Washington Report prepared by McAllister & Quinn
Washington Report Headlines
· Camp Unveils Tax Plan
· $3 Million from USDA to Protect Honey Bees
Federal Employee News
· Obama Reworks Fed Cuts in FY2015 Budget
News from the Halls of Congress
Camp Unveils Tax Plan
The top Republican tax-writer in Congress proposed restructuring the U.S. tax code to eliminate dozens of breaks to pay for reductions in the corporate and individual rates. The 979-page plan from Representative Dave Camp would mark the most significant changes to the U.S. tax system since 1986, affecting every part of the economy and reflecting politically unpopular tradeoffs that sparked immediate complaints from business groups. Though it’s unlikely to become law this year, Camp’s plan is a blueprint that lawmakers may use in the future and its ideas and details will shape U.S. tax policy going forward.
The proposal includes new limits on breaks for health insurance, retirement savings, mortgage interest and private equity managers’ carried interest. The plan would repeal breaks for student loan interest, moving expenses, accelerated depreciation, and state and local taxes. Corporations would have a top rate of 25 percent, down from 35 percent. Individuals would have a top rate of 25 percent on their taxable income, down from 39.6 percent.
The actual marginal rate for top earners would be higher. They would be subject to 10 percent surtax on a broader base that includes municipal bond interest and employer-provided health insurance. That would apply to married couples earning about $450,000 in 2013 or individuals making $400,000. Top earners also would lose certain benefits, such as the 10 percent bracket, as their income goes up.
Camp’s goal is to reshuffle the tax burden while generating the same amount of revenue for the government -- and doing so without reducing the burden for top earners. He proposed a 3.5 basis-point quarterly tax on assets of the biggest banks and insurers, and limits on the deductibility of entertainment, advertising and research expenses. He proposed repealing the last-in, first-out accounting method using by many oil companies and wholesalers. Some breaks, such as the tax exemption for credit union income, were untouched.
U.S. multinational companies would have lighter taxes on their future profits earned outside the country. Under the plan, they would pay a one-time tax on assets they’ve accumulated outside the U.S. under the current system, with the proceeds dedicated to the Highway Trust Fund.
For individuals, Camp would increase the standard deduction, repeal the personal exemption and expand the child credit. He would also reduce the size of a mortgage eligible for the mortgage interest deduction to $500,000 from $1 million. Those changes would reduce the percentages who itemize deductions to 5 percent from about 30 percent now.
Camp would create a new system for taxing capital gains and dividends -- a 40 percent exclusion. When applied to the top 35 percent rate, that would mean a 21 percent basic tax on long-term capital gains and dividends, which would be added to the 3.8 percent investment income tax that Camp would retain. The plan would push people into Roth-style retirement plans that rely on after-tax money instead of tax-deferred accounts. New contributions to standard individual retirement accounts would end.
Private equity managers and others who received profits income as carried interest would pay $3.1 billion more over the next decade, with a portion of income that is now considered capital gains becoming ordinary income with higher rates. The plan excludes real estate professionals.
$3 Million from USDA to Protect Honey Bees
The U.S. Department of Agriculture (USDA) announced last week the availability of $3 million to protect vulnerable pollinators through the Environmental Quality Incentives Program (EQIP). These targeted funds will support conservation practices that both foster environmental benefits and provide habitat and forage for pollinating species. Farmer applications for this special EQIP initiative are due March 21, 2014.
The funds will be available to farmers and ranchers located in the Midwest states of Michigan, Minnesota, North Dakota, South Dakota and Wisconsin for both technical and financial assistance to improve the health of honey bees, one of our most critical pollinators. The Midwest was chosen because it serves as the summer resting ground for roughly 65 percent of the commercially raised honey bees in the U.S.
Honey bees are solely responsible for pollinating many of the fruits and vegetables that are mainstays in the American food supply and, according to USDA, collectively support approximately $15 billion worth of agricultural production.
Though not referenced in the USDA EQIP announcement, the Conservation Stewardship Program (CSP) already provides financial and technical assistance on a nationwide basis — including but not limited to the five newly targeted EQIP states — for farmers and ranchers whose operations benefit pollinators.
