Following up on last week's post, Tax Reform and IRS Resistance: Politico, Tax Law Ignites White House Power Struggle:
A political battle over the fate of hundreds of regulations and other guidance for the new tax law may soon land on President Donald Trump’s desk, forcing him to choose between two of his favorite Cabinet members.
At stake is who has ultimate authority to shape the nuances of the tax cuts and other rules as part of the $1.5 trillion Republican tax overhaul: Treasury Secretary Steven Mnuchin and the IRS have that power now, but White House budget director Mick Mulvaney and some of his GOP allies in Congress want the Office of Management and Budget to have the final say.
The dispute between the two men, and their agencies, has been simmering for weeks, causing friction between two key parts of the White House that are headed by a pair of Trump's staunchest loyalists. Mnuchin, whose relationship with Trump dates back to the early days of his 2016 campaign, is a frequent guest of the president on Air Force One and celebrated New Year’s Eve with the first family at Mar-a-Lago. Meanwhile, Mulvaney has impressed the president with his on-camera defense of the White House and his running of the OMB, so much so that his name has been floated as a potential future chief of staff.
Supporters of the OMB say the move is just intended to put Treasury on a level playing field with all other agencies, which must submit to the budget office’s review. But the fight is viewed by some close to the administration and on Capitol Hill as a power grab to weaken Treasury and Mnuchin, who is still getting up to speed on the mores of Washington given his relatively recent entry into government.
Sources close to Treasury, meanwhile, argue that adding another layer of review to the department’s outgoing regulations at this particular juncture would only slow down the implementation of the historic tax law, a foundation of Trump’s economic legacy and key selling point for Republicans in the 2018 midterms.
Many in the tax world share that concern, with corporations and powerful trade groups pushing Treasury and the IRS to move fast on a raft of complex rules and regulations needed to unleash the law's potential. ...
The fight centers on a Reagan-era agreement that exempts IRS regulations from review by the OMB's Office of Information and Regulatory Affairs. Powerful factions close to the White House and on Capitol Hill say the agreement is outmoded, especially given Trump's zeal to slash regulations, and should be modified or scrapped.
Trump ordered Mnuchin and Mulvaney to review the IRS exemption and, "if appropriate, reconsider" its "scope and implementation," as part of a broader April 2017 executive order to identify tax regulations that could be eliminated. ...
OIRA and Treasury have been going back and forth for years over which entity should have final say over the department’s regulations. But the rift has taken on new urgency in the Trump administration, given the opposing pressures of getting the tax overhaul up and running and Trump’s promise to drastically reduceregulations.
Historically, Treasury and IRS officials have argued that tax regulations are merely meant to interpret the law and don't have the kind of sweep that would make them more akin to legislation, like some regulations by other agencies. They also have said that tax rules aren't economically significant enough to require OMB review because it's the underlying tax legislation that creates any effect on the economy.
But everyone from the watchdog Government Accountability Office to some GOP lawmakers are raising questions.
A 2016 GAO report recommended the exemption be reconsidered, pointing out that tax provisions with social and economic objectives — for instance, encouraging companies to invest in poor neighborhoods — have major budgetary effects, so rules related to them warrant more scrutiny.
Lawmakers have lately been questioning how Treasury and the IRS have sidestepped OMB reviews, including Republicans on the House Oversight Committee who this week sent a letter to Treasury's top tax official demanding answers on the exemptions.
The 1983 agreement should be examined to see if it reflects today’s reality, said Sally Katzen, who headed the regulatory office under former President Bill Clinton and now teaches at New York University School of Law.
(Hat Tip: Ellen April.)