TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, May 25, 2018

Tax Policy In The Trump Administration

Hemel: Two Cheers For IRS Guidance On The New State & Local Tax Cap

Following up on yesterday's post, IRS Warns Taxpayers That Regs Will Prevent States From Circumventing $10k S&L Tax Cap With 'Charitable' Contributions:  Daniel Hemel (Chicago), Two Cheers for IRS Guidance on the New SALT Cap:

Yesterday’s notice by the Treasury Department and the IRS that they plan to propose regulations related to the state and local tax (SALT) and charitable contribution deductions has generated lots of news coverage. ...

Let’s start with what the notice did say. First, it revealed — and this is new news — that Treasury and the IRS “intend to propose regulations addressing the federal income tax treatment of certain payments made by taxpayers for which taxpayers receive a credit against their state and local taxes.” That’s apparently a reference to laws already enacted in New JerseyNew York, and Oregon that allow taxpayers to claim a state tax credit for charitable contributions to certain state-affiliated funds, as well as several similar proposals pending in other state legislatures. Interestingly, Treasury and the IRS signaled no intention to issue regulations addressing New York’s new “Employer Compensation Expense Program,” which allows employees to claim a state tax credit if their employer opts into a new payroll tax regime. Even those who are skeptical of the charitable credit arrangement acknowledge that the payroll tax shift “almost certainly” will pass muster under federal tax law, and nothing in yesterday’s notice suggests otherwise.

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May 25, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Friday, May 18, 2018

Tax Policy In The Trump Administration

Thursday, May 17, 2018

Top GOP Donors Close Wallets Over Tax Law

CNN, Top GOP Donors Close Wallets Over Tax Law:

As national Republicans scramble their resources for a high-stakes midterm election year, some of the party's biggest and most reliable donors have quietly withheld their support for Senate and House Republican groups out of frustration with the new tax law, CNN has learned.

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May 17, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (2)

GOP Tax Cut Not Why Economy Is Booming: Economists Are Rolling Their Eyes At Candidates’ Claims

Politico, GOP Tax Cut Not Why Economy Is Booming: Economists Are Rolling Their Eyes at Candidates’ Claims:

Republicans facing a tough midterm election season are pointing to the strong economy as proof their new tax law is working its magic.

But as campaign ads tout swelling payrolls and lawmakers spotlight companies handing out employee bonuses, there’s little evidence the tax cuts are already having an impact across the economy, which was already humming even before the law was enacted.

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May 17, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Monday, May 14, 2018

Is Trump’s Tax Incoherence Just A Way To Hurt Amazon?

Amazon logoNew York Times op-ed:  Is Trump’s Tax Incoherence Just a Way to Hurt Amazon?, by Veronique de Rugy (Mercatus Center, George Mason University):

For months, the Trump administration has rightfully been trying to thwart attempts by some European governments to impose a new corporate “digital tax” on American high-tech giants. This campaign to block internet-inspired extraterritorial taxation — taxation of income earned outside of a jurisdiction — is strongly supported by the American business community. But the White House, in an odd twist that turns its European Union digital tax arguments upside down, just argued before the Supreme Court that the same kind of extraterritorial taxation is acceptable when carried out by American states on retail sales on the internet.

Does the left hand of the Trump administration know what the right hand is doing on internet-related tax policy? Are American corporate leaders who have ignored the issue of internet sales taxes about to suffer a key setback in relation to the European Union tax grab? And does sound tax policy go out the window if the president seems to think Amazon is in the cross hairs?

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May 14, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

NY Times: Federal Tax Cuts Leave States In A Bind

New York Times, Federal Tax Cuts Leave States in a Bind:

The federal tax overhaul cut taxes for millions of American families and businesses. But the law also had an unintended effect: raising the state-tax bite in nearly every state that has an income tax.

Now, governors and state legislators are contending with how to adjust their own tax codes to shield their residents from paying more or, in some cases, whether to apply any of the unexpected revenue windfall to other priorities instead.

