Although not particularly productive, Washington has certainly been anything but quiet in recent weeks.   Tensions surrounding the elections, and now the Supreme Court, continue to color everything that is happening on the Hill.


On February 9, 2016, President Obama sent his final budget proposal (for fiscal year 2017) to the Hill. Since then, the drama has continued to unfold as Republican leadership in both the House and Senate grapple with how to address the issue of the budget.

As previously reported, the budget debate is a bit different this year because a top-line spending number for FY17 was already set by the Bipartisan Budget Act of last year, making the passage of a budget by the House or Senate not technically necessary. That said, the budget can play a role in the allocation of the funding and, particularly in an election year, can be a useful advocacy tool, particularly for the majority party in both chambers.

In 2015, the House Budget Committee voted (20 to 16) to bring the budget resolution back by the Republican House Leadership to the House floor. While it was originally expected that the House might vote on this budget this week, leadership decided to delay the vote until the House returns from a two-week recess on April 12 (just three days before the statutory deadline for a budget to be passed).

The leadership’s decision to delay the vote on the budget appears to be largely based on concerns over a lack of support of the budget within the Republican caucus. In particular, the budget that was reported out of the Budget Committee maintains the top-line $1.07 trillion spending number that was set by the Bipartisan Budget Act.

The intent of leadership was that this would allow the House to work with the Senate to pass twelve individual appropriations bills, particularly in light of the fact that Senate Majority Leader Mitch McConnell (R-KY) informed Republican House leadership that he believed he would have trouble passing any appropriations bills in the Senate if they didn’t conform to the top-line numbers.

The House leadership has assured members that they would still have an opportunity to vote on cuts to certain mandatory entitlement programs. Specifically, the budget resolution would instruct five committees to present a standalone package of mandatory spending cuts (being referred to as the “budget sidecar”), which would be voted on separately from the resolution itself. Despite this, many of the most conservative members of the party, in particular the Freedom Caucus, have opposed this approach, and the budget resolution, based on their interest in capping discretionary spending below the level agreed to in the Bipartisan Budget Act and their belief that the Senate will not take up the “budget sidecar.”

The Republican Study Committee, which is comprised of approximately 170 members of the House, has also released a proposed budget.  This budget would cut the discretionary spending level agreed to in the Bipartisan Budget Act by $30 billion.  While apparently still considering how to address the alternative budget, House leaders have suggested allowing members to vote on both budgets and encouraging members to pass both budgets.

Additionally, in recent days House leadership, and members of the Freedom Caucus and their allies, have been discussing the possibility of permitting the inclusion of mandatory cuts in the bill setting forth appropriations for Labor and Health and Human Services (HHS). This would allow the most conservative members of the House to vote on mandatory cuts, including those targeting Planned Parenthood funding, within the primary budget process rather than a budget sidecar while allowing the other eleven appropriations bills to move without controversy to the Senate. This would mean that the Labor-HHS appropriations bill would be the primary area of controversy with the Senate instead of all 12 of the appropriations bills, as likely would be the case if the cuts were spread more widely. Discussions on this issue are ongoing and whether Republican Leadership and the Freedom Caucus will both agree to this approach remains to be seen.

On the other side of the aisle, war funding continues to remain a sticking point with the Democrats as the budget reported out of the Budget Committee would allow $23 billion in war funding to be redirected for general defense spending.

In the Senate, things appear to be moving a bit more slowly than in the House. Although Majority Leader McConnell previously pledged that he would move forward with bringing twelve individual appropriations bills to the floor this summer, there are concerns that bringing such bills to the floor, where they would be subject to amendments, could force a number of Republicans facing tight reelection races to make votes that could hurt them.

In the end, we think the dynamic surrounding the upcoming elections makes it very likely that we will see short term patches with no broader appropriations bills being passed until after November.

Tax Reform

Although the likelihood of achieving comprehensive tax reform this year is extremely low, the House Ways and Means Committee in particular, as well as the Senate Finance Committee to a lesser extent, have continued to focus on and be vocal about international tax reform.

Ways and Means Committee Chairman Kevin Brady (R-TX) has made it clear that this is a priority for the committee and that he believes it will support House Speaker Paul Ryan’s pro-growth agenda and perhaps even lay the foundation for broader tax reform in the years to come.

Congressman Charles Boustany (R-LA), who chairs of the Ways and Means Committee Tax Policy Subcommittee has taken the lead in drafting international tax reform legislation which is expected to be released as early as late March.

In general, the Senate Finance Committee appears to be letting the House take the public lead on these tax reforms efforts, though the Finance Committee staff continues to work on these issues.

Beyond international tax reform, the House Ways and Means Committee has also continued to maintain discussions of comprehensive tax reform principles, presumably in preparation for a time after the election when broader reform may be more feasible. On Tuesday March 22, the Tax and Policy Subcommittee held a member hearing on “Fundamental Tax Reform Proposals.” In the hearing, Congressmen Devin Nunes (R-CA), Michael Burgess (R-TX), and Rob Woodall (R-GA), each presented and fielded questions from committee members on their three different tax reform proposals.

