Another framework: Tax Reform 2.0. House Ways & Means Chairman Kevin Brady has rolled out a two-page framework for the next round of GOP tax cuts. There are few details, but the plan would make the 2017 individual tax cuts permanent, create new tax-subsidized savings programs, and boost the deductibility of business startup costs. It will also include some technical corrections to the Tax Cuts and Jobs Act. Brady said the plan is not expected to include budget offsets, though “the policies create some savings.” He’s shopping the plan among fellow House Republicans. Even if they pass a bill, it is unlikely to get a vote in the Senate.
Subsidizing sole proprietors, then worrying about abuse by… sole proprietors. A main element of the TCJA was the special 20 percent tax deduction for pass-through businesses such as sole proprietorships. TPCs Howard Gleckman wonders why the same lawmakers who encouraged workers to become sole proprietors are now so worried about tax abuse by those same individuals that they want to the IRS to come up with a solution in 90 days.
The House voted to nix the medical device tax. Critics of its repeal warn that eliminating the tax permanently would reduce federal tax revenue by $19 billion over ten years. GOP sponsors say the tax stifles innovation. The tax came to be under the Affordable Care Act, was in effect from 2013 to 2015, and was subsequently suspended through 2019.
“Tariffs are the greatest” but prompt federal aid to farmers. So proclaimed President Trump via tweet yesterday, reminding the country that it is “the ‘piggy bank’ that’s being robbed.” Nonetheless, the Trump administration wants to use two commodity support programs to give $12 billion of dollars in aid to farmers hurt by those tariffs. The administration also will tap the US Department of Agriculture’s authority to stabilize the agricultural economy during times of turmoil, or in this case, tariffs.
Big Three Automakers: TCJA tax savings erased by tariffs in first quarter. Bloomberg reports that for General Motors, Ford, and Fiat Chrysler, the cost of steel and aluminum tariffs enacted by President Trump in March was larger than the tax savings resulting from the TCJA. If the tax savings remain the same in remaining quarters of the year, “steel and aluminum tariffs could eat up anywhere from about a third to well more than half of the tax benefits in 2018.”
And then there’s Harley-Davidson. In response to the ongoing trade wars, the motorcycle maker has cut its 2018 profit margin forecast to 9.5 percent, down from 10 percent. The reduction was small in part because Harley accelerated shipments to the European Union to beat the tariffs, saving $35 million this year.
Business groups urge the President to ease up on tariffs (again). They don’t want the President to continue to threaten trade sanctions on Chinese imports. Sixty-six organizations including the National Retail Federation have told US Trade Representative Robert Lighthizer that “imposing tariffs on Chinese imports will not have the effect that the administration desires…. it will likely be Chinese factory owners who will move to other locations in southeast Asia to get around the tariffs, so [tariffs] will have no appreciable impact on the overall US trade deficit or on Chinese interests.”
The IRS wins an appeal on transfer pricing. The Ninth Circuit Court of Appeals reversed the US Tax Court’s opinion in Altera Corp. v. Commissioner. At issue: Regulations required participants in qualified cost-sharing arrangements—including offshore subsidiaries—to share stock-based compensation costs. The US Tax Court invalidated the regs, saying they were arbitrary and capricious. The appellate court disagreed, finding that the rules were consistent with the Administrative Procedures Act. Altera Corporation is a subsidiary of chip maker Intel, and had challenged its $19 million tax bill earlier this year.
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