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May 14, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (2)

Friday, May 11, 2018

Tax Policy In The Trump Administration

Sunday, May 6, 2018

Resistance To The New GOP Tax Law In California, New York, And Illinois

Friday, May 4, 2018

Tax Policy In The Trump Administration

Field: Tax Implications Of The Dynamex Worker Classification Ruling

Following up on Paul Caron's previous post: California Supreme Court Deals Major Blow to Gig Economy Business Model, Treats Workers as Employees Rather than Independent Contractors: Heather Field (UC-Hastings) at Surly Subgroup: Tax Implications of the Recent Dynamex Worker Classification Ruling 

Greetings from San Francisco, the epicenter of the gig economy, where workers-rights advocates are celebrating Monday’s California Supreme Court decision in the Dynamex case. The ruling, which cites an article by my colleague Veena Dubal, is expected to make it harder for businesses in California to classify gig economy workers (and others) as independent contractors rather than employees. As a result, these workers are more likely to be protected by rules about minimum wage, overtime, rest breaks, and other working conditions, although there are open questions about exactly how these rules will apply to gig workers.

But what is good for workers for employment/labor law purposes may not be so good for workers for federal income tax purposes. As readers of this blog know, independent contractors can generally deduct their business expenses above-the-line and may be able to take the new Section 199A deduction equal to up to 20% of qualified business income (significantly reducing the effective tax rate). Employees, on the other hand, can do neither. Thus, the employment/labor law win for workers in the Dynamex case may come with some unexpected and unwanted tax losses for these same workers. This is especially true for workers with non-trivial amounts of unreimbursed business expenses (although the amount of a worker’s unreimbursed expenses may decline if the worker is classified as an employee because California Labor Code 2802 generally requires employers to reimburse significant business expenses of employees).

So, taking tax into account, is independent contractor status or employee status better for workers? This question involves complicated employment/labor law and tax law tradeoffs. For example, despite the tax disadvantages of employee classification mentioned above, employee status can benefit workers for employment tax and tax compliance purposes. Others (including Shuyi Oei here, Shuyi Oei and Diane Ring here, here and here, and Kathleen DeLaney Thomas here) have written extensively on worker classification/taxation topics, and at least some of them have additional articles forthcoming on these topics. I will defer to them for more details as I am not an expert (at least right now) on worker classification or its tax implications. But even I know that, when analyzing the implications of the Dynamex case, it will be important for commentators to consider the tax, not just employment/labor, consequences.

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May 4, 2018 in New Cases, Shuyi Oei, Tax, Tax Policy in the Trump Administration, Tax Profs | Permalink | Comments (0)

Tuesday, May 1, 2018

NY Times: Investment Boom From Trump’s Tax Cut Has Yet to Appear

New York Times, Investment Boom From Trump’s Tax Cut Has Yet to Appear:

Republicans sold the 2017 tax law as “rocket fuel” for American investment and growth, saying that corporations — flush with cash from lower tax rates — would channel money back into the economy by building factories and offices and investing in equipment, which would help companies grow and provide winnings for workers.

Economists say that may happen as companies readjust their spending plans over the coming months to take advantage of the new law, and they note that it is too early to tell how much the tax law will spread into the broader economy.

But, so far, hard evidence of such an acceleration has yet to appear in economic data, which show more of a steady investment roll than a rapid escalation. And while there are pockets of the economy where investment is picking up — among large tech companies and in shale oil business, for example — corporate spending on buying back stock is increasing at a far faster clip, prompting a debate about whether the law is returning money to the overall economy or just rewarding a small segment of investors.

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May 1, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Friday, April 27, 2018

Tax Policy In The Trump Administration

Did Paul Ryan Fire The House Chaplain For Tax Cut Blasphemy?

House ChaplainNew York Magazine, Paul Ryan Allegedly Ousted House Chaplain for Disrespecting His Tax Cuts:

Under the Trump administration, we’ve learned that Paul Ryan is willing to shrug off racist remarks from the president, and has no problem enabling attacks on the rule of law. But one thing that will not be tolerated in Ryan’s House is a man of God suggesting that tax cuts should be fair to all Americans.

When Ryan announced earlier this month that House Chaplain Patrick Conroy would soon step down, he gave no explanation for his exit, and many assumed he was leaving voluntarily. But anger erupted on the Hill in recent days when the Jesuit priest told lawmakers that Ryan was pushing him out, and he didn’t know exactly why. ...

