2015 Homebuilder CFO Roundtables. Four Seasons Las Vegas June 2015

Transcription

1 2015 Homebuilder CFO Roundtables Four Seasons Las Vegas June 2015 Page Homebuilder CFO and Tax Director Roundtables June 2015

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 clientserving member firm of Ernst & Young Global Limited operating in the U.S. This presentation is 2015 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. Page Homebuilder CFO and Tax Director Roundtables June 2015

3 Tax legislative update Gary Gasper, Washington Council Ernst & Young, Ernst & Young LLP Page Homebuilder CFO and Tax Director Roundtables June 2015

4 Tax legislative activity in Washington, DC Tax-writing committees Political landscape Tax reform Background: History and Drivers of Tax Reform Chairman Camp s draft Obama FY2016 Budget Senate Finance Committee activity Tax extenders Over 50 provisions expired at the end of 2014 (including bonus depreciation) House wants to selectively make some of these permanent Senate, now controlled by Republicans, may support that approach Outcome may wait on tax reform or end of the year Page Homebuilder CFO and Tax Director Roundtables June 2015

5 Tax committee landscape Senate Finance Committee Chairman: Orrin Hatch (R-UT) In the Senate since 1977 Supports tax reform Ranking member: Ron Wyden (D-OR) Has worked with Republicans on bi-partisan tax reform bills (e.g., With Senator Coats and Senator Gregg) Committee ratio: 14 Republicans, 12 Democrats New Republican Members: Dan Coats (R-IN), Dean Heller (R-NV), and Tim Scott (R-SC) Re-elected in 2014: Mark Warner (D-VA), Pat Roberts (R-KS), Mike Enzi (R-WY), John Cornyn (R-TX) Page Homebuilder CFO and Tax Director Roundtables June 2015

6 Tax committee landscape House Ways and Means Committee Chairman: Paul Ryan (R-WI) Former Vice Presidential Candidate and Former Budget Committee Chairman Supports tax reform Ranking member: Sandy Levin (D-MI) In Congress since 1983, top Democrat on Ways and Means since 2010 Committee ratio: 24 Republicans, 15 Democrats New Member Bob Dold (R-Ill) Page Homebuilder CFO and Tax Director Roundtables June 2015

7 Tax reform Page Homebuilder CFO and Tax Director Roundtables June 2015

8 Who said it? We're going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary, and that's crazy. - Ronald Reagan, 1985 Page Homebuilder CFO and Tax Director Roundtables June 2015

9 Who said it? The tax code will be made more effective and efficient by getting rid of special-interest handouts, which will mean lower tax rates for individuals, families and all businesses If loopholes are closed, Americans should get the benefit by way of lower rates. Tax reform needs to be about strengthening the economy and making the code simpler and fairer. - Rep. Dave Camp, 2014 Page Homebuilder CFO and Tax Director Roundtables June 2015

10 Sources and uses of federal revenues, FY2013 Excise taxes, 2.9% Corporate Income Taxes, 9.3% Revenues Other, 5.2% Nondefense Discretionary, 7.7% Other Entitlements, 3.7% Expenditures Net Interest, 6.4% Social Security, 23.6% Individual Income Taxes, 45.0% Income Security, 15.6% Social Security, 32.4% Medicare and Health, 24.8% Defense, 18.4% Total: $2.8 trillion Total: $3.5 trillion Note: Other revenue includes Federal Reserve earnings, customs duties, estate and gift taxes, and other miscellaneous receipts. Other Entitlements includes commerce and housing credit, education, training, employment, social services, and veterans benefits and services. Nondefense Discretionary includes international affairs, general science, space and technology, energy, natural resources and environment, agriculture, transportation, community and regional development, administration of justice, general government, and undistributed offsetting receipts. Figures do not sum to 100% due to source. Source: Monthly Treasury Statement (Sept. 2013). Page Homebuilder CFO and Tax Director Roundtables June 2015

