Pardon Our Dust
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Quote of the Week:
“We believe we can be competitive and get sustainable growth at 3 percent or more. There’s going to be a lot of things that will impact it. I think the first issue…is going to be tax reform. I think the other issue is going to be regulatory relief.”
– Steve Mnuchin, CNBC Squawk Box Interview, Feb. 23, 2017
Per the usual Republican refrain, Treasury Secretary Steve Mnuchinidentified tax and regulatory reform as the magic beans for economicgrowth. Mnuchin noted that current economic projections of 1.8 percentgrowth are based on the status quo and do not take into effect the policychanges proposed by the administration.
The administration is yet to release its own tax policy proposal, butPresident Donald Trump has promised to do so in the coming weeks. In themeantime, Mnuchin noted that the administration will pass a tax reform planthat includes middle-class tax cuts, simplification of the tax code, andmaking business taxes competitive with the rest of the world. He added thatthe administration’s tax reform plan is designed to encourage investmentsin the United States. The administration is “looking closely” at the borderadjustment tax (BAT), though various concerns still remain. Despitereservations with the BAT, Mnuchin assured that the administration andcongressional Republicans are “on the same page” and all three brancheswill work together to release draft tax reform legislation by the Augustrecess. Of course, Mnuchin conceded that the devil is in the details.
An Inconvenient Truth. Former House Speaker John Boehner must be smirking at the GOP, as lawmakersscramble to repeal and replace the Affordable Care Act and pass taxreform. At a conference hosted by the Healthcare Information and ManagementSystems Society, Boehner threw cold water on the GOP’s optimistic timeline,calling it “happy talk.” Boehner remarked that in his 25 years in Congress,Republicans have never been able to coalesce around a health care proposal.As the ACA replacement plan gets kicked further down the road, it willaffect the timing of tax reform, making it increasingly difficult for theGOP to meets its self-imposed August deadline. Even if the GOP is able torepeal and replace the healthcare law this spring, Republicans areyet to …
BAT at CPAC. In other BAT news, as part of an ongoing door-to-door sales tour, HouseWays and Means Chairman Kevin Brady (R-TX) took the proposal to theConservative Political Action Conference (CPAC). Brady’s sales pitch had anationalist tinge, noting that the U.S. tax code currently “gives specialtax breaks to foreign products over ‘made in America.’” Brady explainedthat the House GOP proposal aims to redesign the tax code so that companieswould stop shipping jobs overseas. To close his sales pitch, Brady alsothrew in a promise to repeal the Johnson Amendment, a provision in the taxcode that prohibits all I.R.C. § 501(c)(3) non-profit organizations fromendorsing or opposing a political candidate. It is unclear, however,whether the audience bought into the controversial BAT proposal — it wasBrady’s promise to repeal the Johnson Amendment that garnered the mostapplause.
Here’s the Skinny on the Budget. On Feb. 27, the White House sent its initial budget guidance to generalagencies. President Donald Trump announced that his proposal will focus onnational security, while cutting various domestic programs and foreign aid.To that end, the initial budget outlines a $54 billion increase in defensespending and reductions to most non-security agencies. Trump promisedfurther details in his joint address to Congress on Tuesday night. Thismove followed a Feb. 22 announcement by White House Press Secretary SeanSpicer that the administration hopes to release its “skinny budget” byMarch 13. The skinny budget is …
Get Ready for the Greatest Show…err Speech on Earth. President Donald Trump will make his first highly anticipated address to ajoint session of Congress on Tuesday night — and our expectationsare “big league.”
President Trump’s speech will include his vision for the nation, focusingon tax reform, deregulation to spur the economy, infrastructure spending,and a repeal of Obamacare with “Trumpcare.”
President Trump will make the case for comprehensive tax reform. For theadministration, overhauling the tax code is a key step towards creatingjobs, strengthening U.S. global competitiveness, and achieving sustainedeconomic growth. Though Trump has yet to formally introduce hisadministration’s tax reform plan, expect the president to call forproposals that will deliver tax relief for American workers and businesses:
- a simpler, fairer, and flatter tax code
- a shift to a territorial tax system that will help U.S. firms to be globally competitive once again
- a reduction in the individual tax rate so that American workers can keep more of what they earn
- a reduction in the business tax rate to help stem tide of corporate inversions
- a tax cut package for the middle class that may include a deduction for child care expenses, a federal education tax credit, and an increase to the standard deduction
Tax policy watchers will also be keeping a close eye on whether thepresident will take an official stance on the House GOP’s border adjustmenttax proposal. If Trump fails to endorse the border adjustability provision,the controversial proposal will likely be doomed.