On Thursday Democratic sources pointed to a potential explanation: a prayer Conroy offered on November 6, 2017, when the House was on the verge of passing the GOP tax bill.

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April 27, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Thursday, April 26, 2018

GOP Tax Reform Law Continues To Sink In Polls

Real Clear Politics Poll Average, Trump, Republicans' Tax Reform Law:

RCP

April 26, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Friday, April 20, 2018

Tax Policy In The Trump Administration

Desai: Tax Reform, Round One

Mihir A. Desai (Harvard), Tax Reform, Round One:

The Trump Administration's successful efforts at tax legislation stand out as the primary achievement of its first year. But the hurried, largely furtive drafting, and rush to passage at the end of 2017, have helped obscure the new tax regime’s real impact. Much of the reporting and debate has focused on the politicking that went into passing the bill, and the purported effect on the federal budget deficit. That has diverted attention from the true significance of the Tax Cuts and Jobs Act (TCJA). Instead of simply changing rates and addressing loopholes, the TCJA represents a structural change to the income tax and, consequently, will lead to major changes in behavior. Teasing out those details reveals that the new law is likely to generate different incentives for economic growth than commonly claimed, unwanted complexities that invite still further gaming of the tax code (which the reforms themselves were intended to minimize), and larger deficits than forecast. If the past is a guide, and we can hope it is, the TCJA will be a precursor to further reforms that correct these shortcomings and address important distributional and fiscal concerns.

In the context of other legislation during the past 40 years, the magnitude of this tax reform is unremarkable when framed relative to gross domestic product. Indeed, the 1981 tax bill reduced federal revenue by an amount equaling more than twice the share of the estimated reduction in the Trump edition. But no reform during the last four decades approximates the scope and depth of the TCJA’s changes to the overall structure of the tax system.

Harvard 1

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April 20, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Tuesday, April 17, 2018

John Oliver: Corporate Taxes

Monday, April 16, 2018

Kleinbard: Tax Policy Is a Bore, Until They Take Away Your Social Security And Medicare

Los Angeles Times op-ed:  Tax Policy Is a Bore, Until They Take Your Social Security and Medicare Away, by Edward D. Kleinbard (USC):

Procrastinators race to the post office on Tax Day to postmark their tax returns or file for extensions. Sensible people use Tax Day as a time to consider their financial picture for the year ahead. But this April, in light of how Congress radically rewrote our tax obligations for 2018 onward, Tax Day might also profitably serve as an occasion for citizens to contemplate the tax health of the nation.

This checkup requires examining both taxes and government spending. We quickly see that budget deficits — how much spending exceeds revenues — are extremely large and growing at a disturbing rate. The nonpartisan Congressional Budget Office estimates that the 2019 deficit will be just shy of $1 trillion. That is a roughly 50% jump in the deficit from its 2017 level — extraordinary, considering we're in good economic times.

Tax cuts do not pay for themselves — not the Trump tax cuts, nor in any other case in modern U.S. practice. So we face only two possible courses of action: Either we tax ourselves more, or we dismantle the social safety net (in particular, Social Security, Medicare and Medicaid) that protects Americans from destitution or disability. Which is the right direction for our country to pursue? ...

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April 16, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (4)

Friday, April 13, 2018

Tax Policy In The Trump Administration

Thursday, April 5, 2018

Tax Law Quirk Could Help Apple And Microsoft Lower Their Bills

Bloomberg, Tax Law Quirk Could Help Apple and Microsoft Lower Their Bills:

The Internal Revenue Service is providing some relief for companies facing looming tax bills after they stockpiled trillions of dollars offshore free of U.S. income tax.

A timing quirk in the tax overhaul seemed to give companies such as Apple, Microsoft and Cisco — all of which began their fiscal years before Jan. 1 — the chance to reduce the foreign cash they’ll accumulate this year and lower their taxes. A press release issued by the IRS on Monday indicates that “if done in the ordinary course of business,” the move won’t be considered as tax avoidance, according to Stephen Shay, a tax and business law professor at Harvard Law School.

