In light of the presidential election victory of Republican Donald Trump, and the Republican Party's success in maintaining control of both the U.S. House and Senate for the upcoming 115th Congress, we believe that there is a very good chance that the U.S. Congress will pass, in 2017, the most significant U.S. tax reform in a generation.
This bill will affect any individual or company — U.S. or foreign-based — with income in the U.S., and will likely completely revamp the nation's current tax code as it applies to multinational corporations. The road to enactment of this legislation will be far from smooth — there will be turf battles and disagreements, not only between the parties, but between industries and different interests — and it will take time. Given the hurdles the bill will face — notwithstanding Trump's and Chairman Brady's pledges to get tax reform done in 100 days — getting a bill to the President's desk will almost certainly take much of 2017, if not more time. Much of this reform legislation will be positive for businesses and individuals alike, but there will be trade-offs as well that may divide industries or even different companies in the same industries.
In addition to Trump's and Chairman Brady's pledges to get tax reform done next year, Speaker of the House Paul Ryan, (now Speaker nominee for the 115th Congress) has indicated that accomplishing tax reform in 2017 is his highest priority. The starting point for tax reform is likely to be the Tax Reform Blueprint, issued by Speaker Ryan and Chairman Brady in early 2016. The Blueprint was the product of extensive work by a Republican congressional task force and represents a major re-write of the tax code; far beyond changes in rates. The Trump tax reform plan is similar in many respects to the Blueprint, and Trump and his team thus far have indicated support for Speaker Ryan's plan to start with his own bill in the House. In the Senate, Republican Majority Leader Mitch McConnell and Senate Finance Committee Chairman Hatch have also indicated strong support for moving tax reform.
Although House and Senate Republican leaders have all indicated in recent days their hopes that Congress will be able to move a tax reform bill with bipartisan support, we believe that in the end there is a good chance that Republicans will end up moving a bill with little to no support from the Democrats. The reconciliation process under the Budget Act of 1974 would allow Republicans to do this without the risk of a Democrat filibuster in the Senate, which would otherwise require 60 votes to overcome.
Moving a bill through reconciliation, though, will make the process much more complicated. This would require that the House and Senate pass a budget resolution, and that the Senate comply with the Byrd rule, requiring 60 votes to overcome a point of order if the bill results in any revenue loss after the years included in the Budget Resolution. In addition, if Republicans attempt to address Obamacare reforms through reconciliation, as has also been contemplated, and perhaps an infrastructure revenue source as well, the process would be even more complicated and difficult to get through. And the Republicans may have trouble maintaining support within their own caucus.
Although Trump, during his campaign, did not express much concern about the growing national debt, the issue remains a concern among many Republican deficit hawks. Recent analysis has estimated the U.S. revenue loss associated with the Trump plan at US$4-US$6 trillion on a static basis, and the static loss associated with the Brady/Ryan Blueprint at US$2-US$3 trillion. Using dynamic scoring, as the Republicans plan, could improve these numbers considerably, but it will make the process more difficult yet again if Congress is going to try to achieve revenue neutrality.
The following are some of the primary elements of the Trump and Ryan/Brady Blueprint tax reform proposals. Neither Trump nor Ryan/Brady released legislative language for their proposals, though the Ryan/Brady Blueprint is far more detailed than the current Trump proposal.
Ryan/Brady Blueprint:
Trump Tax Reform Plan:
Outlook:
Both the Congressional tax-writers, and (to a lesser extent, as the players are not as firmly established) the Trump transition team, have been asking for ideas, thoughts, and criticisms of their tax reform proposals. When tax reform starts moving in 2017, it will be more difficult as time goes on to influence the process. Today, the bill is being written, but there is still time for all parties to influence its direction.
Mr Laffer says the best part of his strategy is that there is no limit to the dynamic gains from lowering taxes. “Make sure you understand this is the beginning and the process never ends. Just when you think you’ve hit nirvana, something else goes on and you start the process all over again,” he adds.
Although tax rates in most countries rose throughout the 20th century, which was by far the best century in economic history, Mr Laffer is unbowed. “When [taxes] went up [countries] did very poorly and when they went down, they did very well,” he says.
Furthermore, the poor will gain, he insists, and whispers that incomes will “trickle down” from rich to poor — a conservative argument long maligned by liberals. “When you change the marginal rate of substitution between labour and leisure, do people choose different combinations of labour and leisure?” he asks rhetorically, “Duh — you can call that trickle down, but it’s not taxes that matter, it’s tax rates.”
“We went from a the highest marginal rate of 70 per cent to one of 28 per cent [in the Reagan administration]. Do you see what happened to employment? Boom.”
Trade is the one area in which Mr Laffer is concerned about the president-elect’s grip on economics, saying: “I don’t know if I’ve ever seen a politician who’s ever understood trade”.
“I don’t believe Donald Trump is nearly as protectionist as his quotes,” he adds, and he urges the president-elect not to worry about the US trade deficit. “Which would you rather have? Capital lined up on our borders trying to get into our country or trying to get out of our country?”
Since foreigners need to acquire dollars by selling goods and services to the US, he says, there are big benefits in a trade deficit. “Duh — you can’t have foreign investment without a trade deficit,” he says.
Just as Mr Trump has been ferociously critical of Ms Yellen’s chairmanship of the Federal Reserve, Mr Laffer is sure central bankers have got their strategies of ultra-loose monetary policy wrong. He thinks low interest rates fail to give people incentives to supply capital for housing and businesses, thereby constraining growth.