Tune in here on February 28, 2017,at 9 p.m. Ratings promise to rival the Governator’s Apprentice.
A Cadillac Tax by Any Other Name Would Smell as Funky. Last week, a discussion draft of the House GOP replacement legislation forthe Affordable Care Act was obtained by the media. The draftdocument is dated Feb. 10, 2017 and appears to be older than a leakedpolicy memo circulated to members last week. Though the draft may not bethe most recent version of the House GOP’s replacement legislation, it is agood indication of where the GOP is headed in terms of health care reformand it appears to be consistent with the leaked policy memo as well.
While the discussion draft did not contain many surprises, it does showthat Republicans are serious going after the generous tax exemptions foremployer-sponsored health plans. In both the discussion draft and theleaked policy memo, the GOP proposes financing the replacement plan bycapping the tax exemption for employer-sponsored coverage at the 90th percentile of current premiums. All benefits above that levelwould be taxed.
Chairman Brady (R-TX) noted that this tax break totals $3.6 trillion over10 years. Critics of the plan compare this measure to the Cadillac tax — a40 percent excise tax on elements of high-cost health insurance plans. Forthose hoping for a reprieve, Brady indicated that the tax is just one ofmany options they are currently considering. According to chatter picked upby McGuireWoods’ tax policy team, Brady and Speaker Paul Ryan (R-WI) are …
Survivor: Regulation Elimination Edition. On Feb. 24, by executive order, President Trump directed federal agenciesto set up task forces to review each agency’s existing regulations andidentify rules that can be repealed or modified within 60 days. Thepresident’s latest action follows a previously issued order directingfederal agencies to identify two regulations to repeal for every rule thatis written. Trump sees this order as one of …
Watershed Moment for Tax Regulation Lawsuits. Judge Lee Yeakel of the U.S. District Court for the Western District ofTexas is set to make a ruling inChamber of Commerce of U.S. v. IRS in the coming weeks. The case is a major landmark for lawsuits against theadministration’s tax regulations.
In this case, the U.S. Chamber of Commerce and the Texas Association ofBusiness filed a legal challenge to the IRS’s Multiple Acquisition Rule,which is aimed at preventing certain corporate mergers that are otherwisepermitted under the inversion rules of I.R.C. § 7874. The Chamber ofCommerce asserts that the “IRS ignored the clear limits of the tax code totarget entirely lawful transactions.” A large part of this case focuses onthe …
U.S. Country-By-Country Reporting Instructions Released. The Internal Revenue Service and the Treasury Department recently releasedinstructions for completing Form 8975 and a revised copy of Schedule A,relating to country-by-country reporting requirements. IRS Form 8975 andthe revised Schedule A were published at the end of last year, raisingquestions amongst U.S. multinational enterprises on how to fill out theforms.
The country-by-country reporting requirement generally mirrors therecommendations put out by the Organization for Economic Cooperation andDevelopment (OECD) as part of its Base Erosion and Profit Shifting (BEPS)initiative. Many OECD member countries have adopted the recommendations oncountry-by-country reporting to further tax transparency. In July 2016, theIRS and Treasury finalized regulations under I.R.C. § 6038 (relating toinformation reporting with respect to certain foreign corporations andpartnerships).
The instructions provide further guidance on an “ultimate parent,” which isthe entity required to report on its various holdings in the countries ifits group revenue is or exceeds $850 million. The country-by-countryrequirement final rules were effective on June 30, 2016. A copy of thedraft Form 8975 instructions is availablehere.
ROAD WORK AHEAD
Trump’s Speech to Pave Path for Infrastructure Investment. President Trump’s speech before a joint session of Congress is expected toreveal long anticipated details on the president’s plan to invest $1trillion in America’s infrastructure. During a discussion with the nation’sgovernors this week, Trump revealed that a HUGE statement on infrastructurewould be a highlight of this evening’s programming. Despite makinginfrastructure investment a pillar of his campaign, Trump has remainedfairly tight-lipped on how he intends to hit his trillion dollarinfrastructure target.
Aproposaldrafted last year by the newly minted Secretary of Commerce Wilbur Rosscalled for tax credits to incentivize public-private partnerships (PPPs).Transportation Secretary Elaine Chao has acknowledged that PPPs are not theanswer for all of our infrastructure needs, even going so far as to sayduring her confirmation hearing that she anticipates the president’s planto include direct federal investment.
