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The OMB is in the process of hiring more staff with tax backgrounds, according to a source familiar with recent negotiations over whether to grant the budget office more authority to review Treasury’s tax rules.
The Office of Management and Budget’s Office of Information and Regulatory Affairs already has tax experts and economists with tax policy backgrounds on staff, the source, who asked to remain anonymous because negotiations are ongoing, said. However, the office is in the process of hiring a “handful” of people to specifically focus on tax issues, the person said.
Over the last several months, officials at the Treasury Department and OMB have been in discussions to determine whether more tax regulations, including rules interpreting the 2017 tax act, should undergo the same OIRA review process and cost-benefit analysis that other agencies’ regulations face. A concern that’s been raised by former Treasury officials is the lack of tax expertise within the OMB.
John D. Graham, who worked as administrator of OIRA under President George W. Bush and currently is dean of the Indiana University School of Public and Environmental Affairs, said a handful of new OIRA desk officers won’t be sufficient for this area. For the office, “this role would be a major expansion of workload, far beyond what they can undertake given their current level of staffing,” he said in an email. OIRA would need to hire new people with expertise specific to the revenue-generating process, he said.
Giving the OMB more authority to review tax regulations would upend a 1983 agreement with Treasury exempting most tax rules from the OIRA process. The argument for this exemption partially stems from the view that tax rules simply interpret the laws that Congress enacts, and therefore any costs associated with them originate from the statute itself.
“They are not (with certain exceptions) comparable to regulations promulgated by other agencies, which are ‘legislative’ in nature (in other words setting specific policies under broad mandates to the agencies),” Gregory F. Jenner, who served at Treasury under Bush as both an acting assistant secretary for tax policy and a deputy assistant secretary for tax policy, said in an email.
Tax regulations, even in the early 1980s, were literally just implementing a statute with almost no discretionary interpretation by Treasury and the Internal Revenue Service, the source familiar with recent negotiations at Treasury and the OMB said. But in the intervening years, tax code regulations have come to be seen as implementing social policy and directing conduct, the person said.
Given the changing nature of tax rules, requiring OIRA review may be more appropriate now than it was in the 1980s, the source said.
Graham said there’s some merit to the argument that tax rules are interpretive but that it tends to be overstated. “There is usually more than one way for IRS to interpret or implement a documentation requirement,” he said. “OIRA could help make sure that they consider the burden on the taxpayer as well as the revenue-raising ramifications.”
Former Treasury officials, including Jenner, and tax practitioners have expressed concern that permitting OIRA to review more tax regulations could slow down implementation of the new tax law.
A second source familiar with the ongoing negotiations between the OMB and Treasury told Bloomberg Tax that many members of Congress have reached out to both agencies with concerns about the time this will add to the review process.
As recently as March 28, House Ways and Means Committee Chairman Kevin Brady (R-Texas) said Treasury is best equipped to interpret tax laws.
The first source said concerns about delays are overblown. OIRA doesn’t take years to complete its review of new regulations, the person said. In fact, the office can move very quickly, the source said.
According to OIRA’s website, an average review in calendar year 2017 took 68 days. The office took an average of 56 days to review “economically significant” rules or guidance documents, compared to the 74-day average review time for non-economically significant items. Reviews of Treasury regulations in 2017—generally excluding tax rules—took an average of 51 days.
Those numbers include outliers that can skew the calculations, the first source said, adding that OIRA is reviewing fewer regulations in total under the new administration, which should result in faster turnaround times. Of course the rulemaking will take some additional time, but the office can review important rules in a week or 10 days, especially if Treasury is cooperative on “pass-backs” from OMB, the source said.
Some tax regulations don’t require extensive inter-agency review, in which case OIRA can move even faster, the source said. The additional time for review means better tax policy, and the benefits of that outweigh the costs of the extra time, the person said.
“OIRA review would add some deliberative time to interpretative rules but not enough delay to affect the macroeconomic case for the tax reform,” Graham said.
Allowing OIRA to review more tax rules could inject political bias into the process, Jenner, currently a partner at Stoel Rives LLP in Washington, said.
Once OIRA becomes more involved, Treasury stops being the final “expert” decision-maker, he said.
“Instead, you inject OMB (a political organization reporting directly to the President but without any tax expertise) into the process as the final arbiter,” he said. The regulatory process at Treasury and the IRS is relatively devoid of politics, Jenner said, even though its top positions are filled by political appointees.
Graham disagreed, saying there’s no reason to think OIRA is any more or less political than Treasury.
Treasury should welcome more involvement from OIRA, the first source said, because a rule that goes through the office’s review process is more defensible and has better analysis, making it more likely to be upheld in court.
To some extent, Treasury’s argument against this additional level of review is about “turf” that the tax regulators don’t want to give up, the person said.
It isn’t clear how much longer it will take to reach a new agreement on this issue, but the first source was “cautiously optimistic” that the sides have been getting closer in recent weeks.
Tony Sayegh, assistant secretary for public affairs at Treasury, told Bloomberg Tax March 28 in an emailed statement that the department is working productively with the OMB and is very pleased with the process. Sayegh said he is hopeful a resolution will be reached in the near future.
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