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April 5, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Buchanan: What Will Republicans Do When Their Tax Cuts Fail?

NewsweekNewsweek:  What Will Republicans Do When Their Tax Cuts Fail?, by Neil H. Buchanan (George Washington):

The Republicans passed their regressive tax bill last year in the face of widespread public opposition, with defections by House members from suburban districts and a rushed legislative process that made a mockery of the idea of deliberative government.  Even so, they managed to deliver all of their votes in the Senate, including the self-styled deficit hawks who made a big show of concern before caving to party orthodoxy.

And despite their most fervent wishes and a brief blip in the polls, the new tax law is still not popular.  As I described in companion columns on Verdict and Dorf on Law last week, the public has very good reasons for hating a law that was very clearly designed to worsen already historic levels of inequality.  To their credit, people are not being bought off with a few extra dollars in take-home pay.

In spite of this, will Republicans convince themselves to try to pass another round of tax cuts? And if they do, how will they justify further cuts when the current round of cuts fails?

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April 5, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (3)

Wednesday, April 4, 2018

WSJ: Crack And Pack — How Companies Are Mastering The New Tax Code

WSJWall Street Journal, Crack and Pack: How Companies Are Mastering the New Tax Code:

Dallas attorney Garry Davis plans to break up his immigration-law practice. One firm will have all the lawyers. The other will record the profits.

It’s just one of many strategies businesses are exploring as they pore over the biggest rewrite of U.S. tax rules in decades. Mr. Davis’s approach, which some have dubbed “crack and pack,” seeks to get around a provision denying high-earning lawyers, doctors and other professionals a tax break available to plumbing contractors, restaurateurs and architects.

By separating the lawyers from other parts of the business, he hopes to lower the business’s overall tax bill while changing little in his day-to-day operations.

Long before most clarifying regulations have been issued, the new law has led to a burst of activity in tax circles as lawyers, accountants and businesses look for ways around some of the proposals meant to pinch them—and for ways to extend the reach of new tax breaks. For owners of closely held businesses, that can mean splitting operations apart, reclassifying them and re-categorizing their activities, all in an effort to get as much of their income taxed at the new low rates as possible.

The legislation contains more uncertainties than usual for a tax overhaul because of the speed of its drafting, which left little opportunity for the public and congressional scrutiny that often identifies confusion in bills. The recent omnibus spending bill shut down one loophole, involving farm products sold to cooperatives, while lawmakers and regulators say they are collecting feedback as they consider future changes.

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April 4, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Friday, March 30, 2018

Tax Policy In The Trump Administration

Tuesday, March 27, 2018

WSJ: New Tax On Overseas Earnings Hits Unintended Targets

Wall Street Journal, New Tax on Overseas Earnings Hits Unintended Targets:

A new tax aimed at overseas income earned by U.S. technology and pharmaceutical firms is hitting unexpected places. ...

In the past, the U.S. taxed corporate profits earned overseas at the domestic rate of 35%. Companies could avoid that tax by booking their income overseas and keeping it there. The new system in theory aims to lighten the overseas tax burden and target it more carefully.

Congress set a minimum tax known as GILTI, for Global Intangible Low-Taxed Income, of roughly 10.5% on a portion of corporate income earned overseas. GILTI is directed at trademarks and patents of technology and pharmaceutical firms, which are easy to transfer to low-tax foreign countries. It was supposed to create a floor on taxing those highly mobile profits, an assurance that companies would pay something while stopping short of the full U.S. tax rate. Without it, lawmakers worried, U.S. companies could have an even larger incentive to move intangible assets and profits offshore. ...

GILTI is hitting ... companies ... because of the way the new tax interacts with other provisions in the tax code, specifically the treatment of foreign tax credits that are supposed to prevent two countries from taxing the same income. When companies calculate the credits they receive for paying taxes overseas, the law typically requires them to assign some of their domestic expenses to foreign jurisdictions. The result for some companies is that, for U.S. tax purposes, their foreign income and foreign taxes look smaller than they actually are, shrinking their credits. That, in turn, could force them to pay the new minimum tax on top of their foreign tax bills.

