Filing season begins Jan. 29

Published
  • January 04 2018, 3:18pm EST

Filing season will begin on Monday, Jan. 29, the Internal Revenue Service announced.

The final tax deadline will be Tuesday, April 17. (April 16 is Emancipation Day, a legal holiday in Washington, D.C.). The IRS expects nearly 155 million individual returns to be filed in 2018.

In 2017, the IRS began accepting returns on January 23; it set the date at January 29 this year to make sure that its key processing systems are ready, and to give it time to determine how late December’s Tax Cuts and Jobs Act will impact tax returns.

Many tax professionals and tax preparation chains will begin preparing returns before January 29, and many software companies are planning to accept them and then submit the returns when IRS systems open. Although the IRS will begin accepting both electronic and paper returns on January 29, paper returns will start to be processed later in mid-February as system updates continue.

The IRS said that it expects to issue more than 90 percent of refunds in less than three weeks, but did not that it legally cannot issue refunds claiming the Earned Income Tax Credit and the Additional Child Tax Credit before mid-February.

Tax debate update: The struggle for 20%

By Bloomberg News

House and Senate Republicans are working this week on compromise tax-overhaul legislation in an effort to send it to President Donald Trump by the end of the year. Here are the latest developments, updated throughout the day:

Portman Says He’s ‘Pretty Confident’ on 20% (5:52 p.m.)

Republican Senator Rob Portman, one of the chief tax writers, said he’s “pretty confident” that GOP lawmakers will be able to set a corporate rate of 20 percent in their final tax bill — below the 22 percent figure that some lawmakers have sought.

“You just don’t want to have the U.S. be uncompetitive,” Portman of Ohio said in an interview Thursday. The whole idea, he said, is “to get it slightly below the industrialized country average, so that in the next couple years we’re not back in the same situation we are now.”

The average rate among countries in the Organisation for Economic Co-operation and Development is about 23 percent.

“U.K.’s going to 18 next year,” Portman said. “They’re already going below.”

President Donald Trump and many GOP lawmakers have been intent on setting the corporate rate at 20 percent to keep U.S. companies from moving their factories and jobs offshore. But Trump unexpectedly walked back from what he’d called a “non-negotiable” position on Saturday, when he suggested he was open to 22 percent.

Still, Portman added: “I think he’d prefer a 20 percent rate, from everything I know. I think he’s communicated that pretty clearly.”

— Steven T. Dennis

Trump’s 22% Talk Said to Undercut McConnell (4:00 p.m.)

Senate Majority Leader Mitch McConnell is pushing to set the corporate tax rate at 20 percent, but he faces an uphill battle because President Donald Trump has already suggested he’s open to 22 percent, according to a person familiar with the matter.

Republicans in both the House and Senate have already approved tax-overhaul legislation that would cut the corporate rate to 20 percent from 35 percent — but differences in the two bills need to be worked out before they can be sent to Trump for his signature.

On Saturday, hours after the Senate approved its measure, Trump told reporters that the corporate rate “could be 22 when” a final bill emerges.

— Steven T. Dennis

Brady Weighs Slower Pace on Offshore Changes (3:18 p.m.)

House Ways and Means Chairman Kevin Brady told reporters that it might be “fair” to slow down the pace of changes to the U.S. system of international taxation.

“The international provisions are complex, just by the nature,” Brady said Thursday. “We’ve had industries ask for transition periods in certain areas just to create that certainty. Most of those requests, I think, are very fair.”

The House and Senate have approved bills that take different approaches to revamping international tax provisions for corporations — and reconciling them will be one issue for congressional leaders to hammer out before they can send any final legislation to President Donald Trump.

Brady said he hadn’t discussed any possible delay in the international provisions with Senate representatives. And he declined to identify which industries had requested the slowdown.

– Laura Davison

White House Backs Off Of 20% Rate Red Line (2:28 p.m.)

The White House continues to signal openness to a tax overhaul that features a corporate rate higher than 20 percent.

“Fifteen is better than 20, 20 is better than 22 and 22 is better than what we have,” White House Press Secretary Sarah Huckabee Sanders said Thursday during a press briefing. Still, she added: “Our focus has been on getting the lowest corporate rate possible.”

President Donald Trump first introduced some confusion over the weekend, when he unexpectedly suggested that he was flexible on the 20 percent rate — after the White House had previously insisted that it was a requirement for him.

