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Tax Tuesday

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March 21, 2017

Healthcare, healthcare, healthcare. The House reconciliation bill to accomplish phase 1 of repeal and replace of the healthcare agenda is the biggest tax news of the week. As we’ve noted in previous Tax Tuesday editions, the measure contains some major tax pieces.
Stay tuned for the vote on Thursday. My bet is on the President and the House champions to win the vote narrowly. Outlook in the Senate is murky, but Majority Leader McConnell is saying he expects the Senate to act on the healthcare measure next week. For more on healthcare subscribe or tune in to Prime’s Healthcare Today.
On March 17th, Chairman Brady said on Fox Business that he expects a tax reform package to be ready for markup this spring. There is increasing pressure for hearings on the blueprint proposal from members on both sides of the aisle, even if that comes to pass, we do not expect to see text of the whole proposal more than a few days before the mark-up.
Tax reform in a second reconciliation vehicle still awaits completion of the first (FY17) vehicle and passage of a conferenced FY18 budget. President Trump has yet to release his most excellent tax plan. That is still the pending event with the greatest potential to reset the battle lines over tax reform.
Healthcare and the SCOTUS nominee will take us into the April recess at a minimum. Once Congress returns after two weeks, they must deal with the appropriations supplemental and the expiration of the Continuing Resolution (4/28/2017) before likely turning in earnest to the FY2018 budget. Needing to clear such hurdles leads some hill watchers to suggest tax reform will look beyond August.
Below are some BAT-specific press developments:
  • Pro-border adjusted tax group begins airing ads backing reformWashington Examiner (March 19) “A group of major companies backing House Republicans’ plan to adjust taxes at the border is launching its first television ads Sunday. The American Made Coalition, comprised of Boeing, Caterpillar, Pfizer and other major importers, will begin “saturating” cable news channels in Washington, D.C., and in targeted states through early April with ads that back the Paul Ryan-led tax reform plan.”
  • Senate Combs Past Proposals for Border Tax AlternativeBloomberg BNA (March 15) “Senate Republicans are still looking at options for a replacement tax plan if a House blueprint collapses over opposition to a controversial import tax proposal. Republican tax counsels are examining a variety of ways to expand the tax base to enable a lowering of rates in anticipation of future legislative activity, those familiar with the conversations said. The activity comes as Republican lawmakers and the U.S. business community remain divided on the impact of a 20 percent border-adjusted tax, a cornerstone of a House tax reform blueprint that could raise as much as $1 trillion over a decade and lower the top corporate tax rate to 20 percent.”
  • Kenneth Rogoff Op-Ed (former Chief Economist, IMF) Trump’s damaging border taxBoston Globe (March 20) “IN MANY WAYS, the Republican Party’s plan to implement a “border adjustment tax” in the United States is the virtual complement of the physical wall President Donald Trump plans to erect on the US-Mexican border. But it could end up affecting the average American a lot more – and not necessarily in a good way.”
  • American Made Coalition Launches First TV SpotAmerican Made Coalition (March 20)
    “The American Made Coalition launched its first television ad yesterday during Meet the Press. The ad will saturate cable news channels including CNBC, FOX Business, FOX News, and MSNBC, running through April 9 in the D.C. metro area. It will also reach online audiences in targeted states.”

Below are some highlights from the press about other recent developments in tax policy:

  • Failure to Repeal Obamacare Would Endanger Tax-Cut Goals, Some in GOP WarnBloomberg (March 21)
    “Top Republicans are warning their fellow party members that failing to repeal Obamacare could imperil the goal of a massive tax cut — and perhaps more of President Donald Trump’s legislative agenda.”
  • Chamber of Commerce Chief’s Advice to Companies: Stay Engaged in Tax DebateWall Street Journal(March 16)
    “Tom Donohue has a message for companies wary about major tax-policy changes: Stay aboard. As Congress embarks on the biggest tax code changes in 31 years, companies should be prepared for a long ride, said Mr. Donohue, the president and chief executive officer of the U.S. Chamber of Commerce. And, he said, when lawmakers cutting that final deal are looking around for money to make the bill add up, they might just hit the critics.”
  • Small Firms seek level playing field in tax reformUSA Today(March 16)
    “There’s been much talk from President Trump about lowering corporate tax rates. But where does that leave the smaller companies that employ nearly half of non-public sector American workers?”
  • Wall Street drifts lower; investors worry about tax-cut delayReuters (March 20)
    “Wall Street drifted lower on Monday as investors worried that President Donald Trump’s plan to cut taxes and boost the economy could take longer than previously expected.”


March 14, 2017

As we have noted in past columns, the volume is increasing against the House BAT revenue raiser in tax reform.  Senator Tom Cotton (R-AR) gave the clearest warning last week to House Republican Members who will likely face a vote on the BAT.

