Trump’s 15% corporate tax push sets stage for clash with Ryan

(Bloomberg) President Donald Trump’s plan to slash the corporate tax rate to 15 percent is setting up a showdown with House Speaker Paul Ryan, who has called for a tax plan to pay for itself.

Trump intends to lay out broad tax principles on Wednesday, including cutting the federal corporate tax rate to 15 percent from 35 percent, a White House official said. A rate that low would make it difficult to find ways to increase revenue or eliminate deductions to offset it—that means a plan wouldn’t be revenue-neutral, or permanent.

The Ryan-backed House GOP blueprint released in June calls for replacing the 35 percent rate with a 20 percent rate applied to companies’ domestic sales and imported goods, while exempting their exports. Ryan has questioned whether a 15 percent rate can realistically be paid for, and he and Kevin Brady, chairman of the tax-writing House Ways and Means Committee, have said they’re committed to revenue neutrality.

The Urban-Brookings Tax Policy Center estimates that cutting the corporate rate to 20 percent would lower federal tax revenue by $1.8 trillion over a decade, while cutting it to 15 percent would decrease revenue by $2.4 trillion.

‘Big Number’

“It’s hard to imagine you’re going to make that revenue-neutral,” Roberton Williams, an expert with the Tax Policy Center, said, referring to a 15 percent corporate rate.

“It’s a big number. The kind of changes you’d need to make to claw that much money back are not consistent with the kinds of things Trump has talked about,” Williams said. “They’d have to do something that raises taxes elsewhere.”

It’s unclear what kind of revenue raisers Trump’s plan will include. He isn’t likely to endorse a border-adjusted tax in Wednesday’s plan, a senior administration official said last week. The border-adjusted tax is a centerpiece of the House GOP plan because it’s estimated to raise $1.1 trillion over a decade, helping to pay for individual and corporate tax cuts. And Trump hasn’t called for doing away with corporate deductions for interest, as laid out in the House plan—that would raise an estimated $1.2 trillion over a decade. Instead Trump and senior officials have touted the economic growth that would result from the cuts.

If a tax overhaul adds to the deficit after the initial 10-year window, it’s likely to run afoul of Senate budget rules for what can pass the Senate with a simple majority. Republicans have 52 members in the chamber; they can only spare two votes.

Tuesday Meeting

“It produces a lot of uncertainty for businesses. You can’t completely redesign the budget tax system for nine-and-a-half years, and then flip it back in 10 years,” Ryan said in February during a PBS NewsHour interview. “We do envision revenue-neutral tax reform that is permanent.”

White House economic adviser Gary Cohn and Treasury Secretary Steven Mnuchin are expected to meet with Republican leaders Tuesday on Capitol Hill to go over the president’s tax plan. Cohn and Mnuchin have said they’ve been meeting with congressional leaders on tax issues, but the announcement about a tax plan coming Wednesday was said to be a surprise.

Senate leadership seemed skeptical of a business rate of 15 percent, which was part of Trump’s campaign tax plan. Senate Finance Chairman Orrin Hatch said he doubted that a corporate rate that low could be achieved.

“I’d like to, but I don’t know,” he told reporters on Monday.

“It’d be great if we could get there,” said Senator Pat Toomey, a Pennsylvania Republican. He declined to comment on whether tax reform should be revenue-neutral.

Economic Growth

Douglas Holtz-Eakin, a Republican economist and president of the American Action Forum, said Trump campaigned more on tax cuts than revenue-neutral tax reform. He said the White House’s demands will be central to the debate.

“The only way tax reform gets done is to have tremendous White House involvement, effort and persuasion,” Holtz-Eakin said.

Mnuchin indicated on Monday that the administration is less concerned with tax cuts adding to the deficit. He said the president is “very determined” that the U.S. can achieve sustained annual economic growth of 3 percent or greater, which would pay for the tax cuts along with “trillions of dollars” brought in from offshore havens.

The Tax Policy Center’s Williams was doubtful: “History belies that,” he said. “We haven’t seen tax cuts that actually pay for themselves.”

—With assistance from Terrence Dopp

Bloomberg News

Trump’s tax plan — at least a rough draft — coming soon

President Donald Trump will release a tax plan for individuals and businesses next week that may not include every component that will go into final legislation, said a senior White House official.

The plan — which Trump said will be released Wednesday — will contain the administration’s priorities, and it will finally reveal the president’s position on a controversial proposal called the border-adjusted tax, said the official, who asked not to be identified because discussions of the plan are private.

White House Budget Director Mick Mulvaney, in an interview with Bloomberg Television, provided few details, saying that the plan is aimed at providing 3 percent annual growth. “We’re trying to backfill from there,” he said — by incorporating tax policy that would provide for that ambitious growth target. A Bloomberg survey of 73 economists in April showed the median forecast for U.S. economic growth in 2017 is 2.2 percent.