In September, Trump called the 20 percent rate “a perfect number,” and “a red line” that was non-negotiable.

Earlier Thursday, the White House seemed to be sending mixed signals about the corporate rate level.

Meanwhile in the House, Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee for tax negotiations, said the president’s comments about a possible 22 percent rate provides lawmakers with flexibility, if a change is needed to help offset the cost of other modifications to the tax plan.

“No decision yet if it is needed,” Brady said.

— Jennifer Jacobs, Jennifer Epstein and Laura Davison

Most Americans Seen Disapproving of GOP Plan (1:50 p.m.)

Three new polls suggest Republicans are losing the messaging war over their tax overhaul, which they hope to make a centerpiece of the 2018 congressional campaigns.

Americans disapprove of the GOP tax plan by a margin of 53 percent to 35 percent, according to a CBS News survey released Thursday.

Two other surveys released earlier this week also paint a grim picture. A Quinnipiac University poll found 53 percent of respondents disapprove compared to 29 percent who approve, while a Gallup poll found 56 percent of respondents don’t approve of proposed changes to the Tax Code.

The studies also indicate that most Americans don’t think the middle class will be the biggest beneficiaries under the revamp, as President Donald Trump and GOP leaders have promised.

The CBS poll found that 69 percent of respondents believe the plan favors “wealthy Americans” while 31 percent said it favors “middle-class Americans.”

The Quinnipiac poll found that Americans believe by a nearly 2-to-1 margin that the tax plan benefits the rich at the expense of the middle class.

By a roughly 2-to-1 margin, both the Quinnipiac and CBS poll respondents said the plan will increase — not decrease — their taxes.

There is one silver lining for GOP incumbents, however: Each of the polls found high approval of the tax plan among self-identified Republicans, which suggests that supporting it could help lawmakers in their renomination contests next spring.

The CBS poll was conducted from Dec. 3-5 among a random sample of 1,120 adults nationwide. Quinnipiac surveyed 1,508 voters nationwide from Nov. 29 to Dec. 4. The Gallup poll results were based on interviews conducted from Dec. 1 to Dec. 2 with a random sample of 1,020 adults.

— Sahil Kapur

European Regulators Eye WTO Concerns in Bills (12:13 p.m.)

The European Commission is examining whether international tax provisions in the House and Senate bills that are aimed at preventing U.S. companies from shifting their profit into foreign jurisdictions would violate World Trade Organization rules.

EC officials are looking into whether a proposed 20 percent excise tax on certain payments made by U.S. companies to foreign affiliates would be discriminatory — and therefore a WTO violation. The tax provision, contained in a bill the House passed last month, wouldn’t apply to payments between two domestic affiliates.

At the same time, European Union diplomats said that the commission is investigating whether a proposal in the bill that the Senate approved Dec. 2 — to create a special deduction for “foreign-derived intangible income” — would constitute an illegal export subsidy. Another Senate levy that would fall on deductible payments made to foreign affiliates has also come under scrutiny.

Spokeswomen for congressional tax-writing panels in the Senate and House didn’t immediately respond to requests for comment.

EU finance ministers asked the commission on Dec. 5 to review tax-overhaul measures in the U.S. amid their concerns about the legislation. House and Senate lawmakers are working this week on a compromise measure for their differing tax legislation, with a goal of delivering a finished bill for President Donald Trump’s signature by the end of the year.

Both bills would cut the U.S. corporate tax rate to 20 percent from 35 percent and move toward a “territorial” approach that would focus on companies’ domestic economic activity. But at the same time, they contain provisions aimed at trying to prevent companies from holding income-generating intellectual property in lower-tax foreign jurisdictions.

The House’s 20 percent excise tax would apply to certain payments, including IP royalties, made to foreign units. The Senate bill contains a provision aimed at inducing companies to hold their IP in the U.S. rather than shifting it — and the foreign income it produces — overseas.

— Joe Kirwin, Lynnley Browning

White House Sends Mixed Signals on 20% Rate (11:12 a.m.)

Kevin Hassett, the top White House economist, said Thursday he doesn’t think setting a corporate rate higher than 20 percent in the tax bill would undermine its growth effects.

