Pardon Our Dust
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House: Tax Reform’s Big Reveal. House Ways & Means Committee Chairman Dave Camp (R-MI) released his long-awaited plans to retool the U.S. tax code on Feb. 26, in the form of a 989-page “discussion draft” written in legislative language. The draft’s release was accompanied by a press conference, a 182-pagesection-by-section summary and several analyses from the Joint Committee on Taxation (JCT). All of this reflects the years of intense and earnest efforts by Camp and his staff to push tax reform ahead. As one of our colleagues said upon finishing his review of the draft, “That’s a lotta meatballs!”
Introducing the “Camp Counselor.” To help digest those “meatballs,” we will include analysis and insights of various aspects of Camp’s proposal in our forthcoming weekly tax policy updates, beginning in next week’s edition. Rather than summarizing the summary, our own Russ Sullivan, staff director of the Senate Finance Committee from 2004 through 2013, will add his unique insights into the political context of the proposals, their potential impacts on industry sectors and arguments for and against them.
While almost everyone agrees that tax reform will not happen in 2014, the extent of detail in Camp’s draft tees it up for serious consideration after the November elections — even though Camp will likely no longer be driving the Ways & Means train come 2015, due to House term limits on committee leadership seats. Moreover, several components of Camp’s draft are in line with ideas proposed by both the administration and current Senate Finance Committee Chairman Ron Wyden (D-OR) — a formidable bipartisan trifecta of support that may be difficult to overcome.
It’s also worth noting that the GOP House leadership has agreed to join Camp in holding members-only listening sessions on tax reform, beginning today and continuing in the months ahead. No matter how unpopular some of Camp’s proposals may seem to some, they are being taken seriously and require stakeholders to sit up and pay attention.
In next week’s Camp Counselor, we will take a closer look at how JCT scored the proposal and the political implications of such scores.
The Senate: Tulips and Tax Extenders. Chairman Wyden announced publicly last week that the Senate Finance Committee will take up the nearly five dozen expired tax provisions known as extenders sometime this spring, adding a timeline to what he has previously stated was his “first priority” as the new head of the tax-writing panel. Wyden has not weighed in publicly on specifics of Camp’s tax reform draft other than to praise his efforts generally.
President’s Budget for FY 2015: Carried Interest to Shoulder Tax Credits?Obama unveiled a$3.9 trillion budget, which would bring in $651 billion in new revenue, largely by raising taxes or scaling back some tax preferences that benefit the wealthy, while expanding some tax breaks for the poor and middle class. The administration would also do away with many of the tax benefits for oil and gas companies, including expensing of intangible drilling costs and percentage depletion, to help pay for infrastructure spending.
In an accompanying press release, the president prioritizes antipoverty measures, like expanding the Earned Income Tax Credit to more low-income workers without children and enhancing the Child Tax Credit.
If enacted, the expanded tax credits would cost $60 billion over the 10-year budget window — a cost the administration says would be partially offset by taxing carried interest profits as ordinary income rather than the lower 20 percent capital gains rate, raising $13.7 billion. Camp’s tax reform discussion draft also contained provisions that would carve back preferences for carried interest and expand the Child Tax Credit — although Camp’s proposals did not link the former as offsetting the latter.
Obama also proposes repealing the exemption from payroll taxes that currently applies to S corporations to help pay for the EITC and Child Tax Credit expansions, and he retains support for other Democratic priorities like the so-called Buffet Rule and caps on deductions for the wealthy.
Other tax policy-related proposals includelimitations to accruals in tax-deferred retirement accounts, and a bank tax or “financial crisis responsibility fee” on financial institutions with assets above $50 billion. Camp proposed a similar fee on banks with assets above $500 billion.
TheTreasury Department’s greenbook offers a more detailed description of all revenue proposals contained in the budget.
Final Instructions Out for “Medicare Surtax.” The Internal Revenue Service has issued its final instructions for Form 8960 — the form for calculating the Net Investment Income Tax for individuals, trusts and estates. The 3.8 percent NIIT, or “Medicare surtax,” is part of the Affordable Care Act and applies to tax years beginning Jan. 1, 2013, for individuals, trusts and estates with modified adjusted gross income above certain threshold amounts.
COURTS & LEISURE
Private Equity Fund’s Cert Petition Denied. The U.S. Supreme Court decided March 3 that it will not review an appellate court’s decision holding that private equity funds qualify as a “trade or business” under the Employee Retirement Income Security Act for purposes of assessing multiemployer pension plan withdrawal liability on one of the fund’s portfolio companies. The U.S. Court of Appeals for the First Circuit’s decision in the case, Sun Capital Partners III LP v. New England Teamsters & Trucking Indus. Pension Fund, will thus stand — creating new concerns for private equity funds’ exposure to ERISA liability and other implications of being deemed a “trade or business.”
This ruling would appear to up the ante for those — like Rep. Dave Camp and President Obama — who propose treating private equity funds’ profits (also referred to as “carried interest”) as ordinary income that would be subject to a higher rate of taxation. The U.S. Court of Appeals for the First Circuit’s ruling can be readhere.
Relevant House Hearings
The House Committee on Financial Services will hold a hearing on Wednesday, March 5, on the growth of financial regulation and its impact on international competitiveness. Witnesses include:
- Ms. Louise Bennetts, Associate Director, Financial Regulation Studies, Cato Institute
- Mr. Alon Hillel-Tuch, Co-Founder and Chief Financial Officer, RocketHub
- Mr. Peter J. Wallison, Arthur F. Burns Fellow in Financial Policy Studies, American Enterprise Institute
- Professor Michael S. Barr, Professor of Law, University of Michigan Law School
The House Committee on Budget will hold a hearing on Wednesday, March 5, on the President’s Fiscal Year 2015 Budget. Witness includes:
- Honorable Sylvia M. Burwell, Director, Office of Management and Budget
The House Ways and Means Committee will hold a hearing on Thursday, March 6, with Treasury Secretary Jack Lew to discuss the details of the president’s budget proposals that are within the committee’s jurisdiction.
Relevant Senate Hearings
The United States Senate Committee on the Budget (Republicans) will hold a hearing on Wednesday, March 5, to discuss the President’s Fiscal Year 2015 Budget. Witnesses include:
- Sylvia Mathews Burwell, Director, Office of Management and Budget
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