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March 27, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Friday, March 23, 2018

Tax Policy In The Trump Administration

Friday, March 16, 2018

Tax Policy In The Trump Administration

Thursday, March 15, 2018

Kleinbard: Perversion Of The Tax Policymaking Process

Monday, March 12, 2018

NY Times: Tax Law’s Errors Upset Companies As Congressional Leaders Feud

New York Times p. 1:  Tax Law’s Errors Upset Employers As Leaders Feud, by Jim Tankersley & Alan Rappeport:

The legislative blitz that rocketed the $1.5 trillion tax cut through Congress in less than two months created a host of errors and ambiguities in the law that businesses big and small are just now discovering and scrambling to address.

Companies and trade groups are pushing the Treasury Department and Congress to fix the law’s consequences, some intended and some not, including provisions that disadvantage certain farmers, hurt restaurateurs and retailers and could balloon the tax bills of large multinational corporations.

While Treasury can clear up uncertainty about some of the murky provisions, actual errors and unintended language can be solved only legislatively — at a time when Democrats seem disinclined to lend votes to shoring up a law they had no hand in passing and are actively trying to dismantle.

On Thursday, the U.S. Chamber of Commerce sent the Treasury Department 15 pages of detailed requests for clarification on how the law affects multinational corporations, mutual fund investors and mom-and-pop pass-through entities.

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March 12, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Saturday, March 10, 2018

WSJ: State Corporate Tax Revenues Are Poised To Rise Because Of The New Federal Tax Law

EYWall Street Journal, Where Corporate Taxes Are Poised to Rise Because of Tax Overhaul: States:

The amount of income subject to corporate taxes on the state level will increase by 12% because of the federal-tax overhaul, which removed or limited tax breaks, according to a business-backed study [The Impact of Federal Tax Reform on State Corporate Income Taxes].

When the top federal corporate-tax rate was 35%, state corporate-tax rates ranging from 3% to 12% were relatively insignificant for many big companies. But now, with the federal rate at 21% and fewer breaks available, state corporate taxes are becoming increasingly important.

After the federal government limited deductions and changed foreign-tax rules late last year, state taxable income went up and state rates didn’t change.

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March 10, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Friday, March 9, 2018

Tax Policy In The Trump Administration

NY Times: Blue-Collar Trump Voters Are Shrugging At Their Tax Cuts

New York Times, Blue-Collar Trump Voters Are Shrugging at Their Tax Cuts:

The white working-class voters in the industrial Midwest who helped put Mr. Trump in the White House are now seeing the extra cash from the tax cut, the president’s signature domestic policy achievement and the foundation for Republican election hopes in November.

But the result has hardly been a windfall, economically or politically. Other workers described their increase as enough for a week’s worth of gas or a couple of gallons of milk, with an additional $40 in a paycheck every two weeks on the high side to $2 a week on the low. Few are complaining, but the working class here is not feeling flush with newfound wealth.

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March 9, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Thursday, March 8, 2018

Harvard Economists: New Tax Law Will Cost Treasury $1.2 Trillion Over A Decade

Wall Street Journal, Tax Law Doesn’t Pay for Itself, Harvard Economists Find:

The recent changes to the U.S. tax law will increase economic growth modestly but not fast enough to pay for themselves, according to a new estimate from a pair of economists from different sides of the political spectrum. In other words, the additional government tax revenue generated by higher growth won’t be enough to offset the drop in revenue due to tax cuts.

The net cost to the Treasury, after accounting for economic growth, would be $1.2 trillion over a decade, according to the paper by the Harvard University economists, conservative Robert Barro and Jason Furman, who was an adviser to President Barack Obama.

Robert J. Barro (Harvard) & Jason Furman (Harvard), The Macroeconomic Effects of the 2017 Tax Reform:

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March 8, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Friday, March 2, 2018

Tax Policy In The Trump Administration

NY Times: Spreadsheets at Dawn — The New Tax Battle Is All About Data

New York Times, Spreadsheets at Dawn: The New Tax Battle Is All About Data:

The new Republican tax cut is providing a powerful weapon for the law’s supporters and detractors, as well as investors and analysts, who are mining data on how companies are spending their windfalls in a battle to sway the behavior of voters and executives alike.