Mulvaney also raised the possibility that the plan might not be revenue-neutral — meaning that it might provide for only temporary tax cuts that would have to expire after 10 years. “Deficits are not driving the discussion,” he said.

The Associated Press reported Friday that Trump said that the plan will result in “massive” tax cuts for both individuals and businesses. The cuts will be “bigger I believe than any tax cut ever,” he said, according to the AP report.

Later, while signing an executive order related to a broad review of tax regulations from 2016 and 2017 (see Mnuchin says Obama-era tax rules get review with Trump order), Trump said that he wants Treasury Secretary Steven Mnuchin “to begin the process of tax simplification.”
‘Phenomenal’ Plan

Trump, who campaigned on large tax cuts for businesses and individuals, had said on Feb. 9 that he would be releasing a “phenomenal” tax plan to overhaul the Tax Code within two to three weeks. The word that he’ll release a plan next week comes as he approaches the end of his first 100 days in office on April 29.

Reaction in Congress, which returns from a two-week recess next week, was muted. Senate Majority Leader Mitch McConnell’s office referred questions to the White House.

But the Senate Finance Committee has yet to see final details of a White House plan, a congressional aide said Thursday. And tax-related challenges presented by the 2010 Affordable Care Act remain in place amid Republicans’ disagreement on how to dismantle the health-care law they’ve criticized for years. Mulvaney repeated Friday that Trump would like to see health-care legislation tackled first — because it could help pave the way for larger tax cuts overall.

In the House, where any tax legislation would have to begin, “Our intention has always been and continues to be to coalesce around a unified GOP plan and those conversations continue,” said AshLee Strong, a spokeswoman for House Speaker Paul Ryan.
Border-Adjusted Tax

Mulvaney didn’t reveal Trump’s position on one controversial tax proposal: Ryan’s plan to replace the 35 percent corporate income tax with a 20 percent “border-adjusted tax” on U.S. companies’ domestic sales and imports. Exports would be exempt under the plan, which is opposed by retailers, carmakers and oil refiners that rely on imported goods.

Mulvaney said that administration officials are grappling on how well that portion of Ryan’s plan would contribute to economic growth. The border-tax concept is estimated to raise more than $1 trillion in revenue over 10 years; without that, it may be difficult for any plan to achieve revenue-neutrality.

Revenue neutrality is important, because the GOP controls just 52 of the Senate’s 100 seats, and normal Senate rules impose a 60-vote threshold for legislation to escape potential filibusters from opponents. Senate Republicans could use a process known as budget reconciliation, which would allow for passing a tax bill with a simple majority. But under that process, any legislation that added to the deficit would have to be set to expire after 10 years.

Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center and a former legislation counsel at Congress’s Joint Committee on Taxation, said Trump’s announcement “almost certainly” signaled that he was abandoning permanent tax reform in favor of temporary tax cuts that would expire in 10 years.

“We will end up with ‘tax cuts for everyone,”’ Rosenthal said. “You just use fantasy scoring. It’s much easier than tax reform and revenue neutrality.”

Stallone sues Warner Bros. over accounting for ‘Demolition Man’

Actor Sylvester Stallone and his production company are suing Warner Brothers over the movie studio’s accounting for the 1993 movie Demolition Man.

According to Stallone’s contract, he was due 15 percent of the gross earnings of the movie once it earned over $125 million, but the suit brought by his production company, Rogue Marble Productions, alleges that the studio simply stopped reporting to it after 1997, and when explicitly asked for a profit participation report in 2014, Warner Bros. said that the movie was still $66.93 million below the payout threshold.

When Rogue Marble questioned that reply, it claims, the studio sent along a check for $2.82 million with a one-page statement that “did not contain any detail for the figures presented, nor did it contain any detail covering the reporting period since the last statement” in 1997.

Stallone and Rogue Marble are seeking a complete accounting of the movie’s earnings from tickets, DVD, VHS and BluRay sales, and other sources, with the expectation that that will reveal that Stallone — “one of the greatest American talents of the last and present century,” as the suit describes him – is owed significantly more than the $2.82 million he was sent.

“The motion picture studios are notoriously greedy,” the suit notes. “This one involves outright and obviously intentional dishonesty perpetrated against an international iconic talent.”

Through a spokesperson, Warner Bros. declined to comment.

Voices Sorry, America — your taxes aren’t high

(Bloomberg) Americans generally feel they’re being over-taxed, especially around this time of the year. Even their president agrees.

“With lower taxes on America’s middle class and businesses, we will see a new surge of economic growth and development,” Donald Trump said this month, expanding on an earlier promise to cut Uncle Sam’s bill “massively.” But the reality is that the average U.S. worker pays quite a bit less than he would elsewhere in the developed world. And what’s more, this has been the case for a long time.

