December edition of the CEO Report

December 4, 2017

POLITICO Pro's high-level outlook on the policy issues driving the month ... and beyond.

 

TAX

Racing to reconcile two tax overhaul bills by Christmas: December is the make-or-break month for Republican plans to rewrite the tax code, at least if they want to meet their self-imposed deadline of getting a package to President Donald Trump by year's end, report Pro Tax's Brian Faler and Toby Eckert. The Senate and House have passed separate plans, and there are some big differences to work out, notably:

- The House version would cut the rate on pass-through businesses to 25 percent, while the Senate would give them a 23 percent tax deduction for certain income and continue to tax them overall at individual rates.

- The Senate wants to eliminate Obamacare's mandate that individuals have health insurance or pay a fine. The House bill would keep the mandate.

- The estate tax and alternative minimum tax - both long targeted by Republicans for elimination - are also treated differently. The House would boost the amount of money exempted from the estate tax and eventually eliminate it. The Senate would boost the exemption but keep the tax. The House would also abolish the AMT, which was created to ensure that wealthy people don't escape taxes entirely but has begun reaching into the middle class. The Senate decided to keep it.

- The House would cut the maximum mortgage interest deduction in half - limiting it to the interest on $500,000 in mortgage debt, down from $1 million now - and eliminate it entirely on mortgages for second homes. The Senate targeted only the interest write-off on home equity loans, which it would end.

The bills also differ on how they treat education-related tax breaks, corporate interest expenses and taxing multinational corporations, among others.

None of these, however, are considered deal-breakers.

House Speaker Paul Ryan today plans to appoint members to a conference committee to work out the differences, and Senate Majority Leader Mitch McConnell is expected to do the same this week.

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DATAPOINT

Pass-through deduction changes win support: The Senate's tax reform legislation includes last-minute changes to allow pass-through businesses to deduct a slightly higher percentage of business income. The move secured the support of Sen. Steve Daines, who had been concerned about the treatment of pass-throughs relative to C corporations. Sen. Ron Johnson has raised similar concerns, and he supported the bill as well. - Taylor Thomas

View the full graphic online and find out more about DataPoint here.

 

BUDGET & APPROPRIATIONS

Stopgap rollercoaster ride: Prepare for one shutdown scare after another this month as Republican leaders attempt a string of short-term funding extensions. The spending bill Congress cleared in September only keeps the government running through Friday. And since lawmakers have yet to settle on updated levels for the whole fiscal year, stopgap spending is back on the table - times two.

GOP leaders plan to subject themselves to multiple nail-biter funding votes over the next few weeks, with one wedged up against Christmas Eve. The idea is to extend funding until Dec. 22 and then pass another stop-gap that would fund the government until sometime in January, with the hope of clearing a full-year package not too long after the start of the new year.

The two-part plan is meant to appease defense hawks who refuse to close out December without at least a promise of elevated funding for the military. Leaders aim to settle on overall caps for defense and non-defense money by that Dec. 22 deadline. But neither December vote is a sure bet for passage. Congress' fiscal conservatives say a pre-Christmas vote is never advantageous to their cause since it cedes leverage to the minority party. And in the Senate, leaders need the votes of at least eight Democrats, who may be willing to play hardball in an attempt to get concessions such as protections for young undocumented immigrants.

Always ripe for additions, any year-end spending bill is also at risk of getting tied up by other urgent efforts. This time, that could mean extending funding for the Children's Health Insurance Program, reauthorizing the National Flood Insurance Program, raising the debt ceiling or clearing another disaster aid package.

Speaker Ryan has said, however, that disaster relief funding is unlikely to hitch a ride on the spending bill Congress will try to pass this week. And the Congressional Budget Office has just provided a more optimistic assessmenton the debt ceiling, predicting the nation won't risk defaulting on its loans until the end of March or early April - further down the road than the Treasury Department's previous estimate. - Jennifer Scholtes

 

CYBERSECURITY

The midnight hour is nigh: The day of judgment is finally arriving for a set of online surveillance tools that expire at year's end. Congress has just a few legislative days left to find a way to renew the powerful snooping effort authorized under Section 702 of the Foreign Intelligence Surveillance Act. And as the clock winds down, lawmakers have yet to coalesce around one approach to renewing - and possibly revising - the 702 statute.

After the House Judiciary Committee spent weeks pushing a renewal measure that contained significant alterations - including some fiercely debated warrant requirements for FBI officials seeking to view Americans' digital communications in certain situations - the Intelligence panels in the House and Senate decided to plow forward with their own renewal measures that contain fewer revisions and no warrant requirements. And the leaders of both Intelligence panels have indicated they may have to attach their 702 measures to a must-pass bill, such as legislation to avert a government shutdown.

The move has enraged privacy and civil liberties-minded lawmakers on both the right and left, who insist that a strict warrant requirement is necessary to protect the constitutional rights of Americans whose online chatter is incidentally sucked into the NSA's foreign surveillance database. But Trump administration officials have warned that such a provision would hamper criminal and terrorism investigations.

Protecting future elections: In the coming weeks, House Democrats will roll out a bill they believe will help harden the digital defenses of the country's election system. It will be the latest in a slew of legislative offerings - many of them bipartisan - Capitol Hill has received this year to inoculate future U.S. elections from foreign meddling. But there's been few signals that Congress will take swift action. And for some critical targets, it might already be to