Political Developments & The 2017 Tax Cut and Jobs Act

Transcription

1 Political Developments & The 2017 Tax Cut and Jobs Act

2 Moderator Elizabeth Creager, AT&T Assistant Vice President for Tax Panelists Rohit Kumar, PwC Principal & Tax Policy Services Leader Jon Lieber, PwC Principal, National Economics & Statistics Group 2

3 Sustainability of the TCJA COPYRIGHT NAME OF COMPANY 3

4 Reconciliation path was taken for tax reform FY 2018 budget resolution allowed up to $1.5 trillion in deficit-financed tax reform Regular legislative process Benefits Legislation can be enacted permanently No artificial restrictions on which measures can be included Limitations 60 votes needed at every step in the Senate (i.e., to begin debate, vote on amendments, vote on passage, to conference, etc.). Budget reconciliation process Benefits Requires only simple majority vote at every step in the Senate (no filibuster allowed) Key Limitations Expedited consideration (time limits for amendments and overall debate) Legislation that increases the deficit outside of the budget window (typically 10 years) is subject to automatic sunset or other measures to avoid long term deficit effect 60-vote Senate super-majority required to waive deficit rule Senate rules also require reconciliation to be used only to enact measures that have a fiscal effect on the federal budget Joint Committee on Taxation macroeconomic analysis projects that 2017 tax reform act will increase federal budget deficits by roughly $1 trillion over 10 years after accounting for economic growth and interest costs 4

5 Key tax reform provisions that are permanent or temporary & subject to sunset $400b+ annually to extend 5

6 Share of GDP Large fiscal effects from TCJA in early years 0.0% -0.2% -0.4% -0.6% -0.7% -1.4% -1.2% -1.0% -0.8% -0.6% -0.5% -0.4% -0.8% -1.0% -1.2% -1.4% -1.6% Source: Joint Committee on Taxation 6

7 $ billions Annual revenue cost of extending various tax provisions ($ billions) Pass-through provisions of HR1 Individual provisions of HR1 excluding pass-through Business provisions of HR1 Health tax extenders Other non-hr1 expiring tax provisions Business provisions include: 1) Family medical leave credit/craft beer 192 2) CFC look-through 24 3) 163(j) EBITDA definition of adjusted taxable income 4) Section 174 expensing 5) 100% expensing 80 6) GILTI - 50% deduction (in lieu of 37.5%) 7) FDII % deduction (in lieu of %) 96 8) BEAT - 10% rate and GBC offset

8 Who will finance the deficit and at what rate? Historical rate 10-Year Treasury

9 Senate Democrats infrastructure plan Proposal to raise $1 trillion to fund infrastructure investment Would repurpose certain tax benefits from 2017 tax law Provision Increase corporate tax rate to 25% Close carried interest loophole Restore top individual tax bracket to 39.6% Restore 2017 individual AMT Restore 2017 estate tax Revenue estimate (10 years) $359 billion $12 billion $139 billion $429 billion $83 billion 9

10 Key TCJA Provisions COPYRIGHT NAME OF COMPANY 10

11 Key provisions in the TCJA 21% Corporate Tax Rate Deemed mandatory repatriation o o Business Considerations Political Considerations Provisions aimed at protecting the US tax base intent and reality? o o o o o Global intangible low-taxed income (GILTI) Foreign-derived intangible income (FDII) Base erosion and anti-abuse tax (BEAT) Interest deduction limitation Anti-hybrid rules 11

12 New US statutory corporate tax rate (federal plus state average) closer to OECD average Hungary Ireland Latvia United Kingdom Slovenia Poland Czech Republic Turkey Iceland Finland Estonia Slovak Republic Switzerland Sweden Denmark Norway Israel Korea Spain Netherlands Chile Austria United States Canada Luxembourg Italy New Zealand Greece Portugal Japan Mexico Australia Germany Belgium France United States 2017 non-us OECD Average Combined Rate = 23.75% New 2018 US Combined Rate = 25.75% Drew Lyon National Economics and Statistics Leader Old 2017 US Combined Rate = 38.9% 0% 5% 10% 15% 20% 25% 30% 35% 40% 12

13 Other countries have reduced corporate tax rates while increasing VAT rates 13

14 Political Developments COPYRIGHT NAME OF COMPANY 14

15 The Trump bump: the good and the bad The upside Fiscal stimulus Competitive corporate tax Repatriation of trapped earnings Domestic investment incentives Productivity and growth The downside Long term deficits 2025 fiscal cliff Higher borrowing costs crowd out other spending Geopolitical uncertainty Inflation and uncertainty 15

16 Has the Trump bump run its course? DJIA up 30% since election day Down 9%t since Jan Election day Source: S&P Dow Jones Indices LLC, retrieved from FRED, Federal Reserve Bank of St. Louis; February 25,

17 How low can unemployment go? 18% 16% 14% Unemployment Underemployment Peak: 17.1% 12% 10% 8% 6% 4% 2% Peak: 10.0% Dec. 17: 8.1% Dec. 17: 4.1% 0%

18 Maybe employment isn t the problem Percentage of the population, age 25-54, that is employed Real median wage growth largely flat 82 January 2001: 81.4% % Jan. 2018: 79% % Source: Bureau of Labor Statistics, US Department of Labor, August

19 2018 political environment President Trump s job approval rating: 41.0% Presidential job approval Under 50% 50%- 60% Over 60% Avg. Seat Gain / Loss since Generic Congressional vote preference: Democrats +7.6% Sources: US Congress; Cook Political Report; RealClearPolitics.com poll averages as of March 13,

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