The Organization for Economic Cooperation and Development analyzed how 35 countries tax wage-earners, making it possible to compare tax burdens across the world’s biggest economies. Each year, the OECD measures what it calls the “tax wedge,” the gap between what a worker gets paid and what they actually spend or save. Included are income taxes, payroll taxes, and any tax credits or rebates that supplement worker income. Excluded are the countless other ways that governments levy taxes, such as sales and value-added taxes, property taxes, and taxes on investment income and gains.

Guess who came out at the top of the list? No, not the U.S. At the top are Belgium and France, while workers in Chile and New Zealand are taxed the least. America is in the bottom third.

A single worker earning an average wage in Belgium ends up paying a tax rate almost eight times higher than the average single worker in Chile, the OECD found.

But one simple number can be deceiving if you’re trying to paint a national picture. Married people and those with children tend to pay different tax rates than single, childless taxpayers. And in most countries, including the U.S., the well-off pay far more than lower-income people.

When the OECD analyzed married couples with children, the rankings looked a little different. New Zealand ends up with the lowest rate, while France ranks number one.

But let’s get back to America. The average single U.S. worker with no kids earned $52,543 last year and paid a combined $13,649 in payroll taxes, federal income tax, state and local government taxes. Their employer pitched in another $4,020 in payroll taxes. That overall rate, of 31.7 percent, might seem like a lot, but it’s more than 4 points below the OECD average.

In every other scenario analyzed by the OECD in its 584-page “Taxing Wages” report, the U.S. tax burden was also below average, from 3 points to almost 6 points depending on the taxpayers’ wages, marital status, and number of children. In fact, the tax burden on most American workers hasn’t budged much over the last two decades, despite tax cuts under former President George W. Bush and upper-income tax hikes under former President Barack Obama.

Workers in two of the world’s highest-taxed countries did get some relief last year. The average tax burden for singles fell by 2.5 percentage points in Austria and by 1.3 points in Belgium from 2015 to 2016. Otherwise, the OECD data suggest that a country’s tax burden usually stays remarkably consistent from year to year and decade to decade.

The only reliable way to change your tax burden may be to move.

Jersey Shore’s ‘The Situation’ indicted on additional tax evasion charges

Reality TV star Michael “The Situation” Sorrentino and his brother Marc are facing more tax evasion charges in a long-running case.

The U.S. Justice Department’s Tax Division in New Jersey announced the additional charges Friday against the former star of the MTV reality series “Jersey Shore” and his brother. The Sorrentino brothers were originally indicted in September 2014 on charges alleging they failed to pay taxes on $8.9 million in income received from promotional activities (see Gym, tan, laundry –and tax: Jersey Shore’s ‘The Situation’ charged with failure to pay taxes). Their tax preparer, Gregg Mark, pleaded guilty in December 2015 (see Tax preparer for Mike ‘The Situation’ Sorrentino pleads guilty in tax fraud case).

Friday’s superseding indictment against the Sorrentinos includes new charges against both the brothers. Michael Sorrentino is now also charged with tax evasion and structuring funds to evade currency transaction reports, while Marc Sorrentino has now been charged with falsifying records to obstruct a grand jury investigation. An arraignment is scheduled for April 17 in a Newark federal court.

“Michael Sorrentino will enter a not guilty plea on April 17, 2017, and will vigorously contest the allegations in court,” said attorney Kristen Santillo of Krovatin Klingeman LLC in Newark. Marc Sorrentino’s attorney did not immediately respond to a request for comment.

The superseding indictment alleges that the brothers conspired to defraud the United States by not paying all federal income tax owed on approximately $8.9 million that Michael earned between 2010 and 2012. The brothers allegedly filed false tax returns understating their gross receipts, claiming bogus business deductions, disguising income payments made to the brothers and to others and underreporting their net business income. The Sorrentino brothers also allegedly commingled funds among their business and personal bank accounts and used the money from the business bank accounts to pay for personal items, such as high-end luxury vehicles and clothing.

Michael Sorrentino allegedly made multiple cash deposits on the same day in amounts less than $10,000, in different bank accounts he controlled so he could evade the banks’ reporting requirements. Banks are typically required to file reports with the U.S. Treasury for any cash deposits they receive over $10,000 identifying the person who conducted the transaction, and for whom the transaction was completed.

After being served with grand jury subpoenas seeking the books and records of the brothers’ businesses, Marc Sorrentino allegedly altered and reclassified taxable payments to himself as non-taxable payments and as legitimate business deductions before handing over the books and records to the grand jury.

If convicted, the Sorrentino brothers face up to five years in prison on the conspiracy count and three years for each count of aiding in the preparation of false tax returns. Michael Sorrentino also faces up to 10 years in prison for each structuring count and five years for the tax evasion count. Marc Sorrentino faces up to 20 years in prison for obstruction. Both men also face a period of supervised release, restitution and monetary penalties.

CPA, Taxes, Bookkeeping, Payroll, Accounting Services, Insurance

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