Tax Reform Legislative Update

Transcription

1 Tax Reform Legislative Update AGA - EEI Accounting Leadership & Chief Audit Executives Conference - June 26, 2017 David Bridges - Edison Electric Institute

2 Political Landscape Jan. to Present Inauguration Cabinet Nominations Supreme Nomination - Gorsuch Trump tweets. 2

3 Political Landscape Jan. to Present.(cont.) Trump Fires Comey Government Funding Bill Passes Trump tweets. 3

4 Political Landscape Jan. to Present.(cont.) Trump Pulls Out of Paris Accord Trump tweets. 4

5 Political Landscape Jan. to Present.(cont.) Comey Testifies to Senate Intel Comm. Senate set to take up Healthcare before July 4 Trump tweets. 5

6 Congress Again Driven By Deadlines/Cliffs o Debt Ceiling Sept./Oct.???? o 2017 Budget Reconciliation Sept. 30 th o SCHIP o Government Funding Sept. 30 th o Sequester Sept. 30 th o FAA Reauthorization, FDA User Fees, Flood Insurance Program Sept. 30 th o FISA (Foreign Surveillance Authority), Extenders & ACA Taxes Dec. 31 6

7 Tax Reform How did we get here? Tax Reform Act (TRA) of was the quintessential "lower the rates and broaden the base" legislation. o Dropped the top corporate tax rate from 46% to 34%, while eliminating numerous tax incentives o Lowered the top individual income tax rate from 50% to 28% while taxing capital gains and dividends as ordinary income o President Reagan's Treasury Department was heavily involved throughout the process and worked closely with House Ways & Means and Senate Finance Committees Camp Draft - In 2014, then Ways & Means Chairman Dave Camp released the most extensive tax reform draft in years. It contained: o Corporate tax rate cut to 25% o Retained deductibility of interest on corporate debt o Repealed corporate Alternative Minimum Tax (AMT) o Eliminated accelerated depreciation (system known as MACRS) o Repealed all energy tax credits o Individual tax rates set at 10% and 25% (with a 10% surtax on incomes over $400,000/$450,000) o Taxed dividend and capital gains as ordinary income with a 40% exclusion, meaning a maximum rate of 21% 7

8 Tax Reform How did we get here? The PATH Act of 2015 On December 18, 2015, Congress passed a $670 billion tax package that: o Made over 20 temporary provisions permanent including the R&D credit, Sec. 179 expensing, state & local tax deduction, several charitable provisions, S-Corp. provisions, American Opportunity Tax Credit, as well as enhancements to the Earned Income and Child Tax Credits o 5-yr extension of bonus depreciation (phased down from 50% to 30% over that period), New Markets Tax Credit, and Work Opportunity Tax Credit o 2-yr extension of 30 other expired provisions through the end of 2016, including a number of energy provisions o 5-yr extension and phase-down of the Wind Production Tax Credit o 5-yr extension and phase-down of the 30% Solar Investment Tax Credit o 2-yr delay of the Cadillac Tax and the ability to deduct the tax as an expense 8

9 Tax Reform How did we get here?? Election Results/Key Players o o o Republicans control White House, House and the Senate Tax reform is an economic driver for President Trump and Speaker Ryan Key Democratic players are in place such as Senator Chuck Schumer (D-NY), Senator Ron Wyden (D-OR) and Congressman Richard Neal (D-MA) Dynamic Scoring o Under dynamic scoring, proposed tax provisions will be scored using the true economic impact of tax policy changes (long-term effects of taxpayer response) o By taking this into account, tax writers can be more aggressive with their approaches Push for Growth o Recent attention within tax-writing committees is more about economic growth and less about broadening the tax base, lowering the rates o Goal is to push investment Push to be BOLD 9

10 Tax Reform Proposals The House GOP Blueprint The House GOP s Tax Reform Blueprint was released on June, 24, 2016, and includes the following items: o Business Tax Reform Corporate tax rate of 20% Pass-through (e.g., Partnerships, LLC, etc.) tax rate of 25% 100% full expensing of both tangible and intangible property Deductibility of net interest would be eliminated Net operating losses can be carried forward indefinitely and will be increased by an interest factor Territorial system, with no base erosion provisions Tax base would be border adjustable (i.e., tax imposed on value of imports; exports would not be subject to tax) LIFO, R&D credit and low-income housing tax credit would be retained. Eliminates all other unspecified special interest deductions and credits o Individual Tax Reform Consolidates the five current tax brackets into three individual tax brackets: 12%, 25%, and 33% 50% exclusion for capital gains, dividends and interest income (i.e., effective rates 6%, 12.5%, and 16.5%) Individual AMT and estate tax would be eliminated 10

