From John: Fall Congressional Outlook

 

It is August and that means that congress is on vacation. Vacation from doing what?  I don’t know. (note I do believe that our elected officials are hard working) But when they return after Labor Day, there are a number of issues that they are going to have to deal with before taking a longer recess for their elections.

Yes, inversions and tax reform is on the list, but I don’t believe that congress can address inversions without addressing tax reform. Any type of stopgap legislation will not address the underlying issue. The same goes for immigration, its too big of an issue to take on with a short window. 340B is a big issue for our community, but I also don’t see any movement. Here is an outline of issues facing congress in the near future, my thanks to BIO for providing the content material.

ISSUE—FUNDING THE FEDERAL GOVERNMENT

Legislators continued their work on laying out funding priorities for Fiscal Year 2015 (FY15), with current government funding set to expire at the end of September.

Both the House and Senate Appropriations Committees spent July working on several FY15 spending bills, which spell out specific funding levels for various federal agencies and programs. The House Appropriations Committee approved the Financial Services and Interior appropriations bills in July. Also during the month, the full House passed both the Financial Services and the Energy and Water bills.  The chamber previously approved measures for Commerce, Justice, and Science (CJS); Defense; Homeland Security; the Legislative Branch; Military Construction and Veterans Affairs (MilCon VA); and Transportation, Housing, and Urban Development. Several bills still await final action by the House.

 

While the full Senate has yet to pass an appropriations bill for the coming fiscal year, the Appropriations Committee continues to favorably report spending measures to the Senate floor calendar. In July, the Committee approved a bill for Defense agencies and programs. The Defense bill joins seven other appropriations bills awaiting a vote by the full Senate.

 

Despite some progress on appropriations, Congress is unlikely to wrap up the process before FY14 funding runs out on September 30. As such, congressional leaders are expected to pursue a CR to temporarily extend federal funding through the beginning of FY15. In July, Speaker John Boehner (R-OH) announced that the House will take up the issue after members return from the August recess and suggested that the CR would fund the federal government until early December, leaving decisions over further funding to the lame duck Congress.

 

The greatest challenge to passing a CR is timing. Congress will have only a handful of working days in September to deal with the impending funding crisis. However, the memories of the 2013 government shutdown will likely provide incentive for both sides to negotiate a deal before funding runs out.

ISSUE—TAXES

Congress moved forward on several tax-related items in July, but continued to struggle in finding a way forward for the Internet Tax Moratorium Act extension.

Tax Extenders

Legislators made some progress in July on the expired corporate and individual tax provisions known as “tax extenders.” The House passed a package that included five of the expired tax breaks. The bill would permanently extend provisions related to charitable giving, including tax benefits for charitable contributions using retirement funds as well as a deduction for food inventory donations. The House previously approved a number of bills to permanently reauthorize several other extenders, including Section 179 expensing provisions for small businesses and the R&D tax credit.

On the Senate side, Finance Committee Chairman Ron Wyden (D-OR) previously introduced a comprehensive tax extenders bill with a two year extension, but the legislation stalled on the floor of the Senate over a disagreement on amendments, leading Senate Majority Leader Harry Reid (D-NV) to suggest that the issue will likely be pushed off until the lame duck session.

Should they wait until after the election to address the issue, lawmakers will have a limited amount of time to negotiate a deal on tax extenders. Two factors that will affect talks are the tax provisions’ steep price tag and a perception that some of the provisions are narrowly tailored to special interests. Any deal is likely to make the extenders retroactive to income earned in 2014.

Tax Reform

The Senate Finance Committee continued its investigation of tax reform in a hearing entitled “The U.S. Tax Code: Love It, Leave It, or Reform It.” The hearing probed the inefficiencies and loopholes in the corporate tax code, particularly on the international side. Despite the continued attention on the issue of inversions, there is no chance of passing a tax reform bill in this Congress.

Inversions

The Senate Finance hearing repeatedly focused on corporate inversions, an issue that became a flashpoint in July. Throughout the hearing, Chairman Wyden and other Democrats vigorously attacked this practice of reincorporating a company overseas following a merger with a foreign entity. While inversions occur for many reasons, some are undertaken in order to secure a lower tax burden than in the U.S. Over the past month, Democrats have become increasingly vocal in their attacks on the practice, particularly as prominent U.S. companies announced their intentions to move abroad. Congressional Democrats have argued in favor of moving legislation to make it more difficult for companies to invert.