11 Long-term: Spending grows, revenue remains flat 45% 40% Discretionary and other mandatory spending 35% 30% Net Interest % of GDP 25% 20% Medicare and Medicaid 15% 10% Social Security Outlays 5% 0% Revenue Source: Updated Budget Projections: Fiscal Years 2013 to 2023, CBO, and Ernst & Young LLP calculations. Page Homebuilder CFO and Tax Director Roundtables June 2015

12 Major drivers of tax reform Competitiveness: the United States has among the highest corporate tax rates and is among few nations with a worldwide system of taxing foreign earnings Simplification: Reducing rates, eliminating tax preferences would simplify rules Certainty: Temporary nature of provisions makes planning difficult, system unreliable Economic growth Page Homebuilder CFO and Tax Director Roundtables June 2015

13 Three main buckets of tax reform Corporate International Individual General consensus that many tax expenditures should be eliminated in favor of lower rate Republicans target 25% Democrats aim for 28% Republicans pushing for territorial system Democrats skeptical of territorial over base erosion/job migration concerns Republicans support antibase erosion provisions Patent Box? Republicans propose lowering top individual rate to 25%; only one other bracket of 10% Rescinding individual tax expenditures among most politically sensitive items President opposes individual rate cut. Issues: Will each bucket be revenue neutral? Can the corporate rate be lowered enough to make losing tax expenditures worth it? Must additional revenue raisers be found to lower the corporate rate sufficiently? Can reform be limited to corporate and international? Page Homebuilder CFO and Tax Director Roundtables June 2015

14 What does it take to release a tax reform plan? 3 years in the making 3 discussion drafts 30 hearings 11 bipartisan working groups 14,000 public comments 979 pages of statutory language 200-plus current provisions eliminated 4-stop 2013 tour with Baucus Green light from GOP leadership Page Homebuilder CFO and Tax Director Roundtables June 2015

15 Chairman Camp Making Today's Tax Code Simpler and Fairer Page Homebuilder CFO and Tax Director Roundtables June 2015

16 Overview of Chairman Camp s proposal Designed to be: Revenue neutral Distributionally neutral Lowers corporate and individual income tax rates 25% top corporate rate (phased-in over five years) 10% and 25% individual rates, with a 10-percentage point surtax imposed on high-income individuals Eliminates individual / corporate AMT (credits refundable) Modifies or eliminates over 200 current tax expenditures, such as: Accelerated depreciation/phases-out Sec. 199 deduction Deductions for research, advertising expenses Last-in-first-out (LIFO) inventory method, Like-kind exchanges Individual deduction for state and local taxes Page Homebuilder CFO and Tax Director Roundtables June 2015

17 Chairman Camp s Tax Reform Act of 2014 individual tax highlights Income tax rates: 10%, 25% + 10% surtax on modified AGI in excess of $450,000 for joint returns ($400,000 for all others). AMT repealed. Capital gains, dividends: Taxed as ordinary income, 40% excluded Major changes to tax expenditures: Personal exemptions: repealed Standard deduction: increased to $22,000 for joint filers Child tax credit: increased to $1,500 and would be allowed for qualifying children under the age of 18 Mortgage interest: Phase down from $1 million to $500,000 amount of mortgage indebtedness on which interest payments deductible State and local tax deduction: repealed Charitable contribution deduction: limited to contributions above 2% of adjusted gross income (AGI) Tax-preferred retirement savings contributions: limited, more savings pushed into Roth-type plans Page Homebuilder CFO and Tax Director Roundtables June 2015

18 Chairman Camp s top ten business tax revenue raisers 10-year revenue cost Repeal accelerated depreciation (w/ indexing) $270 Amortize R&E expenses $193 Transition tax on deferred foreign income $170 Amortize certain advertising expenses $169 Phaseout/repeal of domestic production deduction $116 Subpart F reform $116 Tax on systemically important financial institutions $86 Repeal LIFO inventory method $79 Limit net operating loss deductions $71 Repeal like-kind exchanges $ $billions Source: Joint Committee on Taxation, Estimated revenue effects of the Tax Reform Act of 2014, JCX-20-14, 26 February Page Homebuilder CFO and Tax Director Roundtables June 2015