“If you model the income tax rates that are changing and the corporate tax rates that are changing, it is not necessarily undermining the effect of the bill,” Hassett said at a forum in Washington.

Lawmakers are working to find revenue to offset potential changes including expanding state and local tax deductions, and repealing the corporate alternative minimum tax. Setting the rate at 22 percent instead of 20 percent would free up roughly $200 billion in revenue.

“Everybody in the White House is cognizant of the fact that there are things they are working on repairing — like the AMT stuff — that may require revenue from a different source,” Hassett said. “We don’t want to get in front of that process.”

Senate Finance Chairman Orrin Hatch said Wednesday “there is a drive” to set the corporate rate at 22 percent instead of the 20 percent that Senate and House bills have proposed.

Hassett, chairman of the White House Council of Economic Advisers, has been touting the benefits of slashing the corporate rate — saying the economic growth that will result will cover their cost over 10 years. Independent studies have reached differing conclusions. The growth and wage increases Hassett has highlighted have been based on a corporate tax rate of 20 percent.

Hassett’s comments contribute to the White House’s mixed signals over whether a tax bill that calls for a corporate rate above 20 percent is acceptable to President Donald Trump and his administration.

White House Legislative Affairs Director Marc Short said earlier Thursday the administration is “anxious to keep the corporate rate at 20 percent.”

“One of the reasons so many jobs have left our country is because the corporate tax rates are so much lower across the globe,” Short said during an interview on National Public Radio. “So we need to make sure we’re competitive.”

Trump introduced the confusion over the weekend, when he unexpectedly suggested that he was flexible on the 20 percent rate — after the White House had previously insisted that it was a requirement for him.

When asked about proposals to cut the corporate rate to 22 percent instead of 20 percent, Hassett said: “The president has spoken for himself.”

— Steve Matthews

Negotiators Poised for Pass-Through Battle

Questions about how to tax pass-through businesses, such as partnerships and limited liability companies, are emerging as the thorniest issue facing House and Senate lawmakers who are set to begin meeting in a combined “conference committee.”

President Donald Trump — who himself has interests in roughly 500 pass-through entities, most of which are organized as LLCs — has said he thinks the best of the House and Senate plans should be blended during what he called the conference committee’s “mixer.”

But it’s not that easy when it comes to the treatment of pass-through businesses, in part because of divergent approaches. The House would set a lower tax rate on the businesses’ income, while the Senate would allow for a significant deduction on that income.

The House bill calls for lowering the top rate for pass-through business income to 25 percent from 39.6 percent and creates a still lower rate of 9 percent for businesses with the lowest earnings. It would apply to no more than the first $75,000 of net business income, but would be limited to businesses making no more than $150,000 total. The lower rate would phase out at higher incomes.

The House bill would restrict the 25 percent tax rate to just 30 percent of business owners’ income. The rest would be treated as wages. Or they could use a formula based on their level of capital investment to determine how much income would get the new rate.

Critics have said the system runs counter to GOP leaders’ promises of simplicity.

In the Senate, demands from Republican Ron Johnson of Wisconsin and Steve Daines of Montana led tax writers to create a 23 percent deduction for pass-through owners. After the deduction, owners would pay tax at their individual income tax rates. The deduction would be limited for single pass-through owners with taxable income above $250,000 and for married couples with income above $500,000. And it would expire in 2026.

The Senate version has an edge in the negotiations because it’s simpler, according to two lawmakers familiar with the negotiations who asked not to be named because the discussions are sensitive.

“Some people understand the Senate bill a bit better,” said Rep. Devin Nunes, a California Republican and a member of the conference committee, referring to the pass-through measure. “It’s easier, I think, for the average American to understand, so that’s an advantage of the Senate bill.”

Adopting the Senate provision in the final bill could face pushback from House conservatives Mark Meadows of North Carolina and Jim Jordan of Ohio. The two met with senators to discuss pass-throughs earlier this week. Meadows, chairman of the influential House Freedom Caucus, said the Senate proposal “won’t work.”

GOP lawmakers are “making sure we take the best on the pass-though sides,” Ways and Means Chairman Kevin Brady, who’s overseeing the House-Senate conference committee, said Wednesday. “I think we can do better than both there.”

