Feb 28, 2017
Tax Policy Update
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 Mnuchin
identified tax and regulatory reform as the magic beans for economic
growth. Mnuchin noted that current economic projections of 1.8 percent
growth are based on the status quo and do not take into effect the policy
changes proposed by the administration.
The administration is yet to release its own tax policy proposal, but
President Donald Trump has promised to do so in the coming weeks. In the
meantime, Mnuchin noted that the administration will pass a tax reform plan
that includes middle-class tax cuts, simplification of the tax code, and
making business taxes competitive with the rest of the world. He added that
the administration’s tax reform plan is designed to encourage investments
in the United States. The administration is “looking closely” at the border
adjustment tax (BAT), though various concerns still remain. Despite
reservations with the BAT, Mnuchin assured that the administration and
congressional Republicans are “on the same page” and all three branches
will work together to release draft tax reform legislation by the August
recess. 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 lawmakers
scramble to repeal and replace the Affordable Care Act and pass tax
reform. At a conference hosted by the Healthcare Information and Management
Systems 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 will
affect the timing of tax reform, making it increasingly difficult for the
GOP to meets its self-imposed August deadline. Even if the GOP is able to
repeal and replace the healthcare law this spring, Republicans are
yet to …
BAT at CPAC.
In other BAT news, as part of an ongoing door-to-door sales tour, House
Ways and Means Chairman Kevin Brady (R-TX) took the proposal to the
Conservative Political Action Conference (CPAC). Brady’s sales pitch had a
nationalist tinge, noting that the U.S. tax code currently “gives special
tax breaks to foreign products over ‘made in America.’” Brady explained
that the House GOP proposal aims to redesign the tax code so that companies
would stop shipping jobs overseas. To close his sales pitch, Brady also
threw in a promise to repeal the Johnson Amendment, a provision in the tax
code that prohibits all I.R.C. § 501(c)(3) non-profit organizations from
endorsing or opposing a political candidate. It is unclear, however,
whether the audience bought into the controversial BAT proposal — it was
Brady’s promise to repeal the Johnson Amendment that garnered the most
Here’s the Skinny on the Budget.
On Feb. 27, the White House sent its initial budget guidance to general
agencies. President Donald Trump announced that his proposal will focus on
national security, while cutting various domestic programs and foreign aid.
To that end, the initial budget outlines a $54 billion increase in defense
spending and reductions to most non-security agencies. Trump promised
further details in his joint address to Congress on Tuesday night. This
move followed a Feb. 22 announcement by White House Press Secretary Sean
Spicer that the administration hopes to release its “skinny budget” by
March 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 a
joint session of Congress on Tuesday night — and our expectations
are “big league.”
President Trump’s speech will include his vision for the nation, focusing
on 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 the
administration, overhauling the tax code is a key step towards creating
jobs, strengthening U.S. global competitiveness, and achieving sustained
economic growth. Though Trump has yet to formally introduce his
administration’s tax reform plan, expect the president to call for
proposals 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
- 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
Tax policy watchers will also be keeping a close eye on whether the
president will take an official stance on the House GOP’s border adjustment
tax 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 for
the Affordable Care Act was obtained by the media. The draft
document is dated Feb. 10, 2017 and appears to be older than a leaked
policy memo circulated to members last week. Though the draft may not be
the most recent version of the House GOP’s replacement legislation, it is a
good indication of where the GOP is headed in terms of health care reform
and it appears to be consistent with the leaked policy memo as well.
While the discussion draft did not contain many surprises, it does show
that Republicans are serious going after the generous tax exemptions for
employer-sponsored health plans. In both the discussion draft and the
leaked policy memo, the GOP proposes financing the replacement plan by
capping the tax exemption for employer-sponsored coverage at the 90th percentile of current premiums. All benefits above that level
would be taxed.
Chairman Brady (R-TX) noted that this tax break totals $3.6 trillion over
10 years. Critics of the plan compare this measure to the Cadillac tax — a
40 percent excise tax on elements of high-cost health insurance plans. For
those hoping for a reprieve, Brady indicated that the tax is just one of
many options they are currently considering. According to chatter picked up
by 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 agencies
to set up task forces to review each agency’s existing regulations and
identify rules that can be repealed or modified within 60 days. The
president’s latest action follows a previously issued order directing
federal agencies to identify two regulations to repeal for every rule that
is 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 of
Texas is set to make a ruling in
Chamber of Commerce of U.S. v. IRS in the coming weeks. The case is a major landmark for lawsuits against the
administration’s tax regulations.
