2015 federal outlook.

• Author: McDonald, Dustin
• Position: Federal Focus

GFOA priority items in 2015 include efforts to repeal or significantly reform the Affordable Care Act, overhaul the federal tax code through comprehensive tax reform, revise the Dodd-Frank Act, and preempt state and local taxing authority.

The 2014 midterm elections changed the political landscape for the final two years of the Obama presidency. Republicans secured Democratic-held Senate seats in Arkansas, Colorado, Montana, North Carolina, South Dakota, West Virginia, Iowa, and Louisiana, picking up a total of nine seats and arming Senate Republicans with a 54 to 46 majority in 2015. Republicans also expanded their House majority, securing 12 additional seats to raise their total voting advantage to 244 votes, to the Democrats' 186. As Republicans return to Washington for the start of 114th session of Congress, they are quickly pivoting to develop a bicameral agenda that distinguishes them from the president and appeals to voters in anticipation of the 2016 presidential election.

GFOA priority items on this agenda that affect state and local governments will include efforts to repeal or significantly reform the Patient Protection and Affordable Care Act (ACA), overhaul the federal tax code through comprehensive tax reform, revise the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), and consider legislation dealing with taxation of Internet access and state and local collection of taxes on remote sales. Below is an overview of expected activity in these areas, and the GFOA's priorities within them.

TAX REFORM

House and Senate leaders, as well as the White House, began the year expressing a desire to find common ground on principles to overhaul the federal tax code. However, federal elected leaders will need to make progress quickly in developing a tax reform framework, as attention will quickly turn away from legislating and toward the 2016 presidential election as the calendar flips toward the fall. Reaching agreement on the broad outlines of what to include in a tax reform package will present challenges for lawmakers. While the White House would prefer to reform only the corporate tax side of the code and use any proceeds from the reform effort to backfill federal investment in national infrastructure, the incoming chairmen of the House and Senate tax authorizing committees have a different vision. For example, incoming Senate Finance Committee Chairman Orrin Hatch (R-Utah) has pledged to ensure that any tax reform effort is revenue-neutral rather than using the exercise to generate funding for infrastructure development. Meanwhile, incoming House Ways and Means Committee Chairman Paul Ryan (R-Wisconsin) has tacitly supported advancing tax reform in two phases, the first focused on corporate reform that potentially creates infrastructure revenue, and the second focused on the individual side of the tax code.

The fate of small businesses in this process remains a large and outstanding issue, and it is unclear how and where within the process tax reformers will address it. While broad support exists among congressional leaders and the White House to at least begin the tax reform effort with a discussion on corporate tax reform, many small businesses file taxes through the individual side of the code, making it not only a priority that must be addressed, but also one that does not fit neatly into the corporate and individual discussions. As lawmakers determine how to address this issue, they risk increasing the size of their reform package and decreasing the support necessary to pass it. Tax reform, whether piecemeal or more comprehensive, has numerous implications for state and local governments. As in the past, the GFOA will work cooperatively with others in the state and local advocacy community to protect the best interests of state and local governments in the areas listed below.

Changes to Municipal Securities. Congress and the administration continue to present tax proposals that would limit or eliminate the federal tax exemption on municipal bond interest. Both of these suggested...