Blog Posts Tagged With Tax Rates

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(Re)Setting the Stage for Comprehensive Tax Reform: Big Six Send First Signals

The Legislative Calendar: Six Months In.  With yesterday’s late night last ditch failed effort by the Senate to pass a so-called “skinny” repeal of the Affordable Care Act, the Republican controlled chamber has nearly run the clock on its strategy for passing major legislation by majority vote, which relied on reconciliation instructions under the FY 2017 budget resolution (a process we highlighted back in December). Congress will soon need to adopt budget resolutions for the 2018 fiscal year if regular order is to be readopted and any progress is to be made on the President’s budget proposals (which are traditionally only a starting point for negotiations). Continue Reading

Prospects for Tax Reform in 2017?

House Speaker Paul Ryan (R-WI) addressed the National Association of Manufacturers on Tuesday in an effort to build support for tax reform, emphasizing the unique, and diminishing, window of opportunity that exists to enact permanent tax reform ahead of next year’s primaries and midterm elections. According to his press office, this speech marks the beginning of his “sales pitch” for tax reform in 2017. Speaker Ryan’s prepared remarks are available here. You can also watch his speech here (starting at 1:41:34).

Here are the key takeaways:

  • Republicans Are Aiming for End of 2017:  Speaker Ryan said that lawmakers would “begin to turn” their plan into legislation to put in front of Congress, and promised to “get this done in 2017.” We have heard this line before, both from Speaker Ryan and from Treasury Secretary Steve Mnuchin during the press conference unveiling Trump’s tax principles.
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Reactions to the Trump Tax Plan

As noted in yesterday’s summary, the basic outline of the Trump Administration’s tax plan is largely similar to the Trump campaign proposals, with fewer details and with one notable shift toward the House Blueprint’s approach – the move toward territoriality. The table below shows how this latest plan compares to the House Blueprint and the Trump 2016 campaign plan.

In the press conference to announce the “broad-strokes” plan, both Treasury Secretary Mnuchin and National Economic Council Director Cohn said that they were in agreement with members of Congress over the four driving goals of tax reform – grow the economy and create millions of jobs, simplify the tax code, provide tax relief to American families, especially middle-income families and lower the business tax rate from one of the highest in the world to one of the lowest. Continue Reading

President Trump To Announce Tax Reform Principles

The Trump Administration is expected to announce its tax reform plan during a 1:30 PM press conference at the White House today. The Administration is boasting that the tax plan will be “the biggest tax cut and the largest tax reform in the history of our country.” We will be covering the press conference, so stay tuned for our summary and analysis of what is proposed. In the meantime, here are our predictions for what we may see:

  • Corporate tax rate reduced to 15%
  • Pass-through business income also taxed at 15%
  • Repeal the corporate AMT
  • Deemed repatriation of accumulated offshore earnings taxed at 10%
  • No destination-based cash flow tax
  • Shift toward territoriality?
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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

The Problem of Pass-Throughs and Tax Reform

Any overhaul of the taxation of business income must address the difficult question of how to deal with pass-throughs. Most businesses in the United States are organized as pass-throughs and, since 1998, pass-throughs have earned more income than C corporations in every year except 2005. (Read the study here.) This post explains the challenges of dealing with pass-throughs in tax reform, and outlines the various ideas on the table.

Current Law Rate Differential.  Under current law, pass-throughs are not subject to U.S. federal income tax at the entity level. Instead the owners take their shares of the pass-through’s taxable income into account for purposes of determining their own tax liability, with the character of the various items of income, gain, loss and deduction generally being determined at the level of the pass-through and flowing through to the owners. Continue Reading

Details on the House Health Care Bill’s Numerous Tax Changes

On Monday night the House of Representatives unveiled legislation to repeal and replace the Patient Protection and Affordable Care Act (the “ACA”), which would reduce numerous federal taxes by eliminating almost all of the tax increases that were introduced as part of the ACA.  A copy of the bill is available here.  According to analysis released yesterday by Congress’ Joint Committee on Taxation, the bill, titled the American Health Care Act (“AHCA”), is expected to reduce taxes by approximately $600 billion over ten years.  Although the bill leaves untouched the economic substance doctrine that was codified with the ACA, the bill notably provides significant taxpayer relief by:

