Congressional Recess Round-Up

We wanted to provide you with a summary of significant developments from the end of the recently completed July work period and highlight what we can expect when Congress returns in five weeks.

Last week, Congress capped off the July work period with the passage of a highway funding patch and legislation to overhaul the scandal-plagued Department of Veterans Affairs. Both bills are expected to receive the President's signature early this week.

In addition, the House passed an emergency supplemental border security funding bill that is likely to be considered “dead on arrival” by the Democratic-controlled Senate. The Senate's own version of a supplemental border funding bill fell to a filibuster on July 31, 2014.

The Senate also failed to pass the Bring Jobs Home Act, S. 2569—legislation that would give companies tax incentives to relocate jobs to the U.S. and penalize them for moving jobs offshore by denying them tax deductions for associated moving expenses. That legislation also fell to a procedural vote after the Democratic leadership refused to allow Republicans to offer a slew of amendments, which likely would have included a repeal of the medical device tax.

The increased attention on corporate reorganizations known as “inversions,” in which a U.S. multinational company moves its legal residence abroad, continued last week and is expected to resume when Congress returns in September.

Rep. Sander Levin last week circulated a discussion draft of an anti-inversion bill—the Stop Corporate Earnings Stripping Act of 2014, which seeks to thwart earnings stripping by repealing the debt-to-equity safe harbor under tax code Section 163(j) and reducing the permitted net interest expense to no more than 25 percent of the entity's adjusted taxable income. Levin is expected to introduce his bill when the House returns in September. Senate Finance Committee Ranking Member Orrin Hatch (R-UT) is also reportedly working on an inversion bill, but the timing and content of possible legislation is unclear.

Further details on these and other legislative developments leading up to the August recess are included below.


Highway Trust Fund Patch Heads to President's Desk
President Obama is expected to sign the 10-month highway funding patch into law the week of August 4, 2014. The bill, H.R. 5021, extends federal funding for highway and transit programs through May 31, 2015. The $10.8 billion bill is offset by the extension of certain customs user fees for an additional year and adjustments to the formula used to determine required employer contributions to employee defined benefit plans, also known as “pension smoothing.”

The Senate passed the House version of the legislation, 81 to 13, on Thursday, July 31, 2014, after the House stripped away amendments added earlier in the week by the Senate.

House Ways & Means Committee Approves Disability Savings Accounts
On July 31st, 2014, the House Ways and Means Committee approved by voice vote the Achieving a Better Life Experience Act (H.R. 647), which aims to create tax-deferred savings accounts for people with disabilities. The legislation would create accounts similar to tax-deferred accounts for higher education, which could be used to pay for transportation, housing and health care. The measure has broad support from Republicans and Democrats in both the House and Senate; however, the bill's estimated $2 billion cost over 10 years lacks a budget offset. Committee Chairman Dave Camp (R-MI) said he would work with Ranking Member Sander Levin (D-MI) and was confident they would find an offset acceptable to congressional leaders before the bill reaches the House floor.

Sen. Carper Introduces COMPETE Act to Boost Research & Development
On July 31, Sen. Tom Carper (D-Del.) introduced the Competitiveness and Opportunity by Modernizing and Permanently Extending the Tax Credit for Experimentation (COMPETE) Act. The legislation would simplify, expand, and make permanent the research and development (R&D) tax credit. Several medical research organizations including The Association of Clinical Research Organizations (ACRO) and The Biotechnology Industry Organization (BIO) have already expressed their support for the new provisions in the bill, which would: 
  • Make the R&D credit permanent
  • Strengthen credit by increasing the credit rate to 25 percent of qualifying research investments 
  • Simplify the credit in order to remove administrative barriers that currently exist
  • Expand the reach of the credit by opening access to research tax incentives to new sectors of the economy, such as clinical research
  • Direct private capital toward small, profitable start-ups by enabling investors in small research companies to claim the R&D credit; and,
  • Provide a targeted, limited bonus R&D credit for transformative research projects that are most likely to boost long-term economic growth.

