Under this initiative, the Lifetime Learning Credit would be consolidated into an expanded American Opportunity Tax Credit (AOTC), Pell Grants would be exempt from taxation and AOTC calculations, and the tax on student loan debt forgiveness would be eliminated. The president’s budget plan from last year contained similar proposals.
- Double the Funding for Federal Financial Regulators. The Budget would also double the funding for the Securities and Exchange Commission and the Commodity Futures Trading Commission by 2021. The Administration said the increased funding would help both agencies to beef up their examinations of investment advisers and clearinghouses to help strengthen the monitoring of systemic risk across the U.S. financial system.
Senate Finance Democrats Call for Energy Tax Hearing. Senate Finance Committee Ranking Member Ron Wyden (D-OR), along with other Democratic members of the panel, is pushing Chairman Orrin Hatch to convene an energy tax policy hearing to review some of the energy tax proposals offered last year in the Democrats’ energy package — the American Energy Innovation Act.
Additionally, Wyden introduced an amendment to the Energy Policy Modernization Act (S. 2012), proposing new tax incentives that embrace ...
Energy Bill Stalls in Senate. Lawmakers will attempt to resuscitate the Energy Policy Modernization Act (S. 2012) after the bill failed to overcome two procedural votes last week that would have limited debate on the legislation and allowed the chamber to move towards a final vote. Initial optimism for the legislation has taken ...
Senate Republicans Enter the Fiduciary Fray. Sens. Johnny Isakson (R-GA), Mark Kirk (R-IL), and Roy Blunt (R-MO) introduced three separate bills aimed to halt the Department of Labor’s fiduciary rule, which is currently undergoing the final stage of review at the Office of Management and Budget. These are the companion bills to ...
Ways and Means Hearing Underscores Urgency of International Tax Reform. Last Tuesday, the House Ways and Means Committee held its first hearing of 2016 — the agenda was economic growth. As with previous hearings on the economy, Republicans and Democrats offered contrasting views on the pace of economic recovery. For Republicans...
IRS Release Second Quarter Update to Guidance Plan. The IRS released its second quarter update to its 2015-2016 Priority Guidance Plan last Friday. In this update, the IRS included 10 additional guidance plan projects that the IRS had recently completed. Included amongst the plans is guidance regarding ...
Vestager: Retroactivity is Necessary. Based on recent estimates, Belgium would be clawing back about $900 million from multinational corporations under an EU order that would bring an end to the relief provided on excess profits. It was ordered last month that Belgium would have to recover taxes for the tax rulings it had issued in the past. Speaking at a breakfast meeting in Belgium, Margrethe Vestager made some comments regarding ...
- Senate Finance Committee Ranking Member Ron Wyden (D-OR) introduced the Encouraging Americans to Save Act to enhance the current nonrefundable “saver’s credit” in the hopes of helping more individuals to save for retirement. Under the proposal, the saver’s credit would be made refundable for individuals without tax liabilities.
Relevant Congressional Activity
Senate Finance Committee
The full committee holds a hearing on the “President’s FY 2017 Budget.” Read more here.
Senate Finance Committee
The full committee holds a hearing on the revenue proposals in the administration’s FY 2017 budget. Read more here.
House Financial Services Committee
The full committee holds a hearing on the Federal Reserve’s semi-annual monetary policy report to Congress. Fed Chair Janet Yellen will testify. Read more here.
Senate Banking Committee
The full committee will hold a hearing on the Federal Reserve’s semiannual monetary report to Congress.
House Ways and Means Committee
The full committee holds a hearing on the Department of the Treasury’s fiscal year 2017 budget request.
House Financial Services Committee
The Housing and Insurance Subcommittee holds a hearing on the future of housing, examining the health of the FHA. Read more here.
House Appropriations Committee
The Subcommittee on Financial Services will hold a hearing on the budget of the IRS. Read more here.
38th Annual Conference on Securities and Business Law
The University of Texas Law School hosts this conference featuring comprehensive discussions of fiduciary duties and liabilities and best practices for preparing and responding to inquiries for those representing clients in business, financial and governance matters.