July 9, 2020

Washington Wire: Tax Reform Framework Released; Lowers Business Rates


Tax Reform Framework Released; Lowers Business Rates  

On Wednesday, September 27, 2017, Republican policymakers issued an outline of principles for tax cuts and overhauling parts of the U.S. Internal Revenue Code. Known as the Big Six, Treasury Secretary Mnuchin, National Economic Council Chair Gary Cohn, House Speaker Ryan (R-WI), Senate Majority Leader McConnell (R-KY), Senate Finance Committee Chair Hatch (R-UT), and House Ways and Means Chair Brady (R-TX), have conducted secret negotiations for months among themselves. The release of out outline provides GOP Senators and Representatives the chance to weigh in starting today.
Tax reform is One Voice’s top priority and its members and advocacy team have held hundreds of meetings over the past few years pressing Washington to simplify and stabilize the tax code and lessen the burden placed on smaller businesses who pay a disproportionate share. One Voice has long called for a lower rate for pass-through businesses, who comprise 70% of our members and pay taxes at the highest individual 39.6% income rate.
The President is calling on Congress to send him a final bill in December, however, the outline left many questions unanswered, particularly which credits and deductions they will eliminate to achieve a lower rate. Also of concern is the impression the proposal lowers taxes for “Wall Street” and many expect some form of surtax or other provisions to counter that narrative. The next step is for the House and Senate to agree on a Budget Resolution containing reconciliation instructions allowing them to move a bill requiring only fifty Senate votes instead of sixty needed under normal procedures (Senate to vote next week). However, if House and Senate Republicans are unable to agree on a budget, tax reform will now require sixty votes to pass the upper chamber meaning at least eight Democrats must support the final measure. Securing eight (though will likely need 10-12) Democratic Senators also changes the framework released today as, for example, they will not agree to elimination of the Estate Tax.
Please click here to see the entire Tax Reform outline released and below for a summary of key features. One Voice members have testified on Capitol Hill, met with administration officials, and submitted comments to the key congressional committees tasked with drafting reform. We have a direct seat at the table and while optimistic, we recognize that negotiators will ask One Voice members to make hard choices and face difficult realities in giving up prized tax credits and deductions. On the individual side, for those who do not claim the standard deduction and choose to itemize, the outline eliminates a number of provisions but maintains incentives for mortgage interest, charitable contributions, higher education, and retirement savings.
Summary of proposal:
  • Lowers top C-Corporation rate from 35% to 20%;
  • Collapses seven corporate brackets to three;
  • Lowers top pass-through business rate to 25% from 39.6% (not lowered for ordinary income);
  • Top individual tax rate lowered from 39.6% for $418,000 single earnings to 35%;
  • Consolidates to three individual income tax rates: 12%, 25%, 35%;
  • May ultimately impose a surtax on “wealthy”; 
  • Lowest individual income tax rate increases from 10% to 12%; 
  • Doubles standard deduction to $12,000 for single filers and to $24,000 for families; 
  • Eliminates the Estate Tax (Democrats strongly opposed); 
  • Eliminates Alternative Minimum Tax (AMT); 
  • Continues allowing for 100% business expensing but phases out after five years; 
  • Allows for partial ability to deduct business loan interest; 
  • Maintains existing R&D Tax Credit; 
  • Does not specifically address Section 179 Equipment Expensing, Bonus Depreciation, Last-in-First-out (LIFO), Net Operating Loss, Section 127 employer education assistance, or IC-DISC; 
  • Creates a minimum tax on overseas earnings but shifts to territorial system eliminating tax on dividends from U.S. foreign subsidiaries; 
  • Includes two repatriation rates: one for cash and a lower rate for other assets.



USTR Delivers Trade Remedy Notice to Congress; earliest date for Trump to sign a new NAFTA now late March
Right before the third round of negotiations began in Ottawa, last Friday the Trump administration alerted congressional committees of jurisdiction of NAFTA proposals that could necessitate modifications to U.S. trade remedy law. This procedural step triggers a six-month review period before President Trump can sign a new agreement that Congress can then ratify. Therefore, the earliest Congress can vote on a final agreement is March 21, 2018. To make this date, USTR will need to reach a deal in December and publish the text of the agreement in January. It is especially important to reach a deal by December for the U.S. and Mexico, as the sides would like to come to agreement with plenty of time before the Mexican presidential election in July 2018 and U.S. mid-term elections in November 2018.
During the third round of talks, the U.S. has revealed proposals on labor standards, investment, and intellectual property to officials from Canada and Mexico. The three parties also discussed rules of origin content requirements for autos, the main source of U.S. trade deficits with Mexico and Canada. Sources indicate the U.S. would like to increase how much of a product originates in the NAFTA region from 62.5% to 70%. A joint statement on the third round of talks is soon expected and the next round of negotiations will be held in Washington around October 11th.



California Clashes with Trump Administration Over Fuel Efficiency Standards
California has yet to agree with the Trump Administration on how to handle the Environmental Protection Agency’s reconsideration of fuel efficiency standards for autos model years 2022-2025. Early this month EPA published notice in the Federal Register it is reconsidering fuel efficiency standards for 2022-2025 model year cars and light trucks and is seeking written comment through October 5th. As part of its initial regulations in 2012, the Obama administration agreed to complete a midterm evaluation in 2018 to determine if meeting the standards was still feasible. However, in 2016, the EPA decided to issue their midterm review early and, just days before President Obama left office, kept the requirements it had set in place in 2012 for model years 2022-2025. EPA plans on making a new Final Determination concerning the appropriateness of the standards by April 1, 2018. In addition, some in the automotive industry are pushing back against changes to MY2021 standards as potential disruptive to existing operations.
Due to history and legal precedent, California has the ability to write its own air pollution rules. For the moment, EPA Administrator Scott Pruitt has not stated he will try to revoke the federal waiver allowing California to set auto emissions standards. At a public hearing last week on the EPA’s reopened midterm review, California Air Resources Board emissions compliance chief, Annette Hebert, intimated California may set its own standards if EPA took steps to weaken emissions standards. Adding further fuel to the fire, on September 11th, California, New York, Vermont, Maryland, and Pennsylvania sued the National Highway Traffic Safety Administration over suspending the 2016 Obama administration regulation.



Repeal of Obama Clean Power Plan Expected this Fall
In its latest court filing, EPA indicated it expected to conclude its review of the Obama administration’s Clean Power Plan rule this fall. The much-maligned rule would likely increase the price of electricity by 6-20% annually. In 2016, the U.S. Supreme Court stayed its implementation. In its brief, EPA revealed it submitted its Clean Power Plan proposal for review by OMB. Once OMB completes its review, EPA will publish its proposal in the Federal Register for a public comment period.