In this case, the U.S. Chamber of Commerce and the Texas Association of
Business filed a legal challenge to the IRS’s Multiple Acquisition Rule,
which is aimed at preventing certain corporate mergers that are otherwise
permitted under the inversion rules of I.R.C. § 7874. The Chamber of
Commerce asserts that the “IRS ignored the clear limits of the tax code to
target entirely lawful transactions.” A large part of this case focuses on
U.S. Country-By-Country Reporting Instructions Released.
The Internal Revenue Service and the Treasury Department recently released
instructions for completing Form 8975 and a revised copy of Schedule A,
relating to country-by-country reporting requirements. IRS Form 8975 and
the revised Schedule A were published at the end of last year, raising
questions amongst U.S. multinational enterprises on how to fill out the
The country-by-country reporting requirement generally mirrors the
recommendations put out by the Organization for Economic Cooperation and
Development (OECD) as part of its Base Erosion and Profit Shifting (BEPS)
initiative. Many OECD member countries have adopted the recommendations on
country-by-country reporting to further tax transparency. In July 2016, the
IRS and Treasury finalized regulations under I.R.C. § 6038 (relating to
information reporting with respect to certain foreign corporations and
The instructions provide further guidance on an “ultimate parent,” which is
the entity required to report on its various holdings in the countries if
its group revenue is or exceeds $850 million. The country-by-country
requirement final rules were effective on June 30, 2016. A copy of the
draft Form 8975 instructions is available
ROAD WORK AHEAD
Trump’s Speech to Pave Path for Infrastructure Investment.
President Trump’s speech before a joint session of Congress is expected to
reveal long anticipated details on the president’s plan to invest $1
trillion in America’s infrastructure. During a discussion with the nation’s
governors this week, Trump revealed that a HUGE statement on infrastructure
would be a highlight of this evening’s programming. Despite making
infrastructure investment a pillar of his campaign, Trump has remained
fairly tight-lipped on how he intends to hit his trillion dollar
drafted last year by the newly minted Secretary of Commerce Wilbur Ross
called for tax credits to incentivize public-private partnerships (PPPs).
Transportation Secretary Elaine Chao has acknowledged that PPPs are not the
answer for all of our infrastructure needs, even going so far as to say
during her confirmation hearing that she anticipates the president’s plan
to include direct federal investment.
The biggest barriers hindering a robust increase in federal funding for
infrastructure, at least for roads, bridges and public transportation, have
been a failing Highway Trust Fund (HTF) and a reluctance on the part of
Congress to raise the additional revenue necessary to provide long-term
solvency for the trust fund. With the HTF heading toward a major fiscal
cliff in 2021, Trump will face the question of how to fund our nation’s
transportation infrastructure even if his plan prefers to rely on the
private sector to drive significant investment.
President Trump’s thoughts on the rambunctious town halls encountered by
Republican 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
- 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
- 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
- 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 Reform
Act of 2017"; H.R.1215, the "Protecting Access to Care Act of 2017"; and
H.Res.111, Resolution of inquiry directing the attorney general to transmit
certain documents to the House of Representatives relating to the financial
practices of the president.
House Education and the Workforce Committee
Full committee hearing on “Legislative Proposals to Improve Health Care
Coverage 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 remarks
by SEC Acting Chairman Michael Piwowar, concluding remarks by SEC
Commissioner Kara Stein and panel discussions.
The council will hold a closed executive session to discuss market
developments, the council’s annual report, and the annual re-evaluation of
the designation of a nonbank financial company.
Consumer Financial Protection Bureau (CFPB) (F.R. Page 10761) holds a
meeting of the Consumer Advisory Board Meeting to discuss the consumer
credit information marketplace, a review of Bureau enforcement actions,
trends and themes in consumer financial markets, and enhancements to the
CFPB 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 They
Go? Re-examining Retirement Tax Incentives.”
Tax Policy Center
The Tax Policy Center holds a discussion on "The Prospects for Corporate
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