Most all interest groups and trade associations support the overall goals of tax reform.  More interest groups are beginning to fear, however, that they could become payfors in tax reform, especially if the BAT falls out of the package.

Some of the targets include the elimination of the state and local income tax deduction, a reduction or cap on mortgage interest deduction, deferral for active income for multinational corporations, and advertising expensing.

New last week was an effort by the financial services industry to oppose using a change in the treatment of carried interest.  This is the income derived from investment earnings that brokers and dealers currently only pay up to 23.8 percent tax on.  Most proposals in the past have suggested that this income be treated as ordinary income and taxed up to the maximum individual tax rate of 39.6 percent.

This proposal could raise some approximately $17 Billion over ten years.  Some 30 groups signed a letter last week asking that tax writers not change the current tax treatment of carried interest.

We thought it would be useful if we review the top 10 largest individual and corporate tax expenditures.  Here is the list on one page.  And here is the last CRS report on Tax Expenditures if you really cannot sleep at night.

Below are some BAT-specific press developments:

Below are some highlights from the press about other recent developments in tax policy:

March 7, 2017

As we dive into repeal and replace of the Affordable Care Act for the next few weeks, we have observed that some of the fault lines in tax reform have become sharper.

The Americans for Affordable Products, the coalition of retailers and other opponents of the House BAT proposal, produced some new messaging that challenges Chairman Brady’s campaign that the BAT repeals the “Made in America Tax.”  Basically, they argue that the “tax” does not really exist.

The last week, affirmed the lack of clarity from the White House on tax reform. The President’s advisors are still split on the proposal so the work that Chairman Brady and Speaker Ryan for support of the BAT must continue.

In regard to the House repeal/replace legislation of the Affordable Care Act, here are some features that we know about: the proposed legislation would repeal the 3.8% net investment tax; delay the “Cadillac tax” for higher priced health plans for five years; and it does not cap the employee exclusion. The House Ways and Means Committee released a section-by-section analysis of their portion of the bill. Additionally, the Joint Committee on Taxation released their report on the estimated revenue effects of the legislation. Our Prime Policy Group Healthcare team delves into the legislation further in today’s special edition of Healthcare Today.

Below are some BAT-specific press developments:

“An e-mail from the special-interest coalition called “The American Made Coalition” is circulating through Congress right now and is illustrating the incredible dishonesty of those who are pushing for the Border-Adjustment Tax (BAT) included in the House Republican plan.”

  • The Case for a Border-Adjusted Tax- The New York Times (March 6)
    “The American corporate tax system is broken. Faced with one of the highest tax rates in the world, many multinational corporations in the United States move their operations and reported profits offshore or undertake “inversions” to relinquish their American tax nationality. Elaborate regulatory and enforcement measures have been unable to stop this. Vilifying companies for their behavior hasn’t worked, either.”
  • Retailers Had a Dismal Christmas and Now Comes Ryan’s Import Tax- Bloomberg (March 3)
    “U.S. retailers are coming off one of the worst Christmas-shopping seasons in recent memory, and now they have to deal with Paul Ryan.”

Below are some highlights from the press about other recent developments in tax policy:

Why Obamacare and Russia are undermining US tax changes (March 6)
“Tax reform was always going to be a tough sell in 2017. But now, thanks to the seemingly bottomless controversy over the Trump campaign’s Russia connection and an increasingly nasty internal Republican battle over how to replace the Affordable Care Act, Congress and the White House are losing valuable time and political capital that they otherwise could be using to rewriting the tax code.”

March 1, 2017

We held your Tax Tuesday update for a few hours so as to include some reflections on President Trump’s address to Congress and the nation.  President Trump exceeded expectations in a positive and optimistic speech that was big on promises and small on details.

Those of us following tax reform closely were certainly looking at whether the President would layout specifics on tax reform or embrace any specific proposals for tax reform. We got neither. No doubt advocates of particular proposals (like the BAT) will attempt to spin the President’s words as positive to their cause. To that I offer only the thought that President Trump has never had trouble being declarative when he wants to be.

The tax section lacked specificity and was interwoven with sections of the speech on fair trade and protecting workers, which led into his section on immigration.  In other words, President Trump continued to tease out his ‘historic’ tax reform that will reduce rates and improve competition. A goal, almost anyone in the chamber and across the country could agree with, but which belies the difficult details to be worked out in getting there – a theme that could describe the whole speech.

The last week, affirmed the lack of clarity from the White House on tax reform. His advisors are still split on the proposal so the work that Chairman Brady and Speaker Ryan for support of the BAT continues at a full clip. Brady will brief Republican Members of the Senate Finance Committee tomorrow, Thursday.  He is hopeful that this effort produces better results than when the Speaker briefed the Senate Republican conference a few weeks ago.