11 Tax Reform Proposals The Trump Plan Highlights: April 26 th Press Conference by Treasury Secretary Mnuchin and NEC Director Cohn Business Reform laid out in 4 bullets 15% Rate, Territorial System, Repatriation and Eliminate tax breaks for special interests. No mention of the BAT, interest deductibility or expensing. 11

12 Tax Reform Proposal The Senate Senator Hatch Announces Informal Tax Reform Working Group: o Sen. Portman (OH) o Sen. Toomey (PA) o Sen. Scott (SC) o Sen. Thune (SD) Corporate Integration? Interest Haircut? Expensing? Corporate Rates? Simple Tax Cut? Thin Cap Rules? Border Adjustment Tax? Reagan/Camp Draft Style of Reform? 12

13 Tax Reform Landscape Where things stand. CONSENSUS 13

14 EEI Tax Reform Priorities/Principles Interest Deductibility/100% Expensing o Any substantial change to the deductibility of interest on corporate debt would impact the ability of electric companies to access lowercost capital. Raising the cost of capital, along with the added tax liability, would negatively impact customers by making it more expensive to produce and deliver energy. o A potential compromise would be to continue allowing electric companies the ability to deduct interest but to forgo utilizing 100- percent expensing. It is important to note that this potential compromise is expected to be revenue-neutral and may even be a revenue raiser. State & Local Tax Deductions o Electric companies are typically the largest payer of property taxes in every state because of the capital-intensive nature of their energy infrastructure. It is critically important for our industry to maintain the ability to deduct state and local property taxes. 14

15 EEI Tax Reform Priorities/Principles (cont.) Normalization/Excess Deferred Taxes o o To the extent accelerated depreciation, including 100 percent expensing, is retained in tax reform, tax normalization must be maintained. As in 1986, any reduction in the corporate tax rate must also provide for the normalization treatment for excess deferred taxes created by the reduction. Maintain Parity between Dividend and Capital Gains Tax Rates o It is critical to maintain parity with respect to the tax rate for dividends and capital gains. Otherwise, the tax code would arbitrarily advantage non-dividend paying stocks over stocks that pay dividends. 15

16 EEI Tax Reform Priorities/Principles (cont.) Transition Rules o Appropriate transition rules must accompany significant tax law changes. Our industry has made substantial investments in existing property and has made significant commitments toward new investment projects in reliance on the current tax rules. Tax reform should retain the current tax treatment for these investments. 16

17 EEI What are we doing? TARS Industry Coord. Advocacy & Lobby Pieces Executive Fly-Ins EEI Messaging Tax Reform Subcomm Comm. s Wash. Rep. 101 s 535 Plan 17

18 Tax Reform Where do we go from here???? House: Ways and Means has held two tax reform hearings so far this summer. Expect more. Potential release of draft and committee mark up in Sept. House Passage Sept./Oct. Senate: Wait and see approach with House Healthcare in Summer/Taxes in Fall Expect Senate to release and move something late Fall Oct./Nov. Trump Administration: Administration is taking the reins Listening Sessions and continued behind the scenes discussions with Congress May see additional details on Trump plan after the August Congressional Recess (Rates) Will cut the deal 18

19 Tax Reform When does it get done???? The Optimist: Fall/Winter of 2017 The Pessimist: Never The Realist: First Quarter of

20 Tax Reform What does it look like at the end???? 20

21 Questions? 21

22 The Edison Electric Institute (EEI) is the association that represents the U.S. investor-owned electric industry. Our members provide electricity for 220 million Americans, operate in all 50 states and the District of Columbia, and directly employ more than 500,000 workers. Safe, reliable, affordable, and clean electricity powers the economy and enhances the lives of all Americans. The EEI membership also includes dozens of international electric companies as International Members, and hundreds of industry suppliers and related organizations as Associate Members. Since 1933, EEI has provided public policy leadership, strategic business intelligence, and essential conferences and forums for the energy industry. For more information, visit our Web site at