Aside from pass-throughs, House and Senate lawmakers also have to grapple with other potential sticking points, including: the effective start date of a corporate rate cut how to handle individual deductions for state and local taxes whether to preserve or repeal the corporate and individual alternative minimum taxes international tax provisions settling on a top individual tax rate whether to keep the estate tax and specific terms of deductions for medical expenses, student loans and mortgage interest.

— Erik Wasson, Kaustuv Basu, Laura Davison and Alex Ruoff

What to Watch on Thursday:

Keep an eye out for lawmakers or others to leak trial balloons about possible decisions on pass-through provisions, state and local tax deductions, the corporate alternative minimum tax, and other measures to try to gauge reactions as negotiations continue.

The Senate finished its debate on Wednesday evening for the motion to proceed to conference. Senate Majority Leader Mitch McConnell named eight Republican lawmakers to be part of the panel responsible for negotiating a final tax bill with House lawmakers. Senate Finance Chairman Orrin Hatch said “there is a drive” to set the corporate rate at 22 percent instead of the 20 percent that Senate and House bills have proposed. Still, the Utah Republican said his preference is 20 percent, down from the current 35 percent level. Republican lawmakers are discussing a compromise on state and local tax deductions that would allow taxpayers to deduct state income tax, House Ways and Means Chairman Kevin Brady said. Under one proposal that’s being discussed, taxpayers could deduct both their state income tax and state and local property taxes up to a combined limit of $10,000, according to Representative Ryan Costello, a Pennsylvania Republican. McConnell said he’s open to tweaking final tax legislation to appease lawmakers who want to let constituents deduct state income taxes. Two House members from New Jersey — Leonard Lance, a Republican, and Josh Gottheimer, a Democrat — plan to submit a joint proposal to the conference committee that would maintain SALT in its entirety.

Tax debate update: GOP stirs Democrats’ ire with Obamacare idea

(Bloomberg) The Senate tax-writing committee continues hammering out the details of its tax cut proposal on Tuesday, while the House may vote on its bill as soon as Thursday. Here are the latest developments, updated throughout the day:

Hatch Seeks Mandate Repeal, Temporary Cuts (11:03 p.m.)

Senate Finance Chairman Orrin Hatch released his modified tax proposal late Tuesday that would make middle-class breaks and other provisions temporary in a bid to comply with the Senate’s rigid fiscal rules.

The measure would also repeal the Obamacare requirement that individuals have health coverage.

Hatch’s revised plan would sunset key middle-class tax cuts starting in 2026 to comply with Senate rules—including income tax rate reductions, the doubling of the standard deduction and an increase in the child tax credit. It also ends a tax break for partnerships, limited liability companies and other so-called pass-through businesses starting on Jan. 1, 2026. However, the corporate rate cut to 20 percent from 35 percent and international tax-law changes would be permanent.

The measures are intended to ensure the Senate tax bill complies with budget rules that prohibit the legislation from adding to the long-term deficit if it’s passed with a simple majority.

—Sahil Kapur, Erik Wasson and Steven T. Dennis

Thune: ACA Mandate Repeal in Revised Plan (6:15 p.m.)

Senator John Thune, the chamber’s No. 3 Republican, said the repeal of the individual mandate required by Obamacare will be included in the revised version of the Senate GOP tax plan.

Senate Majority Whip John Cornyn is confident the chamber will get the 50 votes it needs to pass a bill, according to Thune. “We wouldn’t have proceeded if Cornyn wasn’t confident he could get to 50,” Thune said.

Senate Finance Chairman Orrin Hatch had said he’d release a revised proposal late Tuesday. That plan will fully comply with Senate budget rules designed to prevent long-term deficits, according to a Senate GOP aide who asked not to be named because the discussions were private. Adding the mandate’s repeal should help in that effort by reducing out year deficits.

Meanwhile, the House Republicans who are responsible for amendments met with GOP leaders late Tuesday afternoon about whether to change the House bill to include the individual mandate repeal also.

Mark Walker, chairman of a large conservative caucus, and a co-sponsor of an amendment to include the Obamacare mandate repeal in tax legislation, attended the meeting. “We’re in the process of seeing what could be done to move it forward,” Walker said. He added the amendment has “several dozen” cosponsors.

Still, the Rules Committee, which is meeting at 6:30 p.m., isn’t planning to add the Obamacare mandate repeal to the House bill Tuesday evening, according to a person close to House GOP leadership who asked not to be named because the discussions were private.

