Next week’s midterm elections are as hotly contested as they are consequential. Political analysts predict that Republicans are modest favorites to hold control of the U.S. Senate, possibly even picking up a few seats. And most analysts think Democrats are more likely than not to take back control of the House of Representatives. But—as any honest expert will tell you—a minor swing in voter turnout could render all these predictions as moot as the Virginia and Maryland campaign ads that this DC voter has to endure every night.
So what happens after November 6? The nonprofit sector has a lot at stake, and we are grateful to our colleagues at Washington Council Ernst & Young for their help compiling an update. Here are some specific issues and how they may fare depending on the election result.
Government Funding and the Johnson Amendment
Keeping the government funded and avoiding even a partial shutdown has been a major congressional priority, but several issues will need to be addressed before the end of the year. While the House and Senate have made significant progress in moving bipartisan appropriations bills, funding for a number of agencies is set to expire after December 7. The highest profile battle will likely be around funding for the proposed southern border wall—part of the Department of Homeland Security’s appropriations. Because of its profile, this issue will likely play a huge role in the negotiations for funding for the rest of December.
One outstanding item is funding for the IRS and Treasury. The House-passed version of the IRS funding bill includes a provision dealing with the Johnson Amendment and prohibits the IRS from denying tax exemption to a church for participating in political campaigns. The Senate-passed bill is silent on the issue, and the two chambers are expected to attempt to reconcile these differences ahead of the December 7 deadline. If Democrats take back the House, look for them to draw a firmer line during year-end negotiations on these and other key issues.
Tax Technical Corrections
Since the enactment of the Tax Cuts and Jobs Act, congressional tax staff have been working to identify needed technical changes. It should be noted that technical corrections include narrow changes that provide certainty and clarity to the statute, rather than substantive changes to the law. One potential correction involves the new charitable deduction AGI limitation of 60% for cash contributions. A technical correction is needed to ensure that the new 60% limit is available for cash contributions even if the taxpayer has non-cash contributions subject to the 50% AGI limitation. Lawmakers, including House Ways and Means Chairman Kevin Brady (R-TX), have suggested a technical corrections bill may be released as soon as the end of the year. Congressional Democrats have thus far been unwilling to support technical changes, as they contend that the law is fundamentally flawed and cannot be simply corrected. Should serious negotiations develop, this could be an opportunity for the nonprofit sector to request delay or modification of the recently enacted Unrelated Business Income Tax (UBIT) provisions.
More than two dozen temporary tax provisions, known as tax extenders, expired in 2017 and Congress may look to extend some or all of them during the lame duck session. This list includes the Indian Employment Tax Credit, as well as credits for energy efficient homes and buildings and certain alternative energy activities such as biodiesel. It’s not certain there will be a tax extender process, but if there is it is also not clear whether the package will include reforms, or simply extend the provisions. As above, this could be a chance for the sector to raise UBIT as an issue if serious negotiations develop.
While the Senate cleared 15 Trump Administration nominations before recessing, Senate Republicans are expected to try and move additional nominations in the lame duck. Most notable so far have been the recent confirmations of Supreme Court Justice Brett Kavanaugh and IRS Commissioner Chuck Rettig, although the Senate is waiting to vote on a total of 35 judges that have been cleared by the Senate Judiciary Committee and are awaiting confirmation. Nominations would likely become a very high priority on the Senate’s lame duck calendar if Democrats were to take back the Senate.
The Farm Bill is the term coined for multi-year legislation addressing a wide variety of agricultural and food programs. The House and Senate passed their own versions of a five-year farm bill this summer, but major differences between the two bills remain. Chief among them are the eligibility requirements for the Supplemental Nutrition Assistance Program, or SNAP. The House bill tightens eligibility by increasing the age range for which able-bodied adults without young children are required to work in order to receive assistance. The last Farm Bill was enacted in 2014.
Tax Reform 2.0
Before leaving to campaign for the midterm elections, the House passed legislation aimed at improving and extending key aspects of the monumental tax package passed late last year. The legislation, referred to as Tax Reform 2.0, aims to make the individual and small business tax cuts permanent, promote savings for families and retirements, and incentivize innovation.
While the permanent rate cuts do not have the votes to pass the Senate, the retirement provisions—which include provisions to expand retirement plan options for small businesses and encourage worker participation—have the best prospects of being enacted. Similar and slightly broader legislation has passed the Senate Finance Committee and has strong bipartisan support, increasing the likelihood that a bipartisan agreement can be reached in a lame-duck session. A provision to lower premiums paid by cooperatives and small employer charities was left out of the House package, but given that the provision was included in the Senate version of the bill its inclusion in final legislation is still possible.
There is bipartisan interest in IRS reform legislation in both houses of Congress. The IRS has suffered in recent years from outdated IT infrastructure, cuts in funding, and reduced public confidence from its previous targeting of conservative groups. Both the House and Senate introduced legislation to improve IRS processes and performance—including mandatory e-filing of Form 990—although substantive differences remain. The House passed its version of the bill in July, but negotiations remain stalled in the Senate where Senator Rob Portman (R-OH)—who has introduced a competing IRS reform bill—continues to negotiate to include additional provisions to Senate Finance Chairman Orrin Hatch’s (R-UT) legislation. The two Senators hope to bring forward a bill that can be reconciled with the House version.
Outstanding health care issues could also make their way into the end of year discussions. Pharmaceutical companies are seeking a fix to a provision that required them to pay more of the cost of coverage for seniors in the Medicare Part D “doughnut hole,” citing an error on the part of the Congressional Budget Office that underestimated the effect of the provision. Prior to leaving for the August recess, House Republicans passed several pieces of legislation focused on Affordable Care Act taxes and expanding Health Savings Accounts that they hope might be considered. While the expansion of HSAs and other consumer-directed health care legislation are priorities for House Republicans, a bipartisan path forward in the Senate remains unclear.
Other Congressional Priorities
Depending on the congressional outlook post-election, members may seek to include other legislative priorities in the year-end discussions. Some examples of member priorities include the Violence Against Women Act, which expires December 7; the Streamline Act, which increases access to 5G wireless service; and Coast Guard Reauthorization.