By Richard Rubin 

WASHINGTON -- A turf battle is breaking out in the Republican Party over which agencies should have a say in writing new regulations stemming from last year's landmark tax legislation.

Some Republican senators are pressuring the Office of Management and Budget to get involved in reviewing tax regulations, breaking a 35-year-old practice where tax regulatory work is handled by the U.S. Treasury Department and the Internal Revenue Service and doesn't get a full OMB review.

Most other cabinet departments submit rules to OMB so their economic effects can be analyzed and coordinated with other agencies, with an eye on assessing the costs and benefits of new rules.

Many areas of the new tax law require regulations, which would define key terms for international businesses and pass-through firms such as partnerships and S corporations. Businesses are eagerly awaiting the rules so they can make decisions and investments.

Sen. Ron Johnson (R., Wis.) and Sen. James Lankford (R., Okla.) sent letters to the administration this month asking for a renewed look at whether OMB should be involved in tax rule-writing.

When asked for comment, Treasury and OMB officials issued identical statements saying only that they were reviewing the "scope and implementation" of the existing process. It isn't clear yet when or how they might reach a decision.

"We at least need to start the process of IRS taking cost-benefit analysis seriously," said James Valvo, counsel and senior policy adviser at the Cause of Action Institute, a right-leaning government oversight group pressing for a change.

The practice of exempting tax regulations from OMB scrutiny dates back to the 1980s, when OMB and Treasury officials in President Ronald Reagan's administration reached an agreement to let most Treasury rules escape the process. That deal was reaffirmed in 1993 and only a few tax rules since then have gone through OMB.

In 2016, the Government Accountability Office said Treasury and OMB should re-evaluate the longstanding pact. OMB involvement "disciplines agencies to do that analysis before they actually issue the rule," said Susan Dudley, who led OMB's Office of Information and Regulatory Affairs under President George W. Bush and now directs the George Washington University Regulatory Studies Center.

Treasury's argument has long been that tax regulation is merely interpretive, and that most substantial economic effects come from the law itself, not Treasury's implementation.

"Every administration adds another layer of review to it and it gets more and more complicated to get something written and out of the building," said Pamela Olson, who was the top Treasury Department tax policy official from 2002 to 2004 and is now at PricewaterhouseCoopers LLP. "I doubt that it would have a significant impact on what ultimately came out. I think it would just slow the process down a whole lot."

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

February 19, 2018 16:41 ET (21:41 GMT)

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