Upload
hanguyet
View
227
Download
3
Embed Size (px)
Citation preview
Page 2
Disclaimer
► EY refers to the global organization, and may refer to one or more, of the member firms of Ernst &
Young Global Limited, each of which is a separate legal entity. Ernst & Young LLP is a client-serving
member firm of Ernst & Young Global Limited operating in the U.S.
► This presentation is © 2017 Ernst & Young LLP. All rights reserved. No part of this document may
be reproduced, transmitted or otherwise distributed in any form or by any means, electronic or
mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any
information storage and retrieval system, without written permission from Ernst & Young LLP. Any
reproduction, transmission or distribution of this form or any of the material herein is prohibited and
is in violation of U.S. and international law. Ernst & Young LLP expressly disclaims any liability in
connection with use of this presentation or its contents by any third party.
► Views expressed in this presentation are those of the speakers and do not necessarily represent the
views of Ernst & Young LLP.
► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax
advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances
► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting
advice.
3
April 7-24:
Congressional
spring recess
Washington timeline, agenda
Mar Apr May Jun Jul Aug Sept
March 15:
Federal
debt limit
reinstated
September 30:
FAA funding/authority
and children’s health
program expire
Must-do items for 2017
► By April 28/May 5 : government funding for remainder of FY 2017
► Bipartisan support sought, will omit defunding Planned Parenthood, border wall
funding
► One week extension agreed to on April 28
► By September 30: government funding for FY 2018
► Timeline for congressional processing of FY18 budget unclear
► May include reconciliation instructions for tax reform, other issues
► Full Trump budget expected mid-May; ‘skinny’ budget was out March 16
► Increased border, defense funding debates are likely in this context
► By sometime in the fall: address Federal debt limit
► Suspension ended March 15; Mnuchin wants increased ASAP
► Treasury extraordinary measures can last into the fall
July 31 - Sept 5:
Congressional
summer recess
April 28:
Expiration of
government
funding
Mid-May:
Release of
Trump detailed
FY18 budget
4
Trump/Republican priorities, 2017
ACA repeal
► House bill pulled from consideration due to insufficient GOP support
► Would have repealed most ACA taxes beginning in 2017
► President says negotiations continue, wants to do before tax reform
Tax reform
► Administration at “beginning phases” of developing a new proposal
► NEC’s Cohn: We’re “going to launch with one cohesive plan together”
► Trump: doesn’t like term “border adjustment,” prefers reciprocal tax
Infrastructure
► Trump: very big infrastructure bill coming very soon
► “See it as part perhaps of the healthcare plan” to get Democratic votes
► Senate Democrats proposed $1T plan, includes closing tax loopholes
Regulatory
reform
► March 28 executive order calls for rolling back Obama climate policies,
including Clean Power Plan regulations for electric power plants
► January executive order calls for 2 regulations out for every new 1 in; April executive order requires review of all 2016 “significant” tax regs
Immigration► Trump calling for wall on Mexico border: $15-25b cost
► Budget bill unlikely to include wall funding that Democrats oppose
Trade
► Trump withdrew US from TPP; new USTR not yet confirmed
► Wants NAFTA renegotiated quickly; farmers, others concerned
► Did not act to deem China a currency manipulator
5
Effects of health bill outcome on tax reform
$/Process
Leadership
►Highlights awareness of the difficulty of advancing a major bill
►Trump, House GOP under greater pressure for legislative achievement
►Could increase wariness for including controversial tax elements
►GOP could seek Democratic tax reform votes with infrastructure tie-in
►GOP likely to try to line up support for tax proposal earlier in the
process
►Health bill would’ve repealed most ACA taxes in 2017 = $1 trillion cut
►If ACA taxes cut in tax reform, $1 trillion needed for revenue neutrality
►GOP could abandon revenue neutrality in favor of tax cut
►Health bill was crafted in House, Speaker Ryan was main advocate
►Administration has now asserted it take lead on tax reform
►OMB Dir. Mulvaney: “It will be the President’s plan,” we will drive debate
►Press Sec. Spicer: “Obviously, we’re driving the train on this.”