The CSP rewards farmers specifically for conservation activities that establish pollinator habitat as part of field borders, vegetative barriers, contour buffer strips, grassed waterways, shelterbelts, hedgerows, windbreaks, conservation cover, and riparian forest and herbaceous buffers. The special CSP pollinator habitat enhancement is available on all types of agricultural land – cropland, pastureland, rangeland, and forestland.
In addition to the specific CSP enhancement option for pollinator habitat, other CSP enhancement options that would aid pollinators while also improving soil health and creating additional environmental benefits include intensive cover cropping, grazing management to improve habitat, extending the size of field borders and conservation buffers, native prairie restoration, multispecies native perennial plantings, hedgerow restoration, and advanced integrated pest management.
Through renewable, five-year contracts, CSP enrolls producers that demonstrate advanced conservation across their operations. Farmers and ranchers agree to maintain existing and adopt new conservation practices that address priority resource concerns, and they receive annual payments for the environmental benefits they produce. By packaging a variety of enhancements, farmers and ranchers can maximize conservation benefits and deal with issues like pollinator health in a comprehensive and long-term manner.
Federal Employee News
Obama Reworks Fed Cuts in FY2015 Budget
President Obama removed many of the cuts previously aimed at federal employees in his fiscal 2015 budget, instead promising to “unlock the full potential” of the government workforce.
Obama struck a conciliatory tone in the blueprint when referring to federal workers that has been present in the rhetoric of past budgets, but mostly not backed up with substance. The White House on Tuesday announced a new initiative, and corresponding funding, to boost federal employee training and retention.
The budget invests in the government’s most important resource, its workers, ensuring that we can attract and retain the best talent in the federal workforce and foster a culture of excellence.
The proposal would fund the Office of Personnel Management to build a stronger onboarding program for new members of the Senior Executive Service, as well as leadership and engagement training for new managers to address the changing needs of a 21st century workforce. Obama promised his administration will work with labor groups to recruit and retain individuals with high-demand talents and skills, and will begin demonstration projects in 2015 to identify best practices in hiring, increasing diversity and reducing skill gaps.
In his fiscal 2014 budget, Obama proposed federal employees contribute an additional 1.2 percent of their pay toward their retirement pensions. He also suggested switching to a new formula to calculate inflation, which would result in lower cost-of-living adjustments for federal retirees and Social Security beneficiaries. Both of those measures were eliminated from the current budget, in part due to the recent budget agreement putting in place a pension contribution hike for new employees.
Obama has said the so-called “chained-Consumer Price Index” is still on the table, but the gridlock between congressional Republicans and the White House on deficit reduction has prompted him to proposal from his fiscal 2015 budget. Obama will not formally introduce his 1 percent pay raise proposal for civilian employees until next week.
The budget was not all good news for federal employees; several agencies would face right-sizing under the president’s proposals. The intelligence community would face workforce reductions; the Environmental Protection Agency would modernize its workforce, resulting in job consolidations; the State Department would look to reduce the number of feds overseas at all agencies; the Transportation Security Administration would save $100 million in 2015 through staffing efficiencies; and, as previously announced, the Defense Department will reduce its headquarters funding by 20 percent. Overall, the Obama budget proposed 136 cuts, consolidations and savings opportunities, which would save $17 billion.
Obama recommended a series of changes to the Federal Employees Compensation Act that would generate $340 million in savings over 10 years. The proposal -- which is nearly identical to language included in a Senate bill to overhaul the U.S. Postal Service -- would reduce benefits to retirement-age employees receiving workers’ compensation, establish an up-front waiting period before those injured on the job begin receiving payments, and attempt to reduce improper payments. Obama also included the cuts in his fiscal 2014 budget.
The President also retained provisions to reform the Federal Employees Health Benefits Program. The administration wants to give OPM the power to contract with modern types of health plans rather than being limited to the current four statutorily-defined plans reflective of the 1950s insurance market. It would also give OPM the authority to negotiate pharmacy benefits for all FEHBP program participants. Currently, health plans participating in FEHBP contract with pharmacy benefits managers, who negotiate with drug manufacturers and pharmacies on behalf of their enrollees. OPM has said that working directly with a single pharmacy benefits manager would reduce costs to beneficiaries. Overall, the administration estimated the changes would save $2 billion over 10 years.