Erik Wasson, Anna Edgerton and Sahil Kapur

GOP Stirs Democrats’ Ire with Obamacare Idea (3:44 p.m.)

Democrats on the Senate Finance Committee objected to an emerging Republican plan to add the repeal of the Obamacare law’s individual mandate to tax overhaul legislation.

The Finance panel’s hearing briefly grew heated as Senator Ron Wyden, the panel’s top Democrat, suggested that it was improper to consider the measure. He asked that the committee recess until Wednesday—and Chairman Orrin Hatch agreed.

“We’ve had it for the day,” Wyden said. “Expect us to be back tomorrow with a lot of questions.”

Senate leaders have said the chamber’s tax writers are considering including the provision in a revised tax bill that’s planned for release later Tuesday.

Eliminating the requirement for individuals to purchase insurance would generate an estimated $338 billion in savings over 10 years—helping tax writers to avoid increasing the federal deficit too deeply with their tax cuts. Those savings would come from reductions in government spending on health-coverage subsidies for an estimated 13 million Americans who would forgo coverage in 2027, according to an estimate from the Congressional Budget Office.

Democrats described the plan as paying for tax cuts by eliminating health coverage.

“In their desperation to secure an ideological trophy, no matter the consequences, Republicans are choosing to pay for corporate tax cuts by raising premiums for middle-class families and ripping away health care altogether from millions more,” Wyden said in a prepared statement. “This is a con job on the American people and proves that Republicans’ only agenda is putting an economic double standard into black letter law.”

Also Tuesday, a coalition of health-care groups urged congressional leaders to maintain the mandate “unless and until Congress can enact a package of reforms” to prevent “extraordinary premium increases.”

“There will be serious consequences if Congress simply repeals the mandate while leaving the insurance reforms in place: millions more will be uninsured or face higher premiums, challenging their ability to access the care they need,” said a letter to congressional leaders from the group, which includes the American Medical Association, the American Hospital Association and America’s Health Insurance Plans.

—Laura Davison, John Voskuhl

McConnell Calls ACA Mandate Repeal ‘Helpful’ (2:54 p.m.)

Senate Majority Leader Mitch McConnell said GOP members are optimistic that including the repeal of the individual mandate imposed by the Obamacare law in a tax overhaul would be “helpful.”

Senate tax writers are considering including the provision in a revised tax proposal that’s set to be released later Tuesday, according to Senator John Thune of South Dakota and Majority Whip John Cornyn of Texas.

“It’s been a subject of discussion,” said Thune, the chamber’s third-ranking Republican leader and a member of the Finance Committee.

The Senate GOP conference discussed adding the repeal of the mandate that all individuals purchase health insurance to the tax proposal during lunch Tuesday. And the Finance Committee discussed the potential inclusion on Monday evening and now wants the full conference to approve the move, said Cornyn.

Making the change would produce an estimated $338 billion in savings over 10 years that would help tax writers meet fiscal targets. Those savings would come from reductions in government spending on health-coverage subsidies for an estimated 13 million Americans who would forgo coverage in 2027, according to an estimate from the Congressional Budget Office.

Including the repeal would allow the bill to become “as pro growth as possible” and ensure cuts are permanent instead of temporary, Cornyn said.

Reopening the politically painful Obamacare debate could cost the GOP crucial votes on a tax bill. A “skinny” repeal of Obamacare that scrapped the individual mandate failed in July to pass the Senate after defections by John McCain of Arizona, Susan Collins of Maine and Lisa Murkowski of Alaska.

McCain said Tuesday he’s leaning toward supporting the Senate GOP tax proposal, but he’ll have to evaluate any attempt to add a repeal of the individual mandate.

Collins said she thought including the mandate repeal would complicate the tax effort and would consider the bill when it comes out of the Senate Finance Committee.

Told Senate Republicans were weighing the idea, Murkowski said tax legislation was “complicated enough.”

Senate Minority Leader Chuck Schumer said the move would be tantamount to taking away people’s health care to give big tax cuts to the wealthy—and predicted it would create problems for the tax effort.

“Thelma and Louise are warming up the car, preparing to drive it over the cliff,” he said.

Republican senators Tim Scott of South Carolina and Pat Toomey of Pennsylvania, members of the Finance Committee, said they would support including the repeal in tax legislation.