Politics
6
Tax reform: overall state of play
► House Republican Blueprint for tax reform:► Reduced individual tax rates: 12%, 25%, and 33%; standard deduction increased, other
deductions repealed, limited; capital gains, etc. effectively taxed at one-half of otherwise
applicable rate (NIT assumed repealed as part of healthcare reform)
► 20% corporate income tax rate/25% rate for business income of pass-throughs
► Immediate expensing of capital expenditures with no interest expense deduction
► Business provisions eliminated, except for R&D Credit and LIFO
► Territorial system of taxing future foreign earnings
► Mandatory tax (8.75%/3.5%) on accumulated foreign earnings
► Destination-basis tax system exempts exports while fully taxing imports
► Hearings in May?
House
Senate
Trump
Admin.
► Trump Administration:► Reduced individual tax rates: 10%, 25%, and 35%; double standard deduction; deductions, etc.
other than for charitable giving and home ownership, could be eliminated; tax relief for families
with child and dependent care expenses; current law rates for capital gains and dividends
maintained; 3.8% NIT repealed; AMT repealed; estate tax repealed
► 15% corp. tax rate, 15% pass-through business rate (for small- and medium-sized businesses?)
► “Eliminate tax breaks for special interests”
► Territorial system, with mandatory one-time tax on accumulated foreign earnings
► Senate: ► Does not have a companion to the House Blueprint
► Senate Finance Chairman Hatch: Senate will conduct its own tax reform process after the
House acts. Will not just accept House bill
► Hatch and other Senators have reservations about border adjustability and starting to question
need for revenue neutral bill
► Staff currently reviewing all options, including corporate integration
7
Budget reconciliation
► Republicans don’t have filibuster-proof 60 Senate votes
► Reconciliation allows 51-vote approval for spending, tax, debt limit
bills (or combination), under 2-step process
1) Budget Resolution with reconciliation instructions must be passed by both
House and Senate
- Instructions direct committees to change spending or revenue numbers
2) Then, Congress must pass reconciliation bills that adhere to instructions
► Plan for two sets of reconciliation instructions in 2017 now unsettled
since health care vote was cancelled
1) FY 2017 budget resolution called on 4 committees to reduce deficit by not
less than $1 billion each FY2017-2026: 2 House committees produced
American Health Care Act
2) FY 2018 budget could include instructions for tax reform
8
Budget reconciliation limitations
“Byrd Rule” protects views of minority party, prohibits extraneous matter
Six tests for matters to be considered extraneous and thus require 60 Senate votes to
waive point of order, applicable to provisions that:
Do not produce a change in outlays or revenues
Produce changes in outlays or revenue which are merely incidental to the non-
budgetary components of the provision
Are outside the jurisdiction of the committee that submitted the title or provision for
inclusion in the reconciliation measure
Increase outlays or decrease revenue if the provision's title, as a whole, fails to
achieve the Senate reporting committee's reconciliation instructions
Increase net outlays or decrease revenue during a fiscal year after the years covered
by the reconciliation bill unless the provision's title, as a whole, remains budget neutral
Contain recommendations regarding the OASDI (Social Security) trust funds
These limitations on reconciliation have practical effects, including:
► The 2001 Bush tax cuts were subject to a sunset after 10 years, and required subsequent legislation to make many provisions permanent
► The Affordable Care Act cannot be completely repealed under reconciliation
9
Key issues in tax reform debate
Border adjustability Individual taxes Interest deductibility
Pass-throughs Revenue/politics
► House Rs: Imports exempt from tax with cost of goods sold deductible; costs, including costs of goods sold, for imports non-deductible
► House proposal faces opposition from retailers, others, including Senate, maybe Trump
► Reform may be “revenue neutral”
► Democrats may or may not participate
► Reconciliation could require provisions to sunset after 10 years
► GOP can lose only two Senate votes if using reconciliation
► Trump proposed expensing for manufacturers, who then lose interest deductibility
► House Rs: expensing, eliminate deductibility of net interest expense
► Expensing may or may not be worth losing interest deductions
► Trump: 15% pass-through rate, 15% corporate rate
► House Republicans: 25% pass-through rate, 20% corporate rate
► Elimination of deductions, etc. to pay for rate cuts affects pass-through entities
► Trump and House Republicans propose top individual rate of 33%
► Lower tax rates on investment income
► Cuts to key individual tax benefits may create political fallout
► Payroll tax cut?