    A complete text of the bill has not yet been made available.
Ross-Delaney Bill Unveiled
A bipartisan group of members of the House Financial Services Committee introduced the Financial Stability Oversight Council Improvement Act (H.R. 5180) to address FSOC's flawed SIFI designation process.

The bill would amend the Financial Stability Act of 2010 to bring transparency and accountability to FSOC's designation process for nonbank financial institutions. Provisions include requirements for FSOC and the Office of Financial Research (OFS) to:

1) publish their reports, studies, and analyses, making them available for public comments;

2) provide written notice to companies that have been identified for initial evaluation, explaining why they have been deemed as a potential risk to the financial system;

3) afford such companies the opportunity to submit written materials to contest their potential SIFI designation.

In addition, two-thirds of the voting members would have to approve a resolution that identifies specific risks posed by the institution. After a proposed determination has been made, affected companies may request a hearing before the Council to address the risks that have been identified. After final determination, companies that have been designated as a SIFI may ask for a re-evaluation of their status in five years.

Reps. Dennis Ross (R-FL) and John Delaney (D-MD), the top two cosponsors, have both underscored the importance of this bill in clarifying the designation process and improving communications between the asset management industry and FSOC. The Ross-Delaney bill was referred to committee on July 23rd 

House Financial Services Committee Markups
  • H.R. 4042: Community Bank Mortgage Service Asset Capital Requirements Study Act of 2014
  • To require a study of appropriate capital requirements for mortgage servicing assets for nonsystemic banking institutions. (Agreed to 44-9)
  • H.R. 5148: Access to Affordable Mortgages Act of 2014
  • To amend the Truth in Lending Act to exempt certain higher-risk mortgages from property appraisal requirements and to exempt individuals from penalties for failure to report certain appraisers and to amend the Financial Institutions, Reform, Recovery and Enforcement Act of 1989 to exempt certain higher-risk mortgages from property appraisal requirements. (Agreed to 31-23)
  • H.R. 3913 : (no short title provided) Bill to amend the Bank Holding Company Act of 1956 to require agencies to make considerations relating to the promotion of efficiency, competition, and capital formation before issuing or modifying certain regulations. (Agreed to 32 -22)
  • H.R. 5018: Federal Reserve Accountability and Transparency Act of 2014
  • To amend the Federal Reserve Act to establish requirements for policy rules and blackout periods of the Federal Open Market Committee, to establish requirements for certain activities of the Board of Governors of the Federal Reserve System. (Agreed to 32-26)

Financial Stability Oversight Council Meeting
On July 31st, U.S. Treasury Secretary Jack Lew convened a closed meeting of the Financial Stability Oversight Council, where members discussed its ongoing assessment of potential risks to U.S. financial stability associated with the asset management industry. The Council directed staff to focus more of its analysis on specific products and activities when evaluating risks in the asset management industry. The meeting also addressed the following:
  • SEC's final rule on money market mutual fund (MMF) reform – the Council declined to proceed to a final Section 120 recommendation
  • Designations of American International Group and GE Capital – the Council, in its annual review, declined to rescind their designations at this time
  • Nonbank financial company designations – companies under review will not be named until a final designation has been made

The Council also approved to release the minutes of its previous meeting on June 24, which can be found here. The complete readout from today's closed meeting can be found here.

Events and Meetings Over Recess
Tax Reform Act of 2014 Discussion Hosted by DC Bar Association (POSTPONED—New date and time TBD): Staff from the Joint Committee on Taxation and House Ways and Means Committee will explain Tax Reform Act of 2014 Discussion Draft in a series of panels, with a lunch keynote address by JCT Chief of Staff Thomas Barthold, and an evening rooftop reception.

Looking Ahead
The House and Senate will return to Capitol Hill on September 8, 2014, with the House adjourning October 3, 2014, and not returning until after the November elections. Senate Majority Leader Harry Reid announced last week that the Senate will adjourn by September 23, 2014, in order to give lawmakers more time to campaign for reelection. The shortened post-Labor Day work period means the Senate only has two-weeks and two days to resolve a number of pressing legislative matters, including passage of a continuing resolution to keep the government funded beyond the September 30th end of the current fiscal year.