Additionally, in the last week, two powerful groups have released anti-BAT advertisements:

  • Club for Growth Launches TV Ad urging Rep. Kristi Noem to Oppose Border Adjustment Tax (Feb 22)
    “Club for Growth president David McIntosh released the following statement about a new Club for Growth TV and digital ad campaign that urges Congresswoman Kristi Noem (SD-AL) to oppose the Border Adjustment provision in the tax reform proposal put forth by House Republicans. ‘The Border Adjustment Tax will drive up prices on everyday consumer goods like groceries, gas, clothes and shoes,’ said Club for Growth president David McIntosh.”
  • National Retail Federation Launches Campaign Highlighting Consumer Cost of Border Adjustment Tax (Feb 28)
    “The National Retail Federation today launched a television, print and digital ad campaign to educate Americans on the high consumer cost of the border adjustment tax. The BAT is included in the House Republican leadership’s “Better Way” plan for tax reform. While NRF strongly supports tax reform, the BAT is bad tax policy that would increase costs on everyday necessities like food, gas, clothing and prescription medicines for the average family by as much as $1,700 in the first year alone.”

Below are some BAT-specific press developments:

Below are some highlights from the press about other recent developments in tax policy:

February 21, 2017

This week Congress is off and democracy is safe.  Again this week the debate over the Border Adjustable Tax (BAT) feature of the House Blueprint continues to dominate the tax reform conversation. 16 CEOs have penned a letter to Congressional leaders praising the BAT.  Chairman Brady praised it on the Ways and Means Committee website.

The fault lines on this issue continue to separate U.S. industries.  Realtors and homebuilders, refiners, importers of all persuasions including accounting services have written or spoken against the proposal.  And we do not yet have exact language to measure its effects accurately.  Also, Chairman Brady continues to offer transition rules or phase-ins to soften the presumed effects.

The count of Senate Republicans opposed to the BAT now numbers nine, at least.  Leader McConnell offered that he did not see much hope for bipartisan work on tax reform. This despite the known preference for the Senate Finance Committee to develop legislation in a bipartisan manner.  And Federal Reserve Chair Janet Yellen told lawmakers “there’s great uncertainty” over how quickly the dollar would react to the imposition of a BAT.   We are all awaiting the President’s announcement on tax reform in the next few weeks.  We may get a glimpse of the plan in is appearance to a joint session of Congress next Tuesday.

Below are additional highlights from the press about recent developments in tax policy:

February 14, 2017

The debate over the Border Adjustable Tax feature of the House Blueprint continues to dominate the tax reform conversation.It is increasingly a point of focus around the country and in economic centers of American trading partners.  The Financial Times reported yesterday that the EU is already exploring options for legal challenge.
The only parlor game surpassing that debate in terms of oxygen consumption in D.C. is speculation about the forthcoming ‘phenomenal tax plan’ from the White House.  How much detail will be released?  Guessing ranges from a section in President Trump’s upcoming joint address to Congress February 28th to principles to defined policies.  Speaker Ryan and Chairman Brady will continue their full court press to have it align substantially with their proposal.  There is still debate on the subject among senior White House staff.  Newly confirmed Secretary of the Treasury, Steven Mnuchin, is sure to enter the discussion more forcefully as he settles in and builds out his team.
Tax reform remains more likely this Congress than any in recent memory and coalitions with varied interests are building around town.  With each passing week, the Senate makes stronger moves toward fulfilling their promise of pursuing their own path.  The count of Senate Republicans opposed to the BAT now numbers five.  Senators Cornyn and Hatch are promising a hard look and tough questions.  Good intel says members of the Finance Committee are exploring several options and asking Joint Tax for scores.
Bonus note for tax geeks: the Republican Steering Committee met today and selected Rep. Mike Bishop (R-MI) to replace HHS Secretary Tom Price on the elite committee. Other contenders (likely to earn a seat before long) include: Barbara Comstock (R-VA); and Darrin LaHood (R-IL). Three other members of the tax writing committee have announced this is their last term in Congress (Sam Johnson, Lynn Jenkins, Kristi Noem).
Below are additional highlights from the press about recent developments in tax policy:

February 7, 2017

While many are tracking the latest tweet from POTUS or color beyond 140 characters offered by the Trump Administration, it is important to remember that healthcare reform will move first.  In other words, there is more than enough time on the clock for fortunes to change multiple times.

Of note – among the 460 Senate confirmed Administration appointments, the Assistant Secretary for Tax Policy has yet to be named. However, Shahira Knight was named to the National Economic Council with the tax policy portfolio.

