As the House Republican blueprint's destination-based cash flow tax comes under increasing attack from retailers and opponents, the GOP and other would-be tax reformers are looking at other options. And it probably shouldn't be shocking that a federal VAT is among the choices to potentially replace the corporate tax in any major tax reform effort.
Tax Analysts Blog
Jeremy Scott, editor in chief of Tax Analysts' commentary, is an expert on federal issues and corporate tax policy. Scott leads the company's commentary, analysis, and opinion publishing. He contributes weekly to the Tax Analysts blog and writes periodically on federal tax issues. Before joining Tax Analysts, Scott was an associate at Silverman & Associates Chartered, where he practiced in construction law, bankruptcy, Miller Act issues, estate planning, debtor and creditor’s rights law, choice of entity, the creation of corporate and limited liability entities, and general corporate law. Scott received his BA from the University of Virginia, his JD from the William & Mary School of Law, and his LLM in taxation from Georgetown University Law Center.
The alternative minimum tax is a quirky feature of the tax code that dates from 1969. It came about because the Treasury secretary informed Congress that 155 very wealthy taxpayers owed no income tax in 1966. Lawmakers then created a special tax regime that excluded most deductions and hit capital gains more heavily. From those 155 taxpayers, the AMT has grown to affect more than 5 million taxpayers a year.
The Republican alternative to Obamacare is finally here. House Republicans released their plan to repeal and replace the Affordable Care Act, dubbing it the American Health Care Act (AHA). While not quite Obamacare lite, the AHA retains several aspects of the ACA, including two that were widely expected to be repealed: the tax on so-called Cadillac insurance plans and the codification of the economic substance doctrine. The latter was the subject of a recent misinformation campaign by opponents of repeal.
Since the 1970s, Republicans have successfully turned the United States into an antitax country. Voters and the public are wary of any new levy, largely believe that any tax cut is by definition good, and don't trust the government to wisely spend what taxes it does collect. Nowhere has this been more successful than in the transformation of the estate tax into the so-called death tax. The estate tax now faces near certain extinction even though almost no one pays it, and very few even face the prospect of paying it.
President Trump is in favor of the House's destination-based cash flow tax. Or at least that's what The New York Times made readers think after the president spoke to Republicans in Philadelphia. But the truth is much more complicated than that, and Trump has yet to mention the House plan since he told The Wall Street Journal that he found it "too complicated".
The House Republican blueprint has received surprisingly positive reviews from many economists and tax observers. In one bold stroke, the destination-based cash flow tax could eliminate the aspects of the tax code that encourage businesses to locate jobs overseas. It could be a powerful engine for domestic job creation and economic growth. All that being said, however, it's time for House Speaker Paul Ryan and Ways and Means Chair Kevin Brady to accept that the tax will almost certainly never become law.
The new year is here, and 2017 has the potential to dramatically alter the tax policy climate in both the United States and Europe. Most obviously, the incoming Trump administration and its Republican allies in Congress would love to remake the U.S. tax code by repealing Obamacare (which has many important tax components) and passing a tax reform package that lowers rates and alters how business income is treated. In Europe, the populist wave personified by Brexit and Donald Trump could sweep away governments in France (most likely), Italy, and Germany (least likely).
Italian Prime Minister Matteo Renzi bet his political future on a somewhat convoluted constitutional referendum that was designed to make it much easier for his center-left coalition to govern without majority support from voters. He bet big, and he lost big, because Italians rejected the constitutional changes proposed by the prime minister, who promptly announced his resignation. The outcome is both a major victory for democracy and a sharp setback for the EU and possibly the eurozone.
President-elect Donald Trump's 100-day agenda is starting to take shape. While a lot is still not known (including a number of key Cabinet appointees), Vice President-elect Mike Pence laid out four priorities over the weekend. "Repealing Obamacare will be the first priority in a session that will be characterized by tax reform, rebuilding the military, infrastructure, ending illegal immigration, and that’s where we’re focused," Pence told Face the Nation.
Before the elections, pollsters were confident that the United States faced another four years of divided government. Virtually every prognosticator in the country predicted that Democratic nominee Hillary Clinton would win the presidency, but face at least a GOP-controlled House. They were all wrong. Far from being pushed into a media-predicted civil war, Republicans won a complete victory on November 8, with Donald Trump winning the White House while Republicans maintained control over both chambers of Congress. This opens the door to at least two years of frenzied legislative activity, particularly on tax reform.
