Tax Reform and Revenue Raisers

One of the biggest challenges facing lawmakers in the current tax reform process is finding a way to reduce headline tax rates in a revenue neutral way. Some revenue raisers (like eliminating itemized deductions) would raise significant revenue and simplify the tax code. Other revenue raisers come at the cost of increased complexity, at least in the short term (e.g., implementing a federal VAT or a new carbon tax). Closer inspection of ideas on the table reveals that politically popular reforms are not necessarily the largest revenue raisers. For example, there seems to be bipartisan support for taxing carried interest as ordinary income (more on that here), a relatively small revenue raiser. Continue Reading

Mnuchin: Tax Reform Timing Likely to Slip and Other Hints at the Administration’s Thinking

Treasury Secretary Steven Mnuchin told the Financial Times yesterday to expect tax reform to slip past the August recess, stating that the previously announced timeline was “highly aggressive to not realistic at this point.” Mr. Mnuchin’s interview touched on other areas of tax reform as well, confirming that the Administration has not ruled out the DBCFT (and the ~$1 trillion of revenue it would purportedly raise) while implying that the Administration is also considering alternative revenue raisers.  When asked how the Administration would ensure tax reforms were deficit-neutral, Mr. Mnuchin also stressed the importance of economic growth in generating revenue, implying that the Administration may lean on dynamic scoring to meet the reconciliation process’s budget neutrality requirements. Continue Reading

A Future for FATCA?

Certain aspects of the Foreign Account Tax Compliance Act (“FATCA”), the revenue-raising portion of the 2010 stimulus bill known as the HIRE Act, have been a continuing source of controversy since its inception. A spate of recent criticism and introduced legislation raises the question whether FATCA will survive if any tax reform proposals are enacted. For example, on April 5, Senator Rand Paul (R-KY) and Representative Mark Meadows (R-NC 11th) sent an open letter to the Treasury Secretary and the Director of OMB outlining administrative steps that the Trump administration could take to halt, or at least severely slow, the enforcement of the law. Continue Reading

NY State RETT Expansion Not Included in Final New York Budget

Last month we wrote about a proposal included in New York State Governor Andrew Cuomo’s 2017-2018 budget that would have expanded the New York State Real Estate Transfer Tax (“NY State RETT”) to cover transfers of minority interests in certain entities. Late last week New York lawmakers reached a final deal on the budget that excludes this provision. The final revenue bill can be found here (see part JJ – what was once the proposed NY State RETT expansion is now “Intentionally Omitted”). It passed the Senate and Assembly over the weekend and is expected to be signed by the Governor today. Continue Reading

The DBCFT, Anti-Avoidance Rules and a Cartoon about Sandwiches

Earlier this week, Kyle Pomerleau of the Tax Foundation published an article highlighting the effects of the destination-based cash flow tax on the number and complexity of anti-avoidance rules otherwise required to prevent base erosion in a territorial system.  You can read the article here. On a less serious note, Vox came out with an article that explains the impact of a destination-based cash flow tax with a cartoon about sandwiches. We enjoyed both articles and thought you might too. Continue Reading

Sanders/Schatz Tax Reform Bill: A Recent Data Point from the Democrats

While House Republicans could use the budget reconciliation process to pass tax reform without the need for Democratic support, leaders in the Senate have indicated a desire for bipartisan reform. White House press secretary Sean Spicer’s statement earlier this week on the tax reform process also suggests that input from the Democrats may be relevant.

With that in mind, we thought it would be useful to highlight a bill introduced in the Senate by Senators Bernie Sanders (I-VT) and Brian Schatz (D-HI) – the “Corporate Tax Dodging Prevention Act of 2017.” A companion bill was introduced in the House of Representatives by Representative Jan Schakowsky (D-IL). Continue Reading

It’s Not Just Us – State Governments are Waiting for the Details of Tax Reform Too

Yesterday New York State Governor Andrew Cuomo floated the possibility that New York State will pass its budget in two parts this year – with an initial extender of last year’s budget, followed by a full budget later this year once the impact of Trump’s proposed spending cuts on state revenues become more clear. This serves as a reminder that although the focus right now is on the federal budget and federal tax reform, state budgets and state tax systems are inextricably linked with the federal system.  Notably, and as the Tax Foundation highlighted in a recent publication, most states piggy back their tax code to the federal tax code, so any changes made to federal definitions (such as the definition of adjusted gross income) would influence the revenue that states collect. Continue Reading

Tax Reform and the Treatment of Carried Interest

The favorable tax treatment of so-called “carried interest” that is earned by private equity managers gained a considerable amount of attention from both parties during the 2016 presidential campaign. President Trump has repeatedly called for its elimination, a goal that Treasury Secretary Mnuchin reaffirmed in remarks that he made last Friday.

This is not a new issue. In recent years, there has been a series of legislative proposals to turn off the “flow-through” character, in whole or in part, of partnership allocations of long-term capital gain in respect of carried interest and, instead, to treat all or a portion of those allocations as ordinary income. Continue Reading

The Focus Swings Back to Tax Reform

After House Republicans pulled last Friday’s vote on the American Health Care Act (see our prior posts summarizing the bill’s tax provisions here and here), the legislative agenda seems to have turned squarely to Tax Reform.  With this turn comes much speculation as to what the House’s initial tax reform proposal will look like, whether Republicans will opt to use the budget reconciliation process and whether any attempt will be made to court Democratic support. The House Ways and Means Committee is expected to meet to discuss Tax Reform tomorrow.  We eagerly await additional details. Continue Reading

Updates on the AHCA and NY State RETT Expansion

On March 8th we published two blog posts detailing pending legislative changes. The first, Details on the House Health Care Bill’s Numerous Tax Changes, summarized the tax changes contemplated by the House Republican’s bill (the American Health Care Act, or AHCA) to repeal and replace the Affordable Care Act. The second, Proposed Expansion of New York State Real Estate Transfer Tax, described legislation introduced in the New York State Legislature that would amend the existing New York State Real Estate Transfer Tax (“NY State RETT”) to tax transfers of minority interests in certain entities holding real estate located in New York. Continue Reading

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