In the two months since President Trump signed the $1.5 trillion tax bill into law, a vast arsenal of spreadsheets has begun to capture, in real time, the effect of the tax cut as it works its way through corporate balance sheets. Traders are compiling data to find value in a volatile stock market. Advocates of corporate responsibility are hoping to shame companies into passing more of their savings on to employees or charities. Partisans are using it to sway public opinion.

None of the data, as of yet, yield anywhere close to a full picture of how the tax cuts are flowing through corporate boardrooms and into the American economy. But that has not stopped politicians and organizations from using it to advance their goals.

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March 2, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

NY Times, WSJ: Who Wins From The Corporate Tax Cuts?

WSJWall Street Journal, Boom in Share Buybacks Renews Question of Who Wins From Tax Cuts:

U.S. companies are buying back their shares at an aggressive pace, stirring debates in Washington and on Wall Street about how savings from corporate tax cuts are being used and who benefits most.

Share buybacks announced by large U.S. companies have exceeded $200 billion in the past three months, more than double the prior year, according to a Wall Street Journal analysis of data for S&P 500 companies. Among the biggest: Cisco at $25 billion, Wells Fargo at about $21 billion, PepsiCo at $15 billion, AbbVie and Amgen at $10 billion apiece, and Alphabet Inc. at $8.6 billion.

Announced buybacks surged in December as lawmakers in Washington finished writing a bill to cut U.S. taxes by $1.5 trillion over a decade, and continued at a robust pace in January and February. ...

The early moves are spurring a political debate about whether the tax cut is working; the full answer won’t be fully understood for months or years as the new money moves through the economy. ...

House Minority Leader Nancy Pelosi (D., Calif.) has labeled bonuses “crumbs” compared with the size of the corporate tax cuts.

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March 2, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Wednesday, February 28, 2018

NY Times: Trump’s Tax Cuts In Hand, Companies Spend More On Themselves Than On Wages

New York Times, Trump’s Tax Cuts in Hand, Companies Spend More on Themselves Than on Wages:

President Trump promised that his tax cut would encourage companies to invest in factories, workers and wages, setting off a spending spree that would reinvigorate the American economy.

Companies have announced plans for some of those investments. But so far, companies are using much of the money for something with a more narrow benefit: buying their own shares.

Those so-called buybacks are good for shareholders, including the senior executives who tend to be big owners of their companies’ stock. A company purchasing its own shares is a time-tested way to bolster its stock price.

But the purchases can come at the expense of investments in things like hiring, research and development and building new plants — the sort of investments that directly help the overall economy. The buybacks are also most likely to worsen economic inequality because the benefits of stocks purchases flow disproportionately to the richest Americans. ...

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February 28, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (2)

Monday, February 26, 2018

NY Times: Washington’s Fight Over Taxes Is Only Just Beginning

New York Times, Washington’s Fight Over Taxes Is Only Beginning:

Never mind that “once in a generation” tax bill that just passed last year. Congress is headed for years more of big fights over taxes, particularly those for individuals.

That tax battle is a byproduct of America’s polarized political climate and of the go-it-alone choices Republicans made to speed the 2017 law through Congress in less than two months.

It is already complicating tax planning for companies and workers around the country, particularly in high-tax states like New York, Maryland and California, where lawmakers are actively pursuing workarounds for some provisions of the new federal law that limit state and local income and property tax deductions.

It’s only going to get messier.

“This legal regime is very unstable; Congress has created many, many problems,” both in the substance of the bill and the exclusion of Democrats in enacting it, said Rebecca Kysar, a professor and tax expert at Brooklyn Law School. “All of those dynamics are going to make for a very uncertain landscape going forward.” ...

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February 26, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Sunday, February 25, 2018

New Tax Law Ignites White House Power Struggle

Treasury OMBFollowing up on last week's post, Tax Reform and IRS Resistance:  Politico, Tax Law Ignites White House Power Struggle:

A political battle over the fate of hundreds of regulations and other guidance for the new tax law may soon land on President Donald Trump’s desk, forcing him to choose between two of his favorite Cabinet members.