The Obama Administration also has pushed Congress to act, with Secretary of the Treasury Jacob Lew sending a letter to Congress calling for legislative action. In his letter, Secretary Lew warned of the long-term consequences of allowing corporations to move off-shore, but also reiterated the Administration’s position that the best way to address the situation is through reforming tax code to bring down the corporate tax rate while also closing tax loopholes.

Republicans have approached inversions more cautiously. Senate Finance Ranking Member Orrin Hatch (R-UT) indicated that he would be willing to consider proposals to curb inversions so long as legislation did not increase taxes or add to the federal deficit, did not include retroactive tax punishments, and moved America closer to a territorial tax system. However, Republicans remain committed to their position that the best way to reduce inversions is through a tax reform package that reduces the U.S. corporate tax rate.

The Senate Finance Committee may look to move an anti-inversion bill in September, but it would be difficult for anything to become law on the issue in this Congress due to the limited remaining legislative days and reluctance from Republicans to act on the issue outside of comprehensive tax reform. While some have encouraged President Obama to act on inversions through an executive order, Lew has said the Administration lacks the authority to do so.

Internet Tax Moratorium

In July, Congress also dealt with the current federal moratorium on taxing Internet access, which is set to expire on November 1. On a voice vote, the House passed a bill to permanently extend the moratorium. The Senate has similar legislation pending with near unanimous bipartisan support, but faces one primary hurdle to passage: a bipartisan group of senators are seeking to merge the moratorium extension with controversial legislation called the Marketplace Fairness Act (MFA).  The MFA legislation, which would allow states to collect sales tax for online purchases, is unlikely to pass the House.

Should Congress fail to extend the moratorium in the near future, Internet providers in various jurisdictions may be required by law to provide advance notice to customers that their services could be subject to additional taxation.

The Internet tax moratorium extension will be on a very short list of “must-pass” items in September, and is likely to break free from the controversial MFA legislation.

340B Program and Orphan Drugs

The Health Resources and Services Administration (HRSA) announced in July that it will continue requiring drug manufacturers to provide a 340B program discount on orphan drug medications when used for an off-label purpose. The decision comes months after the DC Court of Appeals invalidated the HHS regulation. Through an interpretive rule change, HRSA said it will continue to require discounts for orphan drugs when they are used off-label for something other than the intended “orphan condition.” Orphan drugs are used to treat rare diseases and conditions and are technically carved out of the 340B program. The pharmaceutical industry opposed the decision, but believes that the rulemaking is outside of HRSA’s authority and could be reversed in pending court challenges.

Immigration

Lawmakers were called to deal with a deteriorating situation at the nation’s southern border this month as thousands of illegal immigrant children continue to flood into the United States. For weeks leading up to July, national news outlets reported on the heavy influx of unaccompanied migrant children arriving in the U.S. The young immigrants come predominately from Central America, where social upheaval has prompted many parents to send their children on the long journey to America

Upon arrival in the United States, minors from countries other than Canada and Mexico are protected under the 2008 William Wilberforce Trafficking Victims Protection Reauthorization Act. Provisions of that law require a lengthier process for deporting children from countries that are not contiguous to the U.S. and stipulate that HHS manage their care while they reside in country.

To alleviate the financial crunch of dealing with the children, President Obama requested in July that Congress pass a supplemental appropriations bill to give HHS an additional $3.7 billion to fund these operations. Republicans immediately refused to pass the President’s proposal, citing the exorbitant cost. House GOP leaders also promised to oppose any Senate supplemental that attached that chamber’s immigration reform bill that passed in 2013. Alternatively, House Republicans proposed a bill costing $659 million. The Senate version came in at $2.7 billion.

House Republicans initially struggled to pass their proposal and pulled the bill from consideration on the House floor, facing backlash from conservative members. The following day, GOP leaders secured enough votes to pass a revised supplemental package. The bill is unlikely to advance in the Senate, which failed to pass its proposal before the August recess.

Though Congress failed to come to an agreement on the bill, the issue will be waiting for members when they return in September.