Last week, Chairman Hatch (R-UT) at his speech before the U.S. Chamber of Commerce to reiterate his intention that the Senate will produce its own tax reform plan.  Senator Cornyn (R-TX) has asked for hearings at Senate Finance to review the House BAT proposal and Senator Cotton (R-AR) is airing his concerns over the BAT with colleagues.

Chairman Hatch noted in his speech that he’s asked about the BAT everyday he’s in the Capitol.  It is consuming all the oxygen on tax reform at the moment.  So we give you more depth on the BAT:

Finally, since healthcare reform will go first; readers should not lose sight of all the taxes wrapped in heathcare reform that will be dealt with through that repeal/replace/repair/reform process as opposed to in Tax Reform.

Below are additional highlights from the press about recent developments in tax policy:

January 31, 2017

The Prime Tax Team will be offering a regular update on the tax reform debate for you on Tuesdays.  We will highlight the key developments and insights you need to know to cut through the noise.  If you want more details, give us a call or drop us an email.

Speaker Ryan said last week from the Republican retreat in Philadelphia that the ACA repeal/replace bill, the wall at the border and tax reform would all be done (in the House) by the August recess.  My colleague responded – “When pigs fly.” White House spokesman Sean Spicer yesterday would not commit to finishing tax reform this year.  Which begs the question about how fast tax reform can move?  With the tax writers focused on replacing the Affordable Care Act in February and the debt limit authority expiring in mid-March; it seems that the band width is narrow.  However, we believe that Ways and Means staff are indeed at work crafting a bill that we may not see until April or May.  Then it is a question of whether the President will support the House Blueprint for Tax Reform .

The President has been a bit all over the board on the subject and Speaker Ryan has suggested that school is still “in” as far as informing/convincing the President that he should be on board. There is huge demand among hill staff for explanations and context for the tax reform proposals.

Politico’s Morning Tax noted that President Trump and his folk have suggested that tax reform be completed without having to pay for all of it you can read it here.  Republicans on the House Ways and Means Committee are thinking of calling retail chief executives up to the Hill in a “pre-emptive strike” meant to “mute business opposition to their tax overhaul proposal (specifically the border adjustable tax),” the Washington Examiner’s David Drucker reports here. The race is on from interests seeking exemptions from the BAT feature of the Blueprint.

Below are additional highlights from the press about recent developments in tax policy:

  • This GOP tax plan really will help the middle class- Denver Post  (Jan 25)
    “Sen. Mike Lee, R-Utah, has already established that he is willing to break from the pack on tax policy. Now he is proposing another change in GOP tax policy. Instead of seeking to cut taxes on capital gains and dividends, as Republicans have been trying to do for decades, he would raise them. But at the same time he would be bolder than his colleagues about corporate taxes. Where most Republicans want to cut corporate rates – President Donald Trump ran on cutting them to 15 percent – Lee wants to abolish the tax altogether.”
  • Trump-era tax reform could be coming for your toys- Washington Post  (Jan 27)
    “President Trump has talked often of overhauling America’s tax code with an eye toward encouraging U.S. companies to make things stateside. And under a tax reform plan being touted by Republican congressional leaders, Woldenberg estimates that his company’s tax bill would jump to an eye-popping 165 percent of its earnings. He expects that would push him to raise his prices 10 to 15 percent, and given those higher prices, he believes his sales volume will plummet around 40 percent.”
  • Howls Over Import Tax Complicate Plans to Overhaul Code- New York Times (Jan 29)

“But there is a broader lesson in that single dispute: Any rewrite of the tax code – especially if it seeks to raise roughly the same amount of revenue that the current code brings in – will leave winners and losers. And the losers tend to make far more noise than the winners. If the president is spooked by those howls, a major tax measure that both the president and Congress have promised may never happen.

January 24, 2017

The Prime Tax Team will be offering a regular update on the tax reform debate for you on Tuesdays. We will highlight the key developments and insights you need to know to cut through the noise. If you want more details, give us a call or drop us an email.

RSC Chairman Mark Walker announced a unanimous decision by the RSC Steering Committee this morning that they expect the FY2018 Budget to balance within ten years. One of the most fascinating stories to unfold across the policy spectrum during the next four years will be how President Trump’s Administration reconciles its agenda with fiscal conservatives.

Chairman Brady continued his full court press to promote his Blueprint for Tax Reform at the U.S. Chamber of Commerce this morning. You can access his complete remarks here.

Politico’s Morning Tax has an interesting update on the politics around the Border Adjustable Tax feature of the House Blueprint you can read it here. For those of you tracking the Estate Tax Valuation Rules announced last year – the morning tax team also reports that President Trump’s hold on new regulations has ended this change.  You can read Chief of Staff Reince Priebus’ memo to the agencies here.