At stake is who has ultimate authority to shape the nuances of the tax cuts and other rules as part of the $1.5 trillion Republican tax overhaul: Treasury Secretary Steven Mnuchin and the IRS have that power now, but White House budget director Mick Mulvaney and some of his GOP allies in Congress want the Office of Management and Budget to have the final say.

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February 25, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Saturday, February 24, 2018

WSJ: Pass-Through Businesses Are Rethinking Their Status In Wake Of The New Tax Law

WSJWall Street Journal, Pass-Through Businesses Are Rethinking Their Status in Wake of Tax Law:

As business owners pore through the new tax law, many are asking themselves a fundamental question: Will changing how their company is structured cut their tax bills?

“This is one of the most pressing issues for taxpayers and business owners,” said Mark Everson, vice chairman of tax-consulting firm Alliantgroup LP. “They are looking carefully now at how they are legally organized.” 

For many entrepreneurs, the big question is whether to operate as a C corporation, which pays its own taxes to the Internal Revenue Service, or as a pass-through company, which pays tax through individual rather than corporate returns. Pass-through businesses include S corporations, sole proprietorships and limited liability companies.

The clock is ticking. Many business owners have until March 15 to make an election that would be retroactive to the beginning of 2018.

The rethinking of corporate structures is one byproduct of the new tax bill, which cuts the corporate tax rate to 21%, down from a top rate of 35%, though owners pay a second tax on profits distributed as dividends. ..,

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February 24, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Friday, February 23, 2018

Tax Policy In The Trump Administration

Thursday, February 22, 2018

WSJ: New BEAT Tax Could Eliminate Benefit From Lower Corporate Tax Rate For Some Foreign Firms

WSJ 2Wall Street Journal, BEAT UP? U.S. Tax Provision May Sting Foreign Firms:

Executives around the world have embraced the overhaul’s big reduction in the federal corporate-tax rate—from 35% to 21%. Less-well-known provisions in the new code, however, could hurt some companies based outside the U.S. and doing business in the country.

One of the biggest potential threats is the base-erosion and anti-abuse tax. Dubbed BEAT, the levy could damp—or even completely offset—any gains that foreign multinationals such as SAP might otherwise expect from the reduction in the U.S. tax rate.

Here is how BEAT is designed to work: If a company generates more than $500 million in annual revenue in the U.S., and its American units make above a specified level of tax-deductible payments to related companies overseas, those units must pay a minimum tax on their U.S. profit after adding back in certain types of deductions. The minimum rate is 5% in 2018, but rises to 10% in 2019 and 12.5% in 2026.

Drafters of the tax law say the provision was meant to discourage companies from inappropriately channeling profit generated in the U.S. to lower-tax regimes.

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February 22, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

NY Times: Tax Overhaul Gains Public Support, Buoying Republicans

NYTNew York Times, Tax Overhaul Gains Public Support, Buoying Republicans:

The tax overhaul that President Trump signed into law now has more supporters than opponents, buoying Republican hopes for this year’s congressional elections.

The growing public support for the law coincides with an eroding Democratic lead when voters are asked which party they would like to see control Congress. And it follows an aggressive effort by Republicans, backed by millions of dollars of advertising from conservative groups, to persuade voters of the law’s benefits.

That campaign has rallied support from Republicans, in particular. But in contrast with many other issues — including Mr. Trump’s job approval rating — it also appears to be winning over some Democrats. Support for the law remains low among Democrats, but it has doubled over the past two months and is twice as strong as their approval of Mr. Trump today.

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February 22, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Tuesday, February 20, 2018

KPMG Report On New Tax Law

Monday, February 19, 2018

Tax Reform And IRS Resistance

Wall Street Journal:  Tax Reform and IRS Resistance, by Kimberley A. Strassel:

With all the good news about the new Republican tax law, you may be surprised to learn that the fight isn’t over. Behind the scenes, reformers face a new challenge: Navigating the IRS swamp.

It’s a little-known fact that for 35 years the Internal Revenue Service has exempted itself from the most basic regulatory oversight. When the Labor Department or the Small Business Administration create “major” or “significant” rules or guidance, they are required to submit them for centralized review. That ensures regulations are consistent with the law and with White House priorities and that they’ve been analyzed for costs, benefits and flexibility.

