Tax reform is complicated. TPC will make understanding it a bit easier. This year, Congress will consider what may be the biggest tax bill in decades. TPC just launched a new series of briefs to help you follow the debate. Each focuses on a key tax policy issue that Congress and the Trump administration may address. The first: How Federal Income Tax Rates Work.
Whither that border-adjustable cash flow tax? It didn’t take President-elect Trump long to walk back—at least partially—his criticism of the levy. On Sunday, he told The Wall Street Journal that he didn’t “love” the idea, which he said was too complicated. But on Tuesday, he told the website Axios.com that border adjustments are “still on the plate” though his primary focus now was health care. At the same time, Trump’s nominee for Commerce Secretary, Wilbur Ross, said that tariffs and low US corporate tax rates would be key elements of Trump’s economic policy.
The nanny tax strikes again. South Carolina congressman Mick Mulvaney, President-elect Trump’s choice to be the White House budget director, “failed to pay FICA and federal and state unemployment taxes on a household employee for the years 2000-2004.” He did ultimately pay over $15,000 in back federal taxes, but is awaiting his state tax bill as well as penalty and interest assessments. His confirmation hearing is January 24. Similar issues derailed President Obama’s 2009 nomination of then-Senator Tom Daschle to lead the US Department of Health and Human Services.
In the nick of time: Anti-inversion regulations. Treasury has put finishing touches to regulations designed to curb serial corporate inversions, completed just before the new administration takes the reins. When determining the size of a foreign company seeking to merge with a US firm, final regulations disregard the foreign company’s stock gained from prior acquisitions or inversions. If, after a merger, shareholders of the former US company own at least 80 percent of the new combined firm, the US will treat the new firm as a US company, subject to US taxes. It is not clear what will happen to the final rules once the Trump Administration takes office.
Trump is suing the town of Ossining, New York, to lower taxes on his golf course. The President-elect says that the town has placed too high a value on Trump National Golf Club of Westchester. Ossining says the course is worth $15.1 million. In his lawsuit, Trump says it’s worth one-tenth that, $1.5 million. Trump's 2017 taxes on the course may reach $500,000. If he wins his lawsuit, he could get $450,000 back — but the town’s school district (and other taxpayers) would foot the bill.
Meanwhile, Colorado Governor John Hickenlooper wants to raise the pot tax by 50 percent for schools. The Democrat says higher sales tax on recreational marijuana could give the state’s public schools an extra $42 million. The current levy of 10 percent is due to fall to 8 percent on July 1 but Hickenlooper wants to boost it to 12 percent. Public school funding faces a shortfall of $135 million thanks to Colorado’s constitution, which mandates a cut in residential property taxes when home values climb faster than those of commercial properties.
New York Governor Andrew Cuomo has a tax cut plan. The Democrat proposed to cut state income taxes for those earning between $40,000 and $300,000 a year. Middle-income earners could save an average of $250 in the first year of the plan’s implementation and up to $700 annually when the proposal fully phases in. But Cuomo wants to keep the state’s 8.82 percent tax on income over $1.6 million remains in place. That tax is scheduled to expire this year. New York currently faces a $3.5 billion budget deficit.
In Tennessee: Governor Bill Haslam proposes a state gas tax increase. The Republican would raise the levy by seven cents a gallon—the state’s first gas tax hike since 1989. He’d also raise fees on electric vehicles and rental cars, cut the sales tax on groceries by a half percent, cut the state’s business taxes by $113 million, and make additional cuts to the Hall Income Tax, due on interest earned from bonds, notes, and dividends from stock. Haslam expects the package of tax changes will help fill a $10 billion road construction backlog.
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- © Urban Institute, Brookings Institution, and individual authors, 2016.