The biggest barriers hindering a robust increase in federal funding forinfrastructure, at least for roads, bridges and public transportation, havebeen a failing Highway Trust Fund (HTF) and a reluctance on the part ofCongress to raise the additional revenue necessary to provide long-termsolvency for the trust fund. With the HTF heading toward a major fiscalcliff in 2021, Trump will face the question of how to fund our nation’stransportation infrastructure even if his plan prefers to rely on theprivate sector to drive significant investment.
President Trump’s thoughts on the rambunctious town halls encountered byRepublican lawmakers when they were home during recess:
- The Trump Administration believes in the “Golden Rule.” In an interview with Fox news, Treasury Secretary Steven Mnuchin said that the president is considering a “reciprocal tax” that will force other countries to treat the U.S. fairly in trade. Mnuchin said the tax will “create a level playing field so that other countries treat us the way we’re treating them.”
- Ivanka Trump has been wearing out her shoe leather recently, lobbying Congress to include a deduction for child care expenses as part of tax reform. Ivanka’s plan comes with a $500 billion price tag over a decade, making it difficult to find champions in Congress. It remains to be seen whether the president will include his daughter’s proposal in the administration’s plan for tax reform that will be released in the coming weeks.
- Many electric utilities, like Duke Energy and NextEra, have expressed concerns to their shareholders and investors about the potential impact of tax reform. In particular, the electric utilities have signaled that the House GOP tax blueprint proposal to restrict the interest expense deduction would be particularly harmful. House Ways and Means communication director, Emily Schilinger, said that lawmakers are aware of “special circumstances of regulated utilities and are working to ensure that the provision on deductibility of interest is crafted in a way that will accommodate those circumstances.”
- According to sources close to the administration, President Donald Trump will likely nominate economist Kevin Hassett of the American Enterprise Institute to be chairman of the White House Council of Economic Advisers. If appointed, Hassett would work closely with Gary Cohn of the National Economic Council Director.
- Treasury Secretary Steven Mnuchin will be meeting with the heads of the financial regulatory agencies on the Financial Stability Oversight Council (FSOC) in a closed door session on March 2. According to the Treasury Department, the preliminary agenda includes an update on market developments, a discussion of the Council’s 2017 annual report, and an update on the annual re-evaluation of the designation of a nonbank financial company.
- The Senate Finance Committee will likely vote Wednesday morning to advance Seema Verma’s nomination to lead CMS. The committee is expected to support her nomination.
House Financial Services Committee
The full committee meets to adopt its views and estimates for FY2018.
House Judiciary Committee
Full committee markup of H.R.372, the “Competitive Health Insurance ReformAct of 2017”; H.R.1215, the “Protecting Access to Care Act of 2017”; andH.Res.111, Resolution of inquiry directing the attorney general to transmitcertain documents to the House of Representatives relating to the financialpractices of the president.
House Education and the Workforce Committee
Full committee hearing on “Legislative Proposals to Improve Health CareCoverage and Provide Lower Costs for Families,” including H.R.1101, the“Small Business Health Fairness Act;” the “Self-Insurance Protection Act;”and the “Preserving Employee Wellness Programs Act.”
The Commission will host the SEC-NYU Dialogue on Securities Markets –Securities Crowdfunding in the U.S. The event will include welcome remarksby SEC Acting Chairman Michael Piwowar, concluding remarks by SECCommissioner Kara Stein and panel discussions.
The council will hold a closed executive session to discuss marketdevelopments, the council’s annual report, and the annual re-evaluation ofthe designation of a nonbank financial company.
Consumer Financial Protection Bureau (CFPB) (F.R. Page 10761) holds ameeting of the Consumer Advisory Board Meeting to discuss the consumercredit information marketplace, a review of Bureau enforcement actions,trends and themes in consumer financial markets, and enhancements to theCFPB Consumer Complaint Database.
The Heritage Foundation holds a discussion on “Prosperity Unleashed:Smarter Financial Regulation.”
The Aspen Institute holds a discussion on “Should They Stay or Should TheyGo? Re-examining Retirement Tax Incentives.”
Tax Policy Center
The Tax Policy Center holds a discussion on “The Prospects for CorporateTax Reform.”
For listings of all the week’s tax and financial services happenings, read below to find out how you can become a subscriber.
The McGuireWoods’ Tax & Financial Services Policy Group assists clients in understanding how the latest legislative and regulatory proposals anddecisions may impact their business and industry. To learn more about how our team can help you monitor, analyze, and navigate all relevant legislativeand regulatory developments, please contact any of our attorneys and consultants below at (202) 857-1700. For more information on how to subscribe toour weeklyTax Policy Update and tax news alerts, please contact Radha Mohan, firstname.lastname@example.org, (202) 857-2944.
Danielle Dellerson Hayes