But in 1983, the Treasury Department signed a memorandum with the Office of Management and Budget that largely exempted the IRS from submitting its rules to White House review via OIRA, the Office of Information and Regulatory Affairs. The memo still stands today. In the face of congressional attempts at oversight, the IRS issued a 1996 opinion claiming that tax statutes are in and of themselves responsible for any costs or inflexibility—that the IRS’s rules are, by definition, pure distillation of law. ...

[T]he IRS is already playing games with the GOP tax reform.

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February 19, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (2)

Friday, February 16, 2018

Tax Policy In The Trump Administration

Thursday, February 15, 2018

Reagan’s ‘Party Of Ideas’ Is Down To Just One: Tax Cuts

New York Times op-ed:  Reagan’s ‘Party of Ideas’ Is Down to Just One: Tax Cuts, by Mike Lofgren (author, The Deep State: The Fall of the Constitution and the Rise of a Shadow Government (2017)):

It is a sign of our slide toward banana republic status when the president of the United States, leader of the world’s foremost democracy, publicly brands Democrats who failed to applaud his State of the Union address as un-American and treasonous. The largely partisan audience was fine with it.

What has become of the Republican Party, which I once served on Capitol Hill and which I now consider a dangerous extremist movement on a par with the ruling Fidesz party in neo-fascist Hungary? Where did its principles go? What became of Ronald Reagan’s “party of ideas”?

One by one, those ideas were tossed aside for expediency and power — except the tax cut. A time traveler from the Reagan era would no longer recognize the Republican Party, but most Republican politicians feel no embarrassment supporting policies they once condemned. ...

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February 15, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (3)

Wednesday, February 14, 2018

WSJ: The New Tax Law

Tuesday, February 13, 2018

Former Yale President: CEOs Should Invest Tax Cut Windfall In Workers' Human Capital, Not Bonuses And Buybacks

New York Times op-ed:  How C.E.O.s Should Spend Their Tax Cuts, by Richard Levin (Former President, Yale: Former CEO, Coursera):

Companies are wrestling with how to allocate the windfall from the recent tax act. It’s a nice problem to have.

Home Depot, JetBlue and Pfizer have announced plans to pass tax savings on to shareholders through stock buybacks. Apple, AT&T, Comcast, Verizon and Walt Disney are distributing one-time bonuses to their employees. BNY Mellon, FedEx and JPMorgan Chase are raising wages. Walmart and US Bancorp are giving bonuses and raising wages. Boeing, Southwest Airlines and Wells Fargo have increased their charitable donations. And a few companies, perhaps fewer than the White House expected, have joined with Amazon to announce ambitious programs of capital investment that will create jobs and increase productivity.

Neglected in the public discussion is yet another strategy, with large potential benefits for every company and for the nation as a whole: investing in human capital. Lost in the noise was Boeing’s announcement that it will spend $100 million on work force development, training and education, and Disney’s investment of $50 million to cover tuition payments for its hourly employees. ...

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February 13, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (4)

Saturday, February 10, 2018

AT&T, Other Companies Play Tax Arbitrage In Paying Worker Bonuses In Response To Trump Tax Cuts

AT&T LogoBloomberg:  AT&T, Walmart Bolster Their Tax Savings in Paying Worker Bonuses, by Lynnley Browning:

The surprise bonuses that corporations like Walmart and AT&T are bestowing upon rank-and-file American workers are currying favor with the public and President Donald Trump.

But there’s another perk — the companies can use the payouts to minimize their tax bills.

It’s no secret that companies are allowed to deduct most compensation expenses from their taxable income as a cost of doing business. There’s a wrinkle this year, though — since the corporate tax rate was slashed to 21 percent from 35 percent, big firms that account for the expense in 2017 stand to save tens of millions of dollars more in taxes than if they book the expense in 2018.

“That’s a big tax arbitrage play,” said Len Burman, a co-founder of the Urban-Brookings Tax Policy Center and a former senior Treasury tax official. ...

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February 10, 2018 in Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)