Although there isn't much of a consensus on anything in Washington, there is a lot of chatter over increasing infrastructure spending. Hillary Clinton wants to reinvest in the nation's transportation network. Donald Trump wants to spend even more than Clinton. And lawmakers all want to find a way to replenish the Highway Trust Fund that doesn't involve a gas tax hike.
The section 385 regulations on the distinction between debt and equity are now final, and despite what tax advisers and Congress have been saying for months, the world did not come to an end. In fact, the barrage of negative comments and nasty letters from lawmakers profoundly affected Treasury, and the once-sweeping regulation package was significantly carved back. In a few years, when the U.S. tax base is even further eroded, the government will almost certainly rue this guidance as a profound missed opportunity.
By now virtually everyone is aware that Donald Trump claimed a $916 million tax loss on his 1995 returns. We know this because The New York Times obtained a partial copy of Trump's state returns and published a story speculating that Trump has been using this loss to avoid paying any income taxes for years (18 years is the number being thrown about). The Trump campaign is going to have to do a lot of damage control to mitigate the political effect of the Times' revelations, but a real estate developer claiming huge losses isn't all that remarkable from a tax perspective.
Hillary Clinton would like voters to believe she's the candidate most likely to help working Americans. After a surprisingly difficult primary fight with a socialist senator from Vermont, Clinton has adopted a lot of populist economic rhetoric. On her campaign website, she says she has an eight-point plan to help the middle class, with the first point saying, "Hillary is proposing middle-class tax breaks to help families cope with the rising cost of everyday expenses." However, Clinton actually hasn't ever released her plan to cut middle-income taxes (or really any taxes), instead relying on evasive answers and proposals for small-change tax expenditures.
The estate and gift tax has a long history in the United States. The current version celebrated its 100th birthday on September 8, but there were legacy tax experiments throughout the 19th century. The tax was relatively stable for most of its first 80 years, until Republicans made its repeal one of their central tenets and succeeded in labeling it the death tax. The battle seemed to climax in late 2012, when the American Taxpayer Relief Act (ATRA) permanently extended a compromise version. However, both 2016 presidential candidates would revisit the ATRA solution, albeit in radically different ways.
In the wake of the United Kingdom's vote to exit the European Union, another core member of Europe is facing an uncertain future because of proposed major constitutional reform. Italian voters will go to the polls in late October or early November to decide the fate of Prime Minister Matteo Renzi's leftist government. If Renzi's reform passes, it will make governing Italy much easier, but its main aim is to essentially disenfranchise a euroskeptic, populist movement similar to the U.K. Independence Party.
Apple is a major part of why the United States is the world's leading innovator on new technologies, particularly those involving telecommunications and computers. The company has over 66,000 domestic employees, and a large percentage of its customers are here -- at least 40 percent, according to its latest annual report. But Apple also aggressively avoids paying taxes in high-tax jurisdictions, particularly the United States. And Apple CEO Tim Cook's recent statements are misleading about why.
Republican presidential nominee Donald Trump has taken a lot of heat for proposing a tax plan that would cost at least $12 trillion over 10 years if enacted. In response to that criticism, Trump and his advisers have implied that a new, less costly plan is in the works. But Trump isn't the only candidate in the race who seems unconcerned about adding to the deficit.
In his acceptance speech at the Republican National Convention, Donald Trump painted a very bleak picture of a dystopian United States that is spinning out of control. Citing compelling statistics, the GOP nominee highlighted rising violent crime rates, wage stagnation, continuing unemployment, and the dangerous state of the world. And then, toward the end, Trump once again called the United States "one of the highest-taxed nations in the world."
The Brexit saga in the United Kingdom is almost ready to enter its next phase. Instead of waiting until September to elect a new Conservative leader who would then become prime minister, Andrea Leadsom's decision to drop out has conceded the race to her rival, Theresa May. May's triumph has significant ramifications for Britain's future relationship with Europe and the U.K. economy, but she also struck a blow for transparency in election disclosures. May released four years' worth of her own tax returns, while Leadsom declined to release more than one.