Jul 14, 2015
Tax Policy Update
NUMBER OF THE WEEK: 5
The number of additional months of funding for transportation projects under a $8 billion bill introduced late last night in the House. Notably — as anyone
on Sesame Street could tell you — the number 5 is not the same as the number 2, as in the two-year bill (at minimum) that Senate Republicans have in
mind for highways so they can get the politically thorny issue off their plate until after the 2016 elections. Current funding for highways runs out in two
weeks. More on the gaping divide between House and Senate Republicans below…
On the Road Again: Senate Readies Longer-Term Package as House Presses for Patch. Senate Republicans continue working on details of a two-to-four-year funding bill for the nations beleaguered highways, bridges and other transportation
infrastructure, while House leaders are hoping for a vote this week on an $8 billion funding bump for the Highway Trust Fund—enough to help it coast along
through Dec. 18. By then, House Ways and Means Chairman Paul Ryan (R-WI) and Transportation and Infrastructure Committee Chairman Bill Shuster (R-PA) think
they can have a plan hammered out for funding a longer-term solution.
Ryan and Shuster’s short-term bill, H.R. 3038 (“Highway and Transportation Funding Act of 2015, Part II”), relies on a hodgepodge of spending cuts and tax
compliance-related revenue raisers to get to $8 billion. It also includes a tax cut for liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to
equalize their taxation compared to diesel and gasoline based on their energy production per gallon.
Chairman Ryan has indicated that he will seek to use repatriation of U.S. multinationals’ foreign earnings, along with other international tax changes, as
part of a pivot to a longer-term highway funding solution—an approach that Ryan’s counterpart in the Senate, Finance Committee Chairman Orrin Hatch (R-UT),
has said he would not accept outside of a larger tax reform effort. The bill introduced last night, if passed, would add to the prospects of an
end-of-the-year showdown over must-pass legislation, including the dozens of currently-expired tax extenders.
Below is a summary of the offset provisions (and one tax-reduction provision). The bill itself is available
here, and Ryan and Shuster’s
description of the offsets can be viewed here.
Require lenders to report additional information on outstanding mortgages to reduce inaccurate reporting
Clarify that six-year statute of limitations applies in cases where the overstatement of basis results in a substantial omission of income
Require estates with positive estate tax liability to provide the IRS with the value of property to prevent overstatement of value by beneficiaries
Modify tax filing deadlines for partnerships, S corporations, and C corporations to increase accurate income tax returns
Allow employers to transfer excess defined-benefit-plan assets to retiree medical accounts and group-term life insurance
Extend current budget treatment of TSA fees, which reduces outlays by preventing the fees from being spent later
Lower taxes on LNG to 14.1 cents (from 24.3 cents) per gallon and LPG to 13.2 cents (from 18.3 cents) per gallon
- $90 million
Could Extenders Catch a Ride With Highways? As House and Senate Republicans face off on funding options for highways, the next ca-tax-trophe awaits: tax extenders. The dozens of currently expired tax
breaks are awaiting resurrection—something that has, in recent years, become a perennial end-of-the-year ritual with retroactive application. But this
year, Senate Majority Leader Mitch McConnell (R-KY) has 2016 on his mind, and, like the highway funding bill, he wants to see a two-year extension so that
bickering over which extenders to extend and for how long does not distract from Republicans’ “getting the job done” message.
House leaders, however, favor permanently extending a select few of the extenders, like the research and experimentation credit and Section 179 expensing,
while scrapping many others. The Senate Finance Committee is rumored to be holding a mark-up of a two-year tax extender bill next Tuesday, July 21, quite
possibly as a set up for McConnell to attach extenders to a highway bill. And we haven’t even discussed disagreements between Republicans and Democrats
yet…. Stay tuned.
Anti-Inversion Amendment Teed Up for Senate Vote. The Senate will vote today on an amendment that would prevent companies from inverting to a lower-tax jurisdiction unless they are at least 50 percent
owned by the new foreign parent. The latest anti-inversion legislation was introduced by Sen. Bob Casey (D-PA) as an amendment to the education bill that
is currently under consideration on the Senate floor. Casey wants to use revenue raised by increasing the inversion ownership requirements to offset of the
cost of universal pre-K, which he wants to add to the education bill. Under current law, a U.S. company can move its tax domicile abroad so long as it is
at least 20 percent owned by the new foreign parent.
Clinton Talks Tax on Campaign Trail. In her first major economic speech of her 2016 presidential campaign, Hillary Clinton went after several of her Republican opponents on economic policy
issues, including a jab at Sen. Marco Rubio’s tax plan, which she said would reward the rich. Monday’s speech was also a chance for Clinton to highlight
some of the kinds of tax changes she would seek if elected, including tax policies that would encourage businesses to share profits with employees, reforms
to capital gains taxes to reward longer-term investments, and policies to give “hard working families tax relief and simplification.” Although specifics
were largely absent, Clinton promised to deliver more details during a campaign appearance this Thursday in New Hampshire.
U.K. Plans to Have 18 Percent Corporate Tax Rate by 2020.
George Osborne, U.K. financial chief, announced that the corporate tax rate would go down to 19 percent in 2017, and to 18 percent by 2020. While Osborne
announced other changes during the interim Summer 2015 budget speech, plans of lowering the corporate rate garnered the most attention. Commentators noted
that the tax rate would be competitive with those offered in other countries like Switzerland (at 18 percent) and Hong Kong (at 16.5 percent). The 18
percent would make it the single lowest rate among G-20 countries, resulting in a 2-percent increase in foreign direct investment, said Michael Devereux,
director of the Oxford University Centre for Business Taxation.
IRS Adopts Wyden’s Request Regarding Financial Products.
Last week, the IRS released Notice 2015-47 and Notice 2015-48, both intending to put an end to the use of “basket options” to change the characteristic of
income from short-term capital gains and ordinary income into long-term gains. In March of this year, Wyden reported the abuse of “basket options” allowed
hedge funds to invest in a collection of securities and control the investment strategy even though they are technically owned by the bank. The use of an
option contract that references a basket of actively traded personal property, such as securities, where a taxpayer attempts to defer and treat ordinary
income as long term capital gain would be treated as a listed transaction.
House and Senate
- Keep your eyes peeled for votes on the House highway bill (H.R. 3038) this week, and for announcements from the Senate about its own version of a funding
- We expect an announcement before the end of the week from the Senate Finance Committee noticing a mark-up of a straight two-year tax extender bill.