deficits, politics and policy: a tax legislative outlook leon lewis partner, federal tax competency...
Post on 20-Dec-2015
217 Views
Preview:
TRANSCRIPT
Deficits, Politics and Policy: a Tax Legislative Outlook
Leon Lewis
Partner, Federal Tax Competency Leader
Deloitte Tax LLP
September 21, 2011
Copyright © 2010 Deloitte Development LLC. All rights reserved.2 Footnote
Debt, Deficits and Demographics
The “supercommittee” Cure?
Tax Reform Debate
What’s Next?
Agenda
Copyright © 2010 Deloitte Development LLC. All rights reserved.4 Footnote
2011 2015 2020 2025 2030 20350
20
40
60
80
100
120
140
160
180
Extended Baseline 40-Year Average (37%)Alternative Fiscal Scenario
Greece (2010 est.)144%
Japan (2010 est.)196%
Source: Congressional Budget Office, CBO’s 2011 Long-Term Budget Outlook (June, 2011)
Federal Debt Held by the Public(as a percentage of GDP)
Copyright © 2010 Deloitte Development LLC. All rights reserved.5 Footnote
2011 2021 2031 2041 2051 2061 2071 20810
10
20
30
40
50
60
70
Interest on Publicly Held Debt Social Security Medicare, Medicaid, Exchange Subsidies, CHIPAll Other Outlays
The Revenue/Spending Squeeze
Projected Revenues
Source: Congressional Budget Office, CBO’s 2011 Long-Term Budget Outlook (June, 2011)
Projected US Total OutlaysCurrent Policy
Copyright © 2010 Deloitte Development LLC. All rights reserved.7 Footnote
Created the bipartisan, bicameral Joint Select Committee on Deficit Reduction (i.e., the “supercommittee”)
12-member supercommittee tasked with recommending an additional deficit reduction package of at least $1.5 trillion over 10 years
Enforced by “trigger” which cuts spending $1.2 trillion if supercommittee deadlocks or Congress fails to enact supercommittee’s recommendations
Budget Control Act may trade a debt limit crisis today for a debt limit and tax crisis later– The Act ensures the debt limit is sufficiently raised to carry the government
until the end of 2012– Expiring after 2012: Current tax rates on individual income, capital gains,
and dividends; current estate tax exemption and top rate; AMT patch– Effective in 2013: Taxes on upper-income taxpayers enacted as part of
healthcare reform, including the 3.8% Medicare surtax on investment income and .9% increase in the employee portion of the Medicare HI tax
Budget Control Act of 2011
Copyright © 2010 Deloitte Development LLC. All rights reserved.8 Footnote
Current Tax Rate Landscape – post 2012
Top Tax Rates Current Law through 2012
Beginning 2013
Ordinary Income 35 % 39.6%
Dividends 15% 39.6%
Long-term capital gains
15% 20%
Health care reform increases
None .9 percent –ordinary income
3.8 percent – investment income
PEP & Pease limitations
Gone Restored
Copyright © 2010 Deloitte Development LLC. All rights reserved.9 Footnote
9
President’s Tax Reform and Deficit Reduction Plan
Principles for tax reform Lower tax rates Cut “inefficient and unfair tax breaks” Cut the deficit Increase job creation and growth in the U.S. Observe the “Buffett rule”
Recommendations to the “supercommittee” for deficit reduction taken largely from previous budgets
Allow 2001/2003 tax cuts to expire for upper income taxpayers Limitation on itemized deductions as well as certain exclusions International changes Repeal of LIFO/LCM Fossil fuel tax provisions Corporate aircraft
Copyright © 2010 Deloitte Development LLC. All rights reserved.10 Footnote
Yes No
They are close to leadership They are too close to leadership
The President & Speaker will cut a deal
Leaders cannot deliver their partisans
Failure is not an option Compromise on principle is not an option
It only takes a 7-5 vote No one is walking the plank alone
Members need agreement for 2012 Members need to stand pat for 2012
A good deal will be harder in 2013 A good deal will be easier in 2013
The triggers will force an agreement Triggers have no real affect until 2013
Committee & deadline will force a deal
Committees and deadlines routinely fail
Can the Super Committee Agree?
Copyright © 2010 Deloitte Development LLC. All rights reserved.12 Footnote
Should tax reform be revenue neutral or raise revenue?