Nunes presented his American Businesses Competitiveness Act (H.R. 4377) which would  set a maximum tax rate of 25 percent for all business income (including pass-through entities), allow full expensing in any taxable year, eliminate business credits and deductions, and convert to a territorial system of taxing international income. Burgess discussed his Flat Tax Act (H.R. 1040) which would create a system under which individuals could make in irrevocable election to be subject to a flat tax rate of 19 percent in the first two years and 17 percent in every year thereafter, while also retaining the current tax system. Finally, Woodall presented his Fair Tax Act (H.R. 25) which would do away with the income, payroll, estate and gift taxes (i.e. a huge portion of the current tax code) and instead implement a consumption tax system. These proposals were met with varying levels of support and scrutiny by the six members of the sub-committee in attendance. What was clear during the hearing is that, as has been consistently seen throughout the Congress, there is widespread agreement on the need for tax reform, but significantly less consensus on how to approach it. In one particularly interesting moment of the hearing, the ranking member of the Subcommittee, Congressman Richard Neal (D-MA), criticized his Republican colleagues for their immediate rejection of their own former Ways and Means Committee Chair David Camp’s 2014 tax reform proposal, suggesting that this intra-party response had since quashed members’ interest in seeking out creative or bipartisan solutions.

Finally, on the tax reform front, earlier this month the House tax reform task force led by Brady issued its policy goals (but no specific recommendations) which include simplifying the tax code and closing loopholes, making the tax code competitive for businesses of all sizes and international tax reform. As we’ve said before, it’s hard to find anybody who is against the goal of tax reform, particularly simplifying the tax code and reducing tax rates. But, as we have seen over the years, the devil is in the details. What is seen as a “loophole” by one person is seen as an essential or desirable inducement to certain behavior (i.e., the deduction for charitable contributions or the deduction for health insurance premiums paid by a company) by another. Pass-through entities do not want to be hit with higher tax rates than C corporations; thus the corporate tax system alone can’t be reformed, the individual tax system has to also be reformed.

DOL Overtime Rule

As previously reported in July 2015, the Department of Labor (DOL) issued a Proposed Rule and Request for Comment that included proposals to significantly change some of the most commonly relied-upon exemptions from the Fair Labor Standards Act (FLSA) overtime pay requirements. The Small Business Legislative Council submitted written comments to the proposed rules in September 2015.

The DOL reported that it received 270,000 comments in response to the proposed rules. Despite this, the DOL is moving faster than expected and already sent the final rule to the White House Office of Management and Budget (OMB) for review on March 14. OMB can, but is not required to, take up to 90 days to review a final rule. This means that the final rule, which was originally expected to come out late this summer, will be out by June, if not sooner.

While the contents of the final rule remain to be seen, once in effect it is sure to have an impact on businesses of all sizes. In the Proposed Rule, the DOL proposed to raise the amount of salary that a salaried employee needs to be paid to qualify as an exempt white-collar employee from $455 per week ($23,660 per year) to an amount equivalent to the 40th percentile of weekly earnings for full-time salaried workers as calculated by the Bureau of Labor Statistics (BLS), which at the time of the proposed rule was $921 per week ($47,892 per year).  The proposed rule would also increase the salary threshold for the highly-compensated exemption from $100,000 a year to the 90th percentile of earnings for full-time salaried workers as calculated by BLS, which was $122,148 at the time of the proposed rule. The DOL asked for comments about whether to also change the duties required for employees to qualify for these exemptions, but has made no indication as to whether the final rule will include any such changes. In its comments, the SBLC, among other things, emphasized that the proposed salary increases would be unsustainable for many small businesses. They urged the DOL to phase in any increase over at least five years, and advocated strongly against changing any of the duties requirements.

On March 17, presumably in response to the announcement that the rule had been sent on to OMB, Republicans in both the House and Senate introduced the Protecting Workplace Advancement Opportunities Act (H.R. 4773/S. 2707). The Protecting Workplace Advancement Opportunities Act would nullify the proposed overtime rule and prevent the rule from being finalized. The bill would require that before promulgating any other substantially similar rule the DOL must conduct a “full and complete economic analysis with improved economic data” including economic data on the impact on small businesses. The Bill would also prohibit the DOL from implementing a rule that includes automatic increases to the salary thresholds or from making changes to the duties test without the specific changes first being subject to notice and comment.

Although the proposed rules drew a great deal of ire, particularly from the business community, the chances of the Protecting Workplace Advancement Opportunities Act gaining enough votes not only to pass but to override an almost guaranteed veto are very slim. Republicans have also threatened to use policy riders in the funding bills to undermine the overtime rule, but have not yet taken steps to do so.

Produced by the Small Business Legislative Council (SBLC), of which PPAI is a member and PPAI president and CEO Paul Bellantone, CAE, serves as a board director, the SBLC Report offers a quick and candid review of what’s going on in Washington. The mission of the SBLC is twofold: to make improvements in public policy for small business and to help member associations in their communications with business members. Please note that this weekly is for the sole personal, informational use of PPAI members and should not be posted to any website.