“Markets really know how to give you prices and Janet Yellen doesn’t. She’s never been forced to bear the consequences of her own actions,” he says, before warming to the theme. “[Central bankers] think they know better than God. She thinks she knows better how to change the economy better than the last four and a half billion years of evolution. How silly is that.”
Invoking the spirit of Charlton Heston in Planet of the Apes he adds: “Keep your stinking monkey paws off my economy, you dirty ape. That goes for [liberal economist Paul] Krugman, that goes for Yellen, that goes for all of these would-be dictators of the economy.”
One problem was how the wind often toppled the device on takeoff or landing. “It was a dumb thing about physics,” says Chris Anderson, chief executive of 3D Robotics Inc., which has made parts and software in Google’s drones.
Google parent Alphabet Inc. and others in Silicon Valley are broadening their sights from the digital to the physical world in a bid to expand their influence, and their bottom lines. They promise to reinvent everything from cars to thermostats to contact lenses. Yet in a sign of how innovation is stalling broadly in the American economy, they are finding their new terrain far harder to control than their familiar digital turf.
The House GOP Task Force on Tax Reform, led by Ways and Means Chairman Kevin Brady (R-TX) and overseen by Speaker Paul Ryan (R-WI), released its “blueprint” tax reform proposal on June 24, 2016. The “blueprint” cuts individual and corporate tax rates, simplifies the tax code, and promotes economic growth.
The proposal reduces the corporate tax rate to 20%, allows for 100% full and immediate write-off of business investments, and moves towards a purely territorial taxation system in which companies would only pay tax to the U.S. government on earnings that occur within the U.S. This is accomplished via 100 percent exemption for dividends from foreign subsidiaries; a one-time repatriation tax of 8.75 percent for cash and 3.5 percent for everything else; and border tax adjustments going forward whereby imported goods are subject to a tax (equal to the corporate tax rate of 20 percent) and revenues from exports are exempt.
The tax code would no longer provide U.S. multinational corporations “an incentive to move production overseas because the tax burden would be based on sales within the U.S. regardless of where the goods are produced.”
The House Ways and Means Committee, led by Chairman Kevin Brady (R-TX), will continue to work out the details of a tax reform plan pursuant to the “blueprint.” Rep. Jim Renacci (R-OH) and other members of the Ways and Means Committee have introduced alternate tax reform plans centered around a consumption tax similar to a value-added tax.
Replace the Corporate Income and Payroll Taxes with a Consumption Tax
On the corporate side, this plan eliminates the 35 percent corporate income tax, 12.4 percent Social Security payroll tax on the worker’s first $118,500 of wages, and the 2.9 to 3.8 percent Medicare tax on all wages. These corporate and payroll taxes are replaced with a flat 16 percent value-added tax called the “Business Flat Tax.”
This 16 percent business tax would differ significantly from the current corporate income tax, perhaps most importantly by making capital purchases fully and immediately deductible (“full expensing”) while eliminating the deductibility of wages. It appears that the the tax would apply to all employers, including non-profits and governments, and no business tax breaks would remain in law.
Making wages non-deductible has a huge impact on revenue, since it essentially means most wage income would be taxed twice under Sen. Cruz’s plan – once at the business level and again at the individual level. This feature, in combination with full deductibility of all non-wage business expenses (capital investments), effectively makes it a consumption tax. Both the Tax Foundation and Tax Policy Center describe Cruz’s plan as a value-added tax (VAT). Although unlike European-style VATs (Sen. Cruz’s tax would not be imposed at each stage of production nor appear as a tax to consumers), it would be paid by all businesses and passed along in the form of higher prices.
By abolishing the corporate income tax, the plan would effectively move to a territorial system where future income earned overseas by a foreign subsidiary of a U.S. corporation would not be taxed. The plan would impose a one-time deemed repatriation tax of 10 percent on past profits held overseas, which are currently tax-deferred.
During a onsite survey November 24-27 in Xuzhou, Lianyungang and Suqian, Jiangsu Province,the State Council’s environmental protection team founded low-quality steel (hereinafter means low-quality steel using scrap steel as raw material, which is melt by induction furnace or rolled steel produced with such low-quality steel) and illegal steel capacity, so executed rectification on such capacities, mainly intermediate frequency furnaces. A few plants using intermediate frequency furnaces in northern Jiangsu have been dismantled. Power supply for plants using intermediate frequency furnaces in northern Jiangsu was cut off to suspend their production. Some intermediate frequency furnaces in southern Jiangsu were also forced to cease production.
Intermediate Frequency Furnace Not Equal to Low-Quality Steel
Intermediate frequency furnace is a type of electric induction furnace, which uses scrap steel as raw material, with low investment, low volume and simple production requirements. It is mainly used to produce rebar, or a small part of section and strip steel.
Economic and trade industry letter 2002 (156) defined that low-quality steel means steel using scrap steel as raw material and melt with induction furnace, whose ingredient and quality is difficult to control and rolled steel produced with the former.
Low-quality steel can be defined by quality and production requirements:
1. Product quality is poor, and does not have the mechanical properties of ordinary steel, with low strength, stiffness and melting point, and porosity, and is easy to break 2. Chemical composition is disordered, and can not play its due role.
Intermediate frequency furnace’s steelmaking technique and quality of scrap steel used to produce steel have improved noticeably. Some steel plants using intermediate frequency furnaces purify by oxygen and argon blowing, or using refining devices. Some plants equipped environmental protection facilities this year given strict environmental protection requirements. Low-quality steel produced by these regular steel plants using intermediate frequency furnace still differs from that produced by small workshops.
