Congress faces rising pressure to fix tax law

Lawmakers are hearing more and more from stakeholders seeking fixes to glitches in the GOP tax law, but it’s unclear when they will move forward with a package that makes corrections.

Industry groups want Congress to act promptly to tweak the tax law to fix areas where drafting errors are having unintended consequences. Lawmakers have recognized the issues and want to resolve them.

{mosads}But the politics of making the fixes are complicated, with Democrats interested in making more substantive changes to the law along with technical corrections.

“Democrats have been pretty clear — if Republicans are willing to pay a price, then Democrats are willing to play ball on some discrete fixes,” said Sage Eastman, a lobbyist with Mehlman Castagnetti and former aide to House Ways and Means Committee Republicans. “Regardless of that willingness, it appears as if everything is on hold until after the election.”

The tax law, enacted in December, made significant changes to the federal code, clocking in at nearly 200 pages in its final version. The measure was signed by President Trump less than two months after House Republicans introduced their initial version of the bill.

Given the size of the bill and the speed at which it moved through Congress, drafting mistakes were bound to occur. And as time has gone by, the pressure for Congress to make fixes has been growing.

Some of the glitches that have gotten the most attention affect the retail and restaurant industries.

While the authors of the tax law intended for retailers and restaurant owners to be able to immediately write off the full costs of improvements to their stores, a drafting error means that instead the improvement costs have to be written off over the course of 39 years. The legislative text also includes a drafting error about the effective date for a provision that bans businesses from carrying back net operating losses, which retailers and restaurants argue will amount to a retroactive tax increase.

A group of more than 100 retailers, restaurants and trade associations sent congressional tax-writers a letter last week urging “quick action” on fixing these errors.

The groups “thought it was a good time to really show the Hill and Treasury the breadth of support for making these two technical changes,” said Dave Koenig, vice president of tax for the Retail Industry Leaders Association.

A group of CEOs with the National Council of Chain Restaurants also recently visited Capitol Hill to press lawmakers on the fixes.

“This is an issue that hits restaurants and retail pretty significantly,” said David French, senior vice president of government relations at the National Retail Federation, which houses the chain restaurant council.

In addition to the pressure from businesses, the right-leaning Tax Foundation also recently urged Congress to fix the error relating to improvements to retail stores and restaurants. The think tank has long been supportive of allowing businesses to immediately write off the full costs of their investments.

“We decided that it would be good to give attention to the issue because not only was it an obvious drafting mistake, but it was a mistake that made the law decidedly worse,” said Tax Foundation senior analyst Scott Greenberg.

Another fix is sought by the wine industry.

Prior to the tax law, storage facilities known as bonded wine cellars could take credits against excise taxes on behalf of wineries. But under the new law, only the wine producers themselves can get the credits. This was not the intent of the tax law’s authors, said WineAmerica Vice President Michael Kaiser.

The Alcohol and Tobacco Tax and Trade Bureau has developed a workaround that is designed to prevent wineries from seeing their taxes go up due to this change.

However, the workaround is a “paperwork headache,” and wineries still want a legislative fix along with an extension of the two-year excise tax relief they got in the tax law, Kaiser said.

The nonprofit sector is pushing for a fix relating to limits on the charitable contribution deduction. The law increased the maximum amount of donations that people can deduct from 50 percent of adjusted gross income to 60 percent of adjusted gross income, but it unintentionally prevents taxpayers from being eligible for the higher limit if they donate anything other than cash.

There’s also a push for a fix to a provision, based on an amendment proposed in plain English by Sen. Bob Menendez (D-N.J.), that bars businesses from deducting sexual harassment settlements involving nondisclosure agreements. There are concerns that the legislative language used an incorrect word that broadens the provision in a way that could hurt victims of sexual misconduct.

Lawmakers have acknowledged that there are corrections that need to be made to the tax law.

House Ways and Means Committee Chairman Kevin Brady (R-Texas) told reporters Wednesday that lawmakers are “well aware” of the need for corrections. He noted that with the issues retailers have brought up, “the congressional intent’s very clear, [but] the statutory language is off just a bit.”

However, the timing of when Congress will make any fixes to the tax law is uncertain. Brady said he expected a corrections package to be “announced and approved this year,” but didn’t provide further specifics.

A bill making fixes to the tax law would need some Democratic support to pass the Senate this year.

Democrats are also aware of the glitches, and some have expressed an interest in making fixes. Menendez has introduced legislation to fix the issue relating to sexual misconduct settlements.

But Democrats all voted against the tax law and lamented that they were left out of the process of crafting the measure. They’ve said in the past that they want technical corrections to be paired with other tax changes.

In March, Republicans were able to get an agriculture-related fix to the tax law included in an omnibus spending bill by also expanding the low-income housing tax credit, a priority for Democrats.

Ways and Means Committee ranking Democrat Richard Neal (Mass.) said that Democrats want hearings on proposals for technical corrections.

“We’re going to insist we want some hearings on each item,” he said.

The midterm elections are less than six months away, and Republicans and Democrats are locked in a fierce battle for control of the House. Democrats may want to wait until after the elections to negotiate on taxes, since they could have more leverage if they win control of either of the congressional chambers.

“Everything tells me it’s a lame-duck exercise,” said Rohit Kumar, a former aide to Senate Majority Leader Mitch McConnell (R-Ky.) who now works at PwC.