Corporate and individual tax reform together?
What should our tax system look like after tax reform?
Is there sufficient White House leadership?
Tax Reform on the Agenda – Plenty of Questions
Copyright © 2010 Deloitte Development LLC. All rights reserved.13 Footnote
Broad consensus for lowering the rate
Pressure to “pay for” reduced rates
Impact on corporate tax expenditures
Treasury white paper on corporate tax reform
Corporate Tax Reform
Copyright © 2010 Deloitte Development LLC. All rights reserved.14 Footnote
What is a tax expenditure? “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability”
Or, more simply,
Almost anything on your tax return that you like
Tax expenditure cost differs from revenue estimate
Tax Expenditures
Copyright © 2011 Deloitte Development LLC. All rights reserved.15
Expenditure Percent Rate Cut
Depreciation of equipment in excess of alternative deprecation system 2.0%
Inclusion of income arising from business indebtedness 1.8%
Deferral of active income of CFCs 1.0%
Inventory property sales source rule exception 0.6%
Deduction for income attributable to domestic production activities 0.6%
Credit for low income housing 0.4%
Expensing of research and experimentation expenditures 0.4%
Credit for increasing research activities 0.3%
Reduced rates on first $10 million in corporate taxable income 0.3%
Inventory methods and valuation: LIFO 0.3%
Special treatment of life insurance reserves 0.2%
Exclusion of investment income on life insurance/annuity contracts 0.2%
Total 8.1%
How Much Rate Cut Does it Buy?
The President’s Economic Recovery Advisory Board (PERAB) concluded that each percentage point decrease in the corporate tax rate would be associated with a reduction in corporate tax revenues of approximately $120 billion over ten years. The Report on Tax Reform Options, August 2010
Copyright © 2011 Deloitte Development LLC. All rights reserved.16
Proposal Expenditures repealed
Corporate rate Individual rate
Rangel (2007) Selected corporate 30.5% High-income surtax
Bowles-Simpson “Zero Plan”
All corporate and individual
26% 23%
Bowles-Simpson “Modified Zero Plan”
All corporate and many individual
28% 28%
Wyden-Coats Selected individual and corporate
24% 35%
Domenici-Rivlin Targeted corporate and individual; also adds a 6.5% consumption tax
27% 27%
Tax Rates and Reform
Copyright © 2010 Deloitte Development LLC. All rights reserved.17 Footnote
Tax reform debate will continue this fall with numerous hearings, meetings and reports, but likely little progress
A top corporate rate in the 25 percent range
Beware the territorial regime that you ask for
Focus on upper income individuals continues
Post 2012 action likely
Tax Reform Observations
Copyright © 2010 Deloitte Development LLC. All rights reserved.19 Footnote
Pending tax agenda items
- Employer and worker incentives in the President’s jobs plan
- Status of expiring tax provisions
- Repatriation
Key dates
- November 6, 2012
- November 7- December 31, 2012
Near-Term Tax Agenda
Copyright © 2010 Deloitte Development LLC. All rights reserved.20 Footnote
Average Campaign CostsSenate House
• Avg. Cost, 2010 Election: $9.02 million• $14,469 a day excluding Sundays
• Avg. Cost, 2010 Election: $1.4 mil• $2,304 a day excluding Sundays
2000 2002 2004 2006 2008 2010$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Election Cycle
Ave
rag
e S
pen
t b
y W
inn
ers
(th
ou
san
ds)
Source: Opensecrets.org
2000 2002 2004 2006 2008 2010$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
$10,000
Election cycle
Ave
rag
e S
pen
t b
y W
inn
er (
tho
usa
nd
s)Election 2012 in Full Swing
Copyright © 2010 Deloitte Development LLC. All rights reserved.21 Footnote
Members have two full time jobs
Members at home, not in Washington
The “next” campaign starts on day one of term
24hr news cycles and social media platforms brings members closer to their constituencies
Outcome: Polarized Political Parties
Copyright © 2010 Deloitte Development LLC. All rights reserved.22 Footnote
Stay connected to Washington
– Discussion of tax and spending policies will likely create “winners” and “losers”
View tax reform efforts as three phases
– Current environment
– Transition phase
– Post-reform
What Can Taxpayers Do?
About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
Copyright © 2010 Deloitte Development LLC. All rights reserved.Member of Deloitte Touche Tohmatsu
top related