The White House is determined to make the Tax Cuts and Jobs Act’s expiring individual income tax provisions permanent, though a legislative push to do so may have to wait until 2019.
Allowing the individual income tax cuts in the new tax law (TCJA, P.L. 115-97) to expire “haunts me to this day,” said White House National Economic Council Director Gary Cohn, and making them permanent is “something we have to fix at the first possible moment.”
That moment may have to wait a year though, as Cohn said they’ll likely wait to see the outcome of the November midterm elections. A push to make them permanent is “probably a next-year event,” he said, speaking February 15 at a Tax Council Policy Institute conference in Washington.
Under the TCJA, almost all individual income tax provisions in the law, with the exception of a change to index inflation to the chained consumer price index, are set to expire beginning in 2026.
The White House’s fiscal 2019 budget request released February 12 likewise indicated the administration’s intent regarding the expiring provisions, assuming in its baseline budget projections that the expiring individual and estate tax provisions would be extended. Within the 10-year budget window, making those provisions permanent would increase the law’s cost by $541.6 billion, according to the budget.
Asked about his response to concerns by European leaders that the TCJA’s new deduction for foreign-derived intangible income (FDII) constitutes an export incentive in violation of WTO rules, Cohn said those critics fail to take into account the sum of the tax law’s changes on the international front. (See our related story in Worldwide Tax Daily.)
“I’m not surprised that some of our friends in Europe might think that,” Cohn said, noting that the provision is just one component of the tax law’s international tax reforms, and they have to be viewed as a whole. “We are very confident that they abide by all the rules and all the regulations and all the laws when you look at them in their entirety,” he said.
Seth Hanlon of the Center for American Progress told Tax Analysts that he was less optimistic than Cohn that the FDII provision was WTO-compliant.
Hanlon, a former National Economic Council adviser on tax and economic issues during the Obama administration, said Cohn’s argument appears to be that because the TCJA’s global intangible low-tax income (GILTI) provision creates a lower rate on foreign income that is not from exports, the FDII deduction isn’t an export-contingent subsidy. But, according to Hanlon, the WTO rejected a similar argument in the 2002 dispute over the U.S. Extraterritorial Income Exclusion Act.
“It’s really hard to see how the administration can be confident it would withstand the WTO challenge that is surely coming,” Hanlon said.
Heavy Regulatory List Not a Concern
Cohn was likewise unconcerned that the enormous amount of regulatory guidance needed to implement the TCJA could have a chilling effect on companies' investment decision-making. He contended that large amounts of guidance are a necessary part of any tax overhaul, and added that it wasn’t a concern the White House has heard from the business community.
Instead, Cohn said that while they know businesses want clarity, the feedback the White House has received from the business community has been positive so far.
Cohn also justified the TCJA’s $1.5 trillion price tag, arguing that while the White House is concerned about rising federal deficits, the United States was at a competitive disadvantage with the rest of the world because of its corporate tax code. That disadvantage meant that the United States couldn’t attract capital investment and thus couldn’t hire workers, he said.
“We had no choice . . . we were heading in a bad direction,” Cohn said.
Citing corporate announcements of higher wages or new investments in the weeks after the tax law was enacted, Cohn declared that the results thus far “have really proved us right as far as [capital expenditures and] job creation in the U.S.”
“At some certain times you have no choice but to do what you’re elected to do, which is . . . grow the economy [and] provide better jobs and working environments, especially for low- and middle-class workers, and that’s exactly what we’re doing,” Cohn added.
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