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There is some hope that permanent disaster relief tax provisions could be included in a tax reform package, and the push will likely build steam after the devastation of Hurricane Harvey.
Such a bill may also move separately from tax reform, which could increase its chances of passage as the larger overhaul effort is bogged down in the House and Senate. Still, while a flurry of bills have been introduced following natural disasters in recent years, the bulk of relief legislation enacted has been temporary in nature—such as measures helping victims of Hurricanes Katrina, Rita, and Wilma in 2005—and inconsistent: Congress didn’t enact tax relief following Hurricane Sandy in 2012.
“I don’t see this as being a political issue or a partisan issue. It seems like it could probably get bipartisan support, even outside of the context of tax reform,” Lisa Zarlenga, a partner at Steptoe & Johnson LLP, told Bloomberg BNA Aug. 29. Zarlenga is a former tax legislative counsel for the Treasury Department.
Reps. Tom Reed (R-N.Y.) and Bill Pascrell Jr. (D-N.J.) are planning to reintroduce the National Disaster Tax Relief Act, first introduced as H.R. 3110 in 2015, when they return in September, according to Pascrell’s office. The bill would provide relief for disasters from 2012 to 2015 and make certain provisions permanent. When Reed and Pascrell introduced it in July 2015, it garnered dozens of bipartisan co-sponsors.
Hurricane Harvey has dumped more than 48 inches of rainfall since striking the Houston region Aug. 25. The record-breaking storm has killed at least 13 people and displaced hundreds of thousands more, though officials say it’s impossible to fully capture the far-reaching scope of the storm. Texas Gov. Greg Abbott (R) called it “one of the largest disasters America has ever faced.”
The Internal Revenue Code does include some permanent provisions related to disasters, such as not taxing individuals on disaster relief payments. The IRS also regularly offers filing extensions after disasters, as it did Aug. 28 following Hurricane Harvey ( IR-2017-135). The agency said it could provide relief to other affected areas in the future.
The agency could take additional steps without legislative action. It has previously let individuals withdraw money from retirement accounts without facing the normal penalty, for example. After Hurricane Katrina, employers could adopt programs allowing employees to elect to forgo vacation and sick leave in exchange for cash payments that weren’t taxable, Jason B. Freeman, managing member at Freeman Law PLLC in Frisco, Texas, told Bloomberg BNA.
“I do think it is important to have a ‘permanent framework’ in place for relief, but you should also have sufficient flexibility within the executive branch to have tailored relief for each disaster,” Freeman said Aug. 29.
The American Institute of CPAs in July called on Congress to make 10 tax provisions permanent to help disaster victims. Those provisions range from waiving individual casualty loss limitations to increasing expensing limits under tax code Section 179, and allowing a full or partial housing exemption for displaced individuals.
“Because tax relief is dependent on Congressional action after every disaster, it has been available only sporadically—provided for some disasters, but denied for others without clear reason,” the AICPA said in a separate 2015 report.
Ed Karl, vice president for taxation at the AICPA, said the cost of such legislation and lawmakers’ reticence to pass piecemeal tax bills in advance of broader reform are the two barriers to permanent provisions. While the AICPA won’t push the point immediately in the wake of Harvey, it stands by its July request, he said.
“Hurricane Harvey is just a more dramatic example of why there needs to be serious consideration of permanent disaster relief,” he said.
Individual members are certainly interested in responding to Harvey, said Charles Boustany, a former Ways and Means Republican member from Louisiana. Boustany compared lawmakers’ appetite to provide relief to the mood in Congress after the 2005 hurricanes.
Boustany said if a comprehensive and transformational tax reform package became a reality, that could raise a question about whether targeted tax relief for disasters is necessary.The large Texas delegation in Congress will also make the case for immediate relief, he said. In total, there are 38 Texas lawmakers.
House Ways and Means Committee Chairman Kevin Brady (R-Texas), representing an area north of Houston, is focused on rescue and relief efforts in his district, a committee spokeswoman said Aug. 29. “He will work with the Texas and Louisiana delegations to make specific policy decisions as the recovery needs become clearer,” the spokeswoman said.
Congress will also undoubtedly now have to raise the debt limit, reauthorize the National Flood Insurance Program—expiring in September—and avoid a shutdown, said Caroline Bruckner, a professor and managing director of the Kogod Tax Policy Center at American University’s Kogod School of Business. Bruckner is also a Houston native.
“This has totally changed the narrative and that’s the reality of hurricane season. It can throw a wrench into everything,” Bruckner said. She said she expects a disaster tax bill, but said it is just one step in the process. Additional bills will be needed down the line to provide more funding, and individuals from previous disasters still need help—a point Senate Minority Leader Charles E. Schumer (D-N.Y.) will likely make in negotiations, she said.
“Inevitably politics is going to come into play,” Bruckner said, as lawmakers will need to designate zones for tax relief and decide what incentives they want to fund, as they did following Hurricane Katrina. Bruckner previously worked for former Sen. Mary Landrieu (D-La.) and in 2009 worked to extend disaster-related tax provisions.
The House and Senate must pass a funding bill by Sept. 30 to avoid a government shutdown. President Donald Trump has threatened to shut down the government over funding for a border wall.
The need for response after the hurricane is “a helpful addition to the conversation” about preventing a September shutdown “particularly given that many of the Congressmen and Senators who have historically opposed government funding or the debt ceiling hail from the states getting pummeled right now, namely Texas and Louisiana,” Henrietta Treyz, a tax analyst with Veda Partners and former Senate tax staffer, said in an Aug. 29 note to clients.
With assistance from Kaustuv Basu, Laura Davison and Allyson Versprille.
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