Senator Rand Paul also said he’ll push to amend the Senate tax bill to include repeal of the mandate.

“The mandate repeal is a promise we all made and we should keep. It also allows an additional $300 billion+ in tax cuts,” the Kentucky Republican said on Twitter.

Paul said he plans to change the bill to “provide bigger tax cuts for middle income taxpayers.”

Republican leaders aren’t taking Paul’s vote for granted, particularly after he scuttled a last-ditch effort in September to repeal Obamacare, complaining that it didn’t go far enough in slashing the health-care law.

Senator Ted Cruz said Republicans haven’t made a decision on including the mandate repeal in a tax bill, but he supports it as a way to lower middle-class rates and sees a “growing consensus” across the conference to do it.

President Donald Trump has called for repealing the mandate as part of tax legislation, but hasn’t demanded it. House leaders considered adding the repeal of the Obamacare individual mandate to their bill before ultimately keeping it out of the legislation.

The Republican Study Committee, a group of 160 conservative members, is drafting an amendment that would add the repeal of the individual mandate to the House bill before the floor vote expected for Thursday, according to a lawmaker and an aide who have been briefed on the plan.

The RSC amendment doesn’t include a specific proposal for what to do with the savings, the aide said.

Mark Meadows, the chairman of the Freedom Caucus, signed on as a co-sponsor of the amendment, said Ben Williamson, a spokesman for Meadows.

—Erik Wasson, Anna Edgerton, Sahil Kapur, Steven T. Dennis, Laura Litvan and Kaustuv Basu

Thune: Senate Considering Individual Repeal (12:14 p.m.)

Senate tax writers are considering including the repeal of the individual mandate imposed by the Obamacare law into the revised tax proposal set to be released later Tuesday, according to Senator John Thune of South Dakota, a member of the Finance Committee.

“It’s been a subject of discussion,” said Thune, the chamber’s third-ranking Republican leader.

Reopening the politically painful Obamacare debate could cost the GOP crucial votes on a tax bill. A “skinny” repeal of Obamacare that scrapped the individual mandate failed in July to pass the Senate after defection by three Republicans—Susan Collins of Maine, Lisa Murkowski of Alaska and John McCain of Arizona.

Senator Tim Scott of South Carolina, another Republican member of the Finance Committee, said he would support including the repeal in tax legislation.

Senator Rand Paul also said he’ll push to amend the Senate tax bill to include repeal of the mandate.

“The mandate repeal is a promise we all made and we should keep. It also allows an additional $300 billion+ in tax cuts,” the Kentucky Republican said on Twitter. The savings would come from reductions in government spending on health-coverage subsidies for an estimated 13 million Americans in 2027.

He also said he plans to change the bill to “provide bigger tax cuts for middle income taxpayers.”

President Donald Trump has called for repealing the mandate as part of tax legislation, but hasn’t demanded it. House leaders considered adding the repeal of the Obamacare individual mandate to their bill before ultimately keeping it out of the legislation.

Republican leaders aren’t taking Paul’s vote for granted, particularly after he scuttled a last-ditch effort in September to repeal Obamacare, complaining that it didn’t go far enough in slashing the health-care law.

—Erik Wasson and Sahil Kapur

Plan Revisions Coming Later Tuesday, Hatch Says (9:36 a.m.)

Senate Finance Committee Chairman Orrin Hatch said his “modified mark” isn’t ready yet and will be given to lawmakers “later today.”

Members of the panel will be given time to review the changes and weigh in on them during tomorrow’s hearing, according to Hatch.

Senator Ron Wyden, the committee’s top Democrat, blasted the move, saying Republicans are trying to advance a bill in “reckless haste” and that the process “doesn’t resemble the regular order in the finance committee.” He complained that Tuesday’s hearing would be a waste of time since members would be asking questions about a proposal that would change.

—Sahil Kapur

Byrd Rule Rattles Senate As House Nears Vote (4 a.m.)

The House’s chief tax writer says he’s confident its tax bill will pass, but a major challenge continues to loom over Senate Republicans—the Byrd Rule, an arcane measure that says the final bill can’t add to the federal deficit after its first decade in place if lawmakers want to pass it with a simple majority.