New international tax system
► Move from a global tax system to a territorial system?
► Eliminate income deferral?
► Mandatory tax on accumulated earnings
10
For and against border adjustability
Arguments for:
► Provides level playing field for
US companies; would bring
jobs, investment to US
► Eliminates incentive for profit-
shifting
► No need for anti-base erosion
provisions
► $1 trillion-plus in revenue
toward tax reform bill
► Exchange rate adjustment
would offset increased
taxes/prices for imported goods
► Advocates think WTO challenge
can be won
Arguments against:
► Too complicated
► Too much uncertainty
► Increased taxes for imported goods hits
retailers, passed to consumers
► May create negative net tax liability for
large exporters
► Wage deduction may violate WTO rule
that income taxes cannot favor exports
► Countries could retaliate outside of WTO,
arguing BAT is export subsidy
► Exchange rate adjustment uncertain,
could take a while
► And would reduce value of foreign
investments held by US investors, such as
pension funds, retirees
11
Senate Republicans on border adjustability
► Finance Chairman Hatch (R-UT): “at least a handful” of Senators have serious
reservations. Questions:
► Who will bear the tax? Consistent with WTO obligations? Burden on industries?
► Senate GOP Whip (#2 in charge) Cornyn (R-TX):
► Concerned about constituent refiners, manufacturers in supply chains with Mexico
► Don’t want the House to get momentum behind something that won’t pass Senate
► Scholars disagree on impact: “doesn’t seem to be any consensus”
► Senator Perdue (R-GA), former Reebok CEO:
► BAT “regressive, hammers consumers… Increase in consumer prices”
► “[C]urrency revaluation = multi-trillion dollar reduction in the value of foreign
investments held by US investors,” including pension funds, retirees
► Senator Cotton (R-AR): affects prices of food, apparel, toys, gas
► Taxes working class “to lower marginal rates for corporations”
► Senator Rounds (R-SD): need to know impact on economy
► Senator Moran (R-KS): worries over constituents paying tax, trade war
► “I assume you get into a battle with other countries… and it affects the exporters.”
12
Tax reform “details” to be determined include…
1
Will tax reform be revenue neutral?► Chairman Brady: intended to be break-even, considering economic growth► Trump campaign tax plan estimated to lose $4-6 trillion depending on considerations
2
3
4What will be the fate of border adjustability?► Brady said benefits include: 1) Leveling the playing field for American made
products; 2) Simplifying international tax; and 3) Eliminating incentive to move jobs,
HQs overseas
► President Trump: “Anytime I hear ‘border adjustment,’ I don’t love it.”
Will reform be combined with infrastructure investment?► Senator Schumer: “That infrastructure bill has to have certain things for us to
support it. It can't just be tax credits.”
► Brady: Blueprint applies the revenue from “deemed repatriation” toward rate
reduction and tax code redesign
Will bipartisan support allow reconciliation to be avoided?► Brady: reconciliation may be the only option for advancing reform, but House GOP
to begin by asking Democrats for input► Reconciliation-enacted provisions may sunset after 10 years► Senator Cornyn: “If you do things purely on the party line, then it’s unsustainable.”
13
Federal budget outlook
FY 2017 FY 2018-27 2032
Deficit $559 billion; 2.9%/GDP $9.42 trillion; 4%/GDP
Debt held
by public 77%/GDP 89%/GDP by 2027 99%/GDP
Source: CBO, The Budget and Economic Outlook: 2017 to 2027, January 24; The 2017 Long-Term Budget Outlook, March 30,2017
► Federal debt held by public is 77%/GDP, highest since WWII
► Without changes in law, major debt increase: 99%/GDP by 2032
► WHY? Social Security and Medicare costs from aging population
► CBO assumes annual 2% increase in GDP on average
► Lower than historical average = slower growth of labor force due to
aging
► Keep debt at 77%/GDP? ↓spending or ↑taxes by 2% of GDP per year
► $380 billion in 2018
► Cut debt to 40%/GDP? ↓spending or ↑taxes by 3% of GDP per year
► $620 billion in 2018
14
Trump budget perspectives
► Trump promised not to cut Social Security or Medicare
► Trump has focused comments more on tax cuts than reform
► Unclear if Administration’s plan is revenue neutral
► ‘Skinny’ budget cut discretionary to boost defense $54B
► Would not achieve any deficit reduction
► Tax cut could add to deficit, but arguably increase growth
“We believe we can be competitive and get back to sustainable
growth at 3% 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.”
Treasury Secretary Mnuchin, February 27
15
Spending, interest long term will grow as percent of GDP
Note: Projections are from the CBO’s extended baseline in The 2016 Long-Term Budget Outlook.
Sources: CBO, The 2016 Long-Term Budget Outlook, July 12, 2016; CBO, Updated Budget Projections 2016 to 2026, March 24, 2016; Office of Management
and Budget, Table 1.2—Summary of Receipts, Outlays, and Surpluses or Deficits (-) as Percentages of GDP: 1930–2018.
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1975 1985 1995 2005 2015 2025 2040
Net interest
Discretionary and othermandatory spendingMajor health care programs
Social Security
Revenue
16
Federal debt, long term
0
20
40
60
80
100
120
140
160
2017:
77% of GDP
2018–2027:
89% of GDP
Projected annual average
2028–2037:
113% of GDP
Projected annual average
2038–2047:
150% of GDP
Projected annual average
Source: CBO, The 2017 Long-Term Budget Outlook, March 30,2017
40% = average of past 50 years
100%
18
IRS budget challenges
Even though there was a small $290 million increase in 2016, it was
barely enough to keep up with inflation. As a result, IRS funding was still
17 percent below the 2010 level, adjusted for inflation.
$0 $2 $4 $6 $8 $10 $12 $14
19
Number of IRS employees down
Source; IRS Data Book(s) 2010 -2016, Table 30.
94,346
91,380
89,551
83,613
78,121
76,540
76,219
0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000
Number of full-time equivalents (FTEs) at fiscal year-end
2016
2015
2014
2013
2012
2011
2010
20
IRS workforce composition
► In the next several years, close to 35% of IRS workforce will be
eligible to retire
► 40% of managers
► 50% of executives
► Number of Revenue Agents has fallen 25% since 2010
► Only 122 full-time employees 25 years old or younger out of a
workforce of about 77,000, less than one-half of one percent.
21
Changing controversy landscapeImpact on taxpayers
► Large Business & International Division (LB&I)
Campaigns
► Update on LB&I’s Examination Process
► Update on Appeals
EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction and advisory
services. The insights and quality services we deliver help build trust
and confidence in the capital markets and in economies the world
over. We develop outstanding leaders who team to deliver on our
promises to all of our stakeholders. In so doing, we play a critical role
in building a better working world for our people, for our clients and
for our communities.
EY refers to the global organization, and may refer to one
or more, of the member firms of Ernst & Young Global Limited, each
of which is a separate legal entity. Ernst & Young
Global Limited, a UK company limited by guarantee, does not
provide services to clients. For more information about our
organization, please visit ey.com.
Ernst & Young LLP is a client-serving member firm of
Ernst & Young Global Limited operating in the US.
© 2017 Ernst & Young LLP.
All Rights Reserved.
ED None
This material has been prepared for general informational purposes
only and is not intended to be relied upon as accounting, tax or other
professional advice. Please refer to your advisors for specific advice.
ey.com