  • Repealing the 3.8% tax on certain net investment income under Section 1411 for taxable years starting after December 31, 2017
  • Repealing the 0.9% Medicare surtax under Sections 3101 and 1401 on wages above certain thresholds starting after December 31, 2017
  • Reducing to zero the penalty/tax on employers that do not offer qualifying health insurance, effective starting in 2016
  • Reducing to zero the penalty/tax on individuals who do not purchase qualifying health insurance, effective starting in 2016
  • Repealing the annual fees imposed on health insurance providers and certain manufacturers and importers of branded prescription drugs, effective starting in 2018
  • Delaying from 2020 to 2025 the imposition of an excise tax on certain high-value health insurance plans (commonly referred to as “Cadillac plans”)
  • Generally lowering the threshold for deductibility of medical expenses for taxable years starting after December 31, 2017 and extending through 2017 the lower threshold under current law for taxpayers aged 65 or older
  • Repealing the tax on medical devices under Section 4191 for sales after December 31, 2017
  • Repealing the limitation on salary reduction contributions for health flexible spending arrangements under Section 125(i) for taxable years beginning after December 31, 2017
  • Increasing the maximum contributions to Health Savings Accounts (“HSAs”) under Section 223 and lowering the applicable tax on distributions from HSAs includible in income for taxable years beginning after December 31, 2017
  • Expanding the definition of qualified medical expenses to include non-prescription over-the-counter medicine for purposes of HSAs, Archer MSAs under Section 220, and Health Flexible Spending Arrangements and Health Reimbursement Arrangements under Sections 105 and 106 for taxable years beginning after December 31, 2017
  • Repealing the sales tax on indoor tanning services under Section 5000B starting in 2018
  • Eliminating the limitation on deductibility of remuneration for services paid by health insurance providers under Section 162(m) for taxable years beginning after December 31, 2017

Unlike prior versions of the bill leaked to the press in recent weeks, the AHCA does not include a cap on the exclusion from income for employer-provided health insurance under current law. Continue Reading

Tax Reform: A Private Equity Perspective

The Trump administration and House Republicans have each proposed tax law changes that, if enacted, would significantly impact private equity, both directly and (potentially more significantly) through the businesses in which private equity funds invest. The consequences of the proposed changes vary by industry and therefore the proposals may have an uneven impact across the private equity sector.  We highlight a few of the major proposed changes below.

Lower Tax Rates.  The House and Trump plans would cut corporate tax rates to 20% and 15%, respectively.

Treatment of Pass-Through Entities (Including, Potentially, Private Equity Management Companies).  The House plan would tax the “active business income” of pass-through entities at a maximum rate of 25%.  Continue Reading

Tax Rates and Horse Trading

The House Blueprint and the President’s plan currently represent the primary visions for tax reform. Both would reduce tax rates for individuals and corporations (the House Blueprint caps the top individual rate at 33% and the corporate rate at 20%, while the President’s plan maxes out at 33% for individuals and 15% for corporations). Click here for a full comparison of the two plans. Although the administration’s position on revenue neutrality has not been entirely clear, the President’s nominee to head the Treasury Department, Steve Mnuchin, stated that the President’s tax plan would not increase the deficit after taking into account macroeconomic feedback and both House Speaker Paul Ryan (R-WI) and House Ways and Means Committee Chairman Kevin Brady (R-TX) have recently reiterated their commitment to pass a revenue neutral tax reform bill by the August recess. Continue Reading

Setting the Stage for Comprehensive Tax Reform

Tax reform will be one of the top priorities for the 115th Congress. Hopes for pursuing tax reform to a successful conclusion are high, given one-party control of the government (and exuberant campaign promises). Following the 2016 election, Davis Polk laid out the background and context in which tax reform measures will be considered, with links to summaries of the leading proposals and details on the politics of tax reform. Although life in Washington has moved forward since this memo was published, the key points and players remain the same. Read on for things to watch.

Setting the Stage for Comprehensive Tax Reform, December 2, 2016

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