Legislation Makes Strange Bedfellows

What does the NCUA’s risk-based capital rule have to do with policing foreign investments in the U.S.?

If you said, “Absolutely nothing,” you’d be right.

Then what are they doing jammed together in a piece of legislation that’s considered a high priority measure?

The following explanation may be called “How a bill isn’t supposed to become law.”

Opponents of the risk-based capital rule want a two-year delay of its implementation. They’re serious enough about it that they’ve tucked it into two bills so far – House legislation updating the Committee on Foreign Investment in the United States and the FY19 Financial Services appropriations bill.

And, if necessary, they conceivably could try to tuck it into other pieces of legislation.

Of course, this legislative sleight-of-hand is nothing new. It’s part of a time-honored tradition to sneak things into must-pass legislation.

It used to be called earmarks – specific projects that members of Congress snuck into the annual appropriations measures. After some allegations that House members were selling projects for their own benefit, Congress adopted rules stating that earmarks needed to be identified.

And so, House rules required each project to be listed, along with the member of Congress who sponsored it.

When that wasn’t “clean” enough for GOP House members, they supposedly banned earmarks altogether (of course, members have found other ways to ensure that money goes to their favorite projects).

But that ban had no impact on so-called “legislative riders,” which don’t specify funding for a project, but instead require agencies to take certain actions or prohibit them from taking certain actions.

For instance, take the “Hyde Amendment.” The amendment is named after its initial sponsor, the late Rep. Henry Hyde (R-Ill.). It prohibited the use of federal funds for elective abortions in programs such as Medicaid.

Each year, the Hyde Amendment became part of the bill funding the Labor, Health and Human Services, and Education appropriations measure.

As Congress has become more dysfunctional, it has become even more difficult to enact legislation. As a result, legislation that is considered a high priority has become a hot opening for legislative riders.

And so, the provision delaying the RBC rule ends up tucked into a House bill dealing with foreign investment in the U.S.

It’s not the way things are supposed to work, but sometimes it’s the only way it can work.

Talking Out of Both Sides of Your Mouth

It shouldn’t be a shock that many people in Washington are particularly adept at speaking out of both sides of their mouths.

But most people who don’t leave a paper trail. And when they do, it can be embarrassing.

For instance, let’s consider the curious case of the dueling conservative letters concerning the credit union tax exemption.

On April 24, a coalition of conservative groups sent Senate Finance Committee Chairman Orrin Hatch (R-Utah) a letter that appears to support the senator’s assertion that the credit union tax exemption may be outdated.

And on May 23, another coalition of conservative groups sent a letter that appears to ask the chairman not to touch the credit union tax exemption.

The problem is this: Three people who head conservative groups signed both letters.

Huh?

Exactly.

The three people are Seton Motley, president of Less Government, a group that advocates for less government; David Williams, president of the Taxpayers Protection Alliance and Andrew Quinlan, president of the Center for Freedom and Prosperity.

When asked about the apparent discrepancy, the three had vastly different explanations.

Quinlan did not respond to requests for comment.

Motley had an amazing reaction.

“Your confusion is understandable – because I was an idiot,” he said in an email. He said he signed the letter supporting the tax exemption “by mistake – in error.”

He said he had read the letter on his phone and thought it was the same as the first one he had signed – the one applauding Hatch. He has now asked that his name be removed from the letter supporting the tax exemption.

Williams, of the Taxpayers Protection Alliance didn’t respond to request for comment, but Ross Marchand, the group’s policy director, did.

And did he clarify the whole mess? You be the judge. Here’s how he explained the fact that Williams had signed both letters, including the one sent by the Competitive Enterprise Institute, which appeared to endorse the tax exemption.

I’m printing it here verbatim because I wouldn’t dare try to paraphrase it.

“The CEI letter is carefully worded; the idea is that they’re against proposals that would introduce double taxation,” he said in an email. “If credit unions were classified as S-corps, they basically avoid double taxation (a point noted in the letter!). It’s a complicated trade-off, because on the one hand, even retained income would now be passed to shareholders as a tax. But, shareholders of credit unions don’t have as much flexibility to raise capital now, and less flexibility is issuing tax-free dividends (i.e. non-dividend distributions). Credit unions currently have that leeway, which is one of the reasons why the CEI letter says that under the status quo, banks could wind up paying lower tax rates overall than credit unions.” He continued, “So, this is TPA’s position: We generally think that removing the entity-level tax exemption is a good idea but, in line with the CEI letter, we believe it must be done very carefully in a way that gives credit unions flexibility in avoiding double taxation.”

Frankly, I prefer Motley’s explanation.

David Baumann is a correspondent-at-large for CU Times. He can be reached at dbaumann@cutimes.com.