The Senate Finance Committee is set to start debating the GOP tax proposal, which is estimated to cost $217 billion in the 10th year, with more red ink in subsequent years. That means there would have to be significant changes to avoid long-term deficits. Orrin Hatch, the panel’s chairman, acknowledged on Monday there’s still work to do. He’s expected to release a modified chairman’s mark on Tuesday that may aim for better numbers.

But how the revised version would bridge the gap remains a mystery.

Even Hatch seems unsure: “I know what’s in it but they may change it on me,” he said after his committee recessed Monday evening.

Senator Susan Collins of Maine offered some ideas for changes late Monday. They included setting the corporate rate at 21 percent, not 20, and keeping the current top individual rate of 39.6 percent for married taxpayers filing jointly who earn $1 million or more. The Senate bill proposes cutting that rate to 38.5 percent. The proceeds from those adjustments could go to providing a refundable childcare tax credit or preserving property tax deductions, according to Collins, who cast a pivotal vote to block an Obamacare repeal bill earlier this year.

The Senate proposal would limit its revenue losses in part by delaying a cut to the corporate rate—to 20 percent from 35 percent—until 2019, a year later than the House has proposed. It would also fully repeal all state and local tax deductions. The House wants to retain a break for state and local property taxes, capped at $10,000.

Across the Capitol, House Republicans were upbeat Monday night. Matt Gaetz, a Florida Republican who previously criticized the secret drafting of the bill, praised the way House leaders had educated members about the legislation and said he expects it to pass this week.

“After the cataclysmic stumble on health care I think people really are looking for a way to get to yes on taxes,” Gaetz said in an interview.

The Republican whip team reported that the tally for the tax bill was in a good place on Monday night, according to two House members briefed on the vote counting who were not authorized to speak publicly. Conservatives are mostly on board, and the focus is now on convincing members from high-tax states that the compromise to preserve the deduction for state and local property taxes will be included in the final bill, the two Republicans said.

The House has an easier task though, since it isn’t bound by the Byrd restriction on long-term deficits. As far as Ways and Means Chairman Kevin Brady is concerned, the ball is in the Senate’s court to find a solution.

“I assume the Senate will address it in their process,” Brady told reporters Monday. “At the end of the day the final bill has to comply with those Byrd Rules.”

House and Senate tax writers have been more concerned with meeting the first requirement of the Byrd rule—that the bill stay within the amount allotted in Congress’s 2018 budget resolution: $1.5 trillion. Each version just squeaks by—the House tax bill is estimated to add $1.44 trillion to the deficit, while the Senate proposal would add $1.496 trillion.

“We really haven’t analyzed it in the second decade,” Brady said.

If the Senate is able to fix its Byrd problem and approves tax legislation, the House and Senate versions will have to be reconciled in a conference committee. So eventually, Brady will have to deal with the long-term deficit issue and make sure his members support the potentially painful compromises that would stem the bill’s red ink.

—Sahil Kapur, Anna Edgerton, Erik Wasson and Steven T. Dennis

What to Watch on Tuesday:

• The Senate Finance Committee will begin its markup at 9 a.m. Hatch is expected to introduce his modified chairman’s mark, which could include amendments that have strong support among committee members.

• Potential amendments related to the treatment of carried interest, retirement savings, corporate integration and state and local tax deductions could be introduced.

• House vote count results may emerge along with any minor revisions to the House tax bill. Brady said Monday afternoon he’s confident the chamber has enough Republican votes to pass its tax legislation this week.

Here’s What Happened on Monday:

• Opening statements from Senate Finance committee members, including Senator Ron Wyden, the panel’s top Democrat, who blasted GOP leaders’ process of crafting the bill as a partisan “farce” and labeled their statements about its benefits—including higher wages—as “trickle-down fantasy math.”

• President Donald Trump repeated his call for Congress to repeal the Obamacare law’s requirement that individuals purchase health insurance—and said the resulting savings could help offset a rate cut for top earners.

• The Congressional Budget Office said the Senate bill would increase the federal deficit over 10 years by $1.7 trillion, including increased debt service but not any macroeconomic effects from the legislation.

• A nonprofit group that spent more than $18 million to defeat Hillary Clinton in 2016 is turning its sights to Republican House members in high-tax states, including New York and New Jersey, saying it will be “counting on” them to support GOP tax legislation.

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.”

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

%d bloggers like this: