California Capitol Hill Bulletin

California Capitol Hill Bulletin

Volume 21, Bulletin 6 – March 13, 2014[online/pdf]


To expand communications between Washington and California, the California Institute provides periodic bulletins regarding current activity on Capitol Hill that affects our state.  Bulletins are published weekly during sessions of Congress, and occasionally during other periods.  To subscribe to the Bulletin or other California Institute announcements, visit this link.


CONTENTS OF THIS ISSUE:

Budget: Institute Releases Reports On President’s FY15 Budget

Social Services: Senate Passes Bipartisan Child Care Block Grant Reauthorization

Taxes: Camp Unveils Tax Reform Bill But House Action Not Expected

Taxes: House Judiciary Examines Internet Sales Tax Proposals

Budget: Institute Releases Reports On President’s FY15 Budget

        The federal agencies rolled out the President’s FY 2015 budget March 10, 2014. The California Institute has prepared several reports on the President’s FY 2015 Budget for federal agencies.

        The following reports on specific agencies are now available:

        – Department of Agriculture – www.calinst.org/pubs/FY15Ag.pdf

        – Department of Education – www.calinst.org/pubs/FY15DoEd.pdf

        – Department of Health & Human Services – www.calinst.org/pubs/FY15HHS.pdf

        – Department of Homeland Security – www.calinst.org/pubs/FY15DHS.pdf

        – Department of Housing & Urban Development – www.calinst.org/pubs/FY15HUD.pdf

        – Department of Justice – www.calinst.org/pubs/FY15DOJ.pdf

        – Department of Labor – www.calinst.org/pubs/FY15Labor.pdf

        – Department of Transportation – www.calinst.org/pubs/FY15DOT.pdf

        The Institute will publish reports on the remaining federal agencies in the near future.

Social Services: Senate Passes Bipartisan Child Care Block Grant Reauthorization

        The Senate approved S. 1086, The Child Care & Development Block Grant Act of 2014 on Thursday, March 13, 2014. The bipartisan reauthorization will expand access to, and improve the quality of child care for, the more than 1.5 million children and families that benefit from the federal child care subsidy program. The law has been overdue for reauthorization since 2002. The bill provides about $2.4 billion in discretionary funds and $2.9 billion in mandatory funds in FY14 to the states to help low-income families pay for child care. Final passage of the bill was on a vote of 97-1.

        Among the key provisions in the bill are:

        – States must set aside three percent of funding to expand access and improve the quality of care for infants and toddlers.

        – In addition, the amount states set aside for quality improvement activities must be at least 10 percent within five years of enactment and states must report on what activities they choose to invest in.

        – States must describe how they are prioritizing quality care for children from low-income families in areas of concentrated poverty or unemployment.

        – Requires States to explain how they will meet the needs of children with disabilities.

        – Ensures that the CCDBG provisions are coordinated with IDEA programs for infants and toddlers and preschool-aged children with disabilities.

        – Children who initially qualify for a subsidy will get care for at least a year.

        – When parents re-determine their eligibility for the subsidy, States must ensure they will give parents ample opportunity to prove continued eligibility and take into account the needs of families in doing so, including taking into account a parent’s irregular work schedule.

        During consideration on the floor, the Senate passed some amendments to the bill. Among them was one to require states to develop plans for child care needs after natural disasters. Another requires the Departments of Health and Human Services and Education to report to Congress on streamlining early childhood education programs.

        For more information on the bill, go to: http://www.help.senate.gov/newsroom/press/release/?id=2b68beff-de5f-4774-b816-dc054fb0dda0&groups=Chair

Taxes: Camp Unveils Tax Reform Bill But House Action Not Expected

        Chairman Dave Camp (MI) of the House Ways and Means Committee released a discussion draft of a sweeping tax reform bill on Wednesday, February 26, 2014, that would revise and simplify the tax code in the most comprehensive way since the Tax Reform Act of 1986. The discussion draft of the bill, which is nearly 1,000 pages, would repeal as many as 228 sections, or reduce the current tax code by about a quarter.

        In terms of individual tax reform, the Camp proposal would reduce the current seven income tax brackets to just three—10%, 25%, and 35%, with roughly 99% of taxpayers staying within the top bracket of 25%, according to Camp. Capital gains would be taxed as ordinary income, rather than receiving the current preferential rate of 15% (with a 40% exclusion allowed, as all non-corporate taxpayers will be allowed an above-the-line deduction equal to 40% of their long-term capital gains). Income derived from “domestic manufacturing activities” that would otherwise be high enough to be taxed in the 35% bracket would only be taxed at a top rate of 25%. Many itemized deductions, such as those for carried-interest used by hedge fund managers, charitable contributions, home mortgage interest, and state and local taxes would be repealed and replaced by a larger standard deduction and child tax credit; the proposal would streamline filings for around 95% of households that would be able to use the standard deduction, up from around the two-thirds who use the simplified filing for the standard deduction now. The repeal of the state tax deduction, real estate tax deduction, and new limit on mortgage interest deductions may particularly affect California residents, where property values and state taxes are generally higher than other states—it is unclear at this point whether the expanded standard deduction would be favorable to the majority of California residents compared to the use of itemized deductions. Additionally, the proposal would repeal the casualty loss deduction, which currently allows individuals to deduct property losses due to natural disasters and other circumstances. The Alternative Minimum Tax would be repealed, and numerous education savings incentives programs would be consolidated.

        As with the individual tax structure, the Camp proposal would aim to streamline the corporate tax structure by collapsing the current four tax brackets—15%, 25%, 34%, and 35%—into a top corporate rate of 25% (compared to President Obama’s call to reduce the top rate to 28%), which would be phased in over five years. While the tax credit for research and development would be made permanent, most other deductions and industry-based preferences would be repealed, including those for expenditures for fertilizer for farmers, and special treatment for film and television production, among many others. The plan also proposes a quarterly excise tax of 3.5% on the largest financial institutions while leaving a tax exemption for credit unions alone. About $126.5 billion derived from a one-time tax on accumulated E&P would be deposited into the Highway Trust Fund to fully fund highway and infrastructure investment for eight years. When analyzed under traditional scorekeeping methods, the draft proposal if enacted would have relatively little impact on the national debt over a 10 year span.

        Although there is strong support in both parties for tax reform legislation, the Camp proposal is expected to only be an opening bid to begin the dialog on simplifying the tax code. In an election year, there is not much of an appetite to take on such a complex, and undoubtedly highly contentious, issue.

        For more information, including the draft legislation, a section-by-section summary, and other related documents, please visit http://tax.house.gov/

Taxes: House Judiciary Examines Internet Sales Tax Proposals

        On Wednesday, March 12th, 2014, the House Judiciary Committee held a hearing on “Exploring Alternative Solutions on the Internet Sales Tax Issue” to examine five proposed Internet sales tax solutions. Witnesses included: Former California Representative Chris Cox, Counsel, NetChoice and Partner, Bingham McCutchen LLP; Mr. Joe Crosby, Principal, MultiState Associates Incorporated; Mr. Stephen P. Kranz, Partner, McDermott Will & Emery; Mr. William E. Moschella, Shareholder, Brownstein Hyatt Farber Schreck, LLC; Mr. Andrew Moylan, Outreach Director and Senior Fellow, R Street Institute; and Mr. James H. Sutton, Jr., Shareholder, Moffa, Gainor, & Sutton, P.A.

        On September 18, 2013, the Judiciary Committee published seven guiding principles regarding the internet sales tax issue. The principles are: Tax Relief; Tech Neutrality; No Regulation Without Representation; Simplicity; Tax Competition; States’ Rights; and Privacy Rights. The Committee intends them to guide discussion on the issue and spark fresh, creative solutions. The Committee has received a number of ideas in response to the principles it published, and the hearing explored several of them in detail. Each of the witnesses presented a proposal and defended it against criticisms from fellow panelists to identify the merits and shortcomings of each approach.

        NetChoice is a coalition of e-commerce and online companies that promotes the value, convenience, and choice of Internet business models. Mr. Cox’s proposal was presented as an alternative to the Senate passed Marketplace Fairness Act, which he described as “fundamentally flawed.” NetChoice’s proposal, in the interests of fairness, would impose the same tax compliance burdens on all retailers, whether brick-and-mortar, online, or catalog. It would also be a much simpler plan to implement than the Senate bill, which Mr. Cox argued would be expensive and require potentially flawed software integrity. The proposal would require brick-and-mortar and e-businesses both, regardless of size, to use the tax rates and rules of their home states. Also, under the proposal, states would have the choice whether to join a multi-state compact, pursuant to which taxes on out-of-state sales could be collected.

        For information on the other proposals and the testimony of the witnesses, go to: http://judiciary.house.gov/index.cfm/hearings?ID=2F442B02-C3EB-49FA-AE82-2079D732A90D