19 Administration s FY 2016 budget blueprint highlights Individual tax changes include provisions to: Impose 28% cap on value of itemized deductions Modify estate and gift tax rules Impose 30% minimum tax Buffett Rule (phased in starting at $1 million of AGI) Tax carried interests as ordinary income ($14 billion) Corporate tax rate goal of 28%; 25% for manufacturing Continues to propose reserve for business tax reform Includes benefits to business, such as permanent R&D credit Revenue provisions on international tax, financial services, oil & gas Eight new international provisions, reflecting OECD Base Erosion and Profit Shifting (BEPS) $150 billion in tax revenue to be used for infrastructure Page Homebuilder CFO and Tax Director Roundtables June 2015

20 Camp draft vs. Obama budget Issue Chairman Camp President Obama Like-kind exchanges Carried interest Home mortgage interest deduction Repealed Limit for real estate only only defer up to $1 million per taxpayer/year Taxed as ordinary income for partnerships performing services real property partnerships carved out Cap on deductible home mortgage interest for new mortgages would be reduced to $500,000; home improvement deduction repealed Depreciation Replace MACRS with system for longer recoveries approximating economic depreciation under ADS Taxed as ordinary income partner s share of income on investment services partnership interest Reduce benefit to 28% of specified exclusions and deductions that would otherwise reduce taxable income in the 33%, 35%, or 39.6% tax brackets Nothing specific; current depreciation schedules overstate economic depreciation Page Homebuilder CFO and Tax Director Roundtables June 2015

21 Senate Finance Committee Chairman Hatch has set up 5 Working Groups to come up with recommendations on tax reform by the end of May Individual (Chairs: Senators Grassley, Enzi and Stabenow) Business (Chairs: Senators Thune and Cardin International (Chairs: Senators Portman and Schumer) Savings and Investment (Chairs: Senators Crapo and Brown) Community Development and Infrastructure (Chairs: Senators Heller and Bennet) The International Working Group is farthest along Joint Committee on Tax is expected to release report on the recommendations of the working groups over the summer. Uncertain what happens next in the Senate Page Homebuilder CFO and Tax Director Roundtables June 2015

22 Areas of agreement on tax reform Bipartisan agreement Lower the corporate tax rate Paid for by broadening the corporate tax base Address base erosion Deal comprehensively within the current income tax system Willingness to address business tax reform (not individual) Less agreement All of the details and the timing Treatment of international income of US companies Whether to raise net revenue, and from where Democrats insist on new revenue Republicans are opposed to raising additional revenue Potential Opportunities Legislation to fund the Highway Trust Fund Page Homebuilder CFO and Tax Director Roundtables June 2015

23 Tax extenders Page Homebuilder CFO and Tax Director Roundtables June 2015

24 55 Tax Provisions expired on 12/31/ Select list Source: JCX Provision Business R&D credit 15-year straight-line cost recovery for qualified leasehold, restaurant, retail improvements Bonus depreciation New markets tax credit Incentives for biodiesel, renewable diesel Tax credits for energy efficient new homes Individual Deduction for State, local sales taxes Deduction for PMI (premium on mortgage insurance) Tax-free IRA distributions to charity 10-year cost $15 billion $5 billion $3 billion $2 billion $2.5 billion $612 million $6.5 billion $1.8 billion $2 billion Page Homebuilder CFO and Tax Director Roundtables June 2015

25 Conclusion CONCLUSION Page Homebuilder CFO and Tax Director Roundtables June 2015

26 Conclusion CONCLUSION Page Homebuilder CFO and Tax Director Roundtables June 2015

27 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. All Rights Reserved (W) ED None ey.com Page Homebuilder CFO and Tax Director Roundtables June 2015