By Jennifer Gray, Director, Federal Legislative & Regulatory Services, Washington National Tax, KPMG LLP
Sep 25, 2017
From the Tax Governance Institute
Here's what's on our minds:
Last week, a quieter week on the tax reform front, gave us time to consider the recent “deal” that President Trump made with Democratic Congressional leaders and what that deal could mean for the rest of the year.
We’ve reached the following conclusion: The Trump-Pelosi-Schumer deal on the debt limit and government spending might actually make it even more challenging to pass tax reform in 2017.
Why? Well, a minimum of eight Democratic senators must agree to spending bills (possibly an Omnibus bill) or a new continuing resolution (CR) on or before December 8, which could give the Congressional Democrats some leverage they could use to slow down or stop Republican-only tax reform. In addition, the looming spending and possible debt ceiling issues could distract Republicans from the singular focus that tax reform may demand during the crucial end-of-year period.
Read full artilce below:
President Trump recently reached a deal with Democratic Congressional leaders to facilitate raising the federal government debt ceiling and extending its spending authorization through December 8, 2017. The question is, what impact, if any, will this deal have on the tax reform agenda for the rest of the year?
We believe that the Trump-Pelosi-Schumer deal might make it more difficult to enact tax reform in 2017. And unless Congressional Republicans can agree on a tax bill before early December, the expiration of the debt ceiling and spending authorization deals may actually add to their challenges.
Let’s take a closer look at what the agreement between President Trump and the Democrats (with ultimate Republican acquiescence) actually accomplished.
Debt ceiling increase: Think of raising the debt ceiling as getting an increase in your credit card limit. While the increase doesn’t create more debt, it does give you the ability to incur more debt in the future. If the debt ceiling had been reached, the government (i.e., the Treasury) couldn’t borrow any more money. Under the agreement, the debt ceiling has been suspended until December 8, 2017, increased by any debt incurred between now and then.
Spending authorization extension: The temporary extension of spending authority (also known as a continuing resolution, or CR) avoided the potential for a total or partial government shutdown (which is what occurred in 1990, 1995, and 2013)—at least until December.
There are several reasons why many Republicans are unhappy about the agreement between Trump and the Democrats:
- They wanted the suspension/extension period to last for more than just few months. This short-term agreement means they’ll have to vote on the issue again soon, once again reminding the public of the size of the national debt, which is about to hit $20 trillion, and requiring them soon to reach another agreement with Congressional Democrats.
- Some Republicans also wanted to tie the debt ceiling vote to other matters, such as future government spending reductions or entitlement reforms; that did not occur.
- And last, but certainly not least, the President seemingly blindsided GOP leadership by siding with Democratic leadership.
What happens on December 8?
December 8 has now become the deadline for Congress to enact an appropriations bill (possibly an Omnibus bill) to fund the government through September 30, 2018, the end of the 2018 fiscal year. Failure to do so, or to pass another CR, would result in a government shutdown on December 9.
It also marks the end of the debt ceiling suspension. The government should still be able to avoid default on debts into the first quarter of 2018 by having Treasury employ “extraordinary measures,” that is, to exercise discretion to suspend issuance of certain debt instruments and redeem other debt to create more space under the existing ceiling. But this ability to avoid the debt ceiling is limited, and at some point the ceiling will prevent the issuance of any new debt.
Bottom line: It has been difficult for Congressional Republicans to pass appropriations or debt ceiling legislation without significant Democratic support. Obtaining that support will require difficult negotiations, which may slow consideration of tax reform legislation and perhaps give Congressional Democrats some ability to influence Republican tax reform proposals.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG LLP.
The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.