The Senate approved a FY 2018 budget resolution tonight. Most of S. Con. Res. 71’s 93 pages are fiction. Budget resolutions don’t have much of an effect on how the federal government spends money. The majority of Senators voted “aye” because pages 48 and 49 contain instructions to the Senate Finance and the Senate Energy and Natural Resources Committees to recommend changes in law that affect the federal deficit.
These so-called “reconciliation” instructions call for the Senate Finance Committee to recommend changes in law that increase the deficit no more than $1.5 trillion over 10 years and for the Energy and Natural Resources Committee to recommend changes in law that would reduce the deficit by not more than $1 billion in the same period. Loosely translated, the reconciliation instructions say to the relevant committees: “We want tax reform. You know what to do.”
The Senate’s approach is different from that of the House, which passed reconciliation instructions that called for, in effect, budget neutral tax reform. If you were counting on that difference scuttling the whole effort, think again. Through a variety of procedural moves, all of which were supported by House leadership, the House version is now identical to the Senate version thus obviating the need for conference where the process was bound to get bogged down.
Furthermore, those same procedural moves stripped out a requirement that the House Budget Committee consider the House Ways and Means Committee’s reconciliation recommendations. This change permits a tax reform bill to move directly to the House floor after being considered by Ways and Means.
In other words, tax reform is moving on a much faster track than we expected earlier in the week. There is still plenty of time to land it all in the ditch but things are off to a much better start than even optimists like us thought possible.
Under the resolution passed tonight, the relevant House and Senate committees must report their recommended tax reform plans by Nov. 13. That date is non-binding but assuming tonight’s momentum is maintained, the most optimistic timeline would look like this:
Expect health care provisions to play a role. There are a number of health related “tax expenditures” that will no doubt be targeted as Republicans try and broaden the tax base to allow lower corporate and individual tax rates.
In addition to these tax expenditures, there are several other provisions that could come into play.
- Extension of orphan drug exemption to any drug or biological product approved for marketing for one or more rare diseases
- Repeal of special rule on transfer of patent before commercial exploitation
- Repeal of small business health plan tax credits
- Repeal of work opportunity tax credit
Repatriation of stranded overseas income which is alternatively known as Indefinitely Reinvested Foreign Earnings (IRFE), will also be a factor for the health care sector. Twelve of the top 50 companies with IRFE are health care related.
Finally, expect the ghost of ACA repeal and replace to raise its moldering head. ACA. provisions to expand use of Health Savings Accounts, for example, are likely to be considered in the context of tax reform.
Call with questions. The House and Senate stand adjourned but not us.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
