1. After the Election: An Outlook on Federal Tax Policy
Alex Brosseau, Deloitte Tax LLP

2. Setting the stage

3. A look ahead at the 115th Congress Deadlines will dominate
2017
115th Convened
Inauguration
Debt limit reinstated
FY17 CR Expires
President’s FY18 budget due (in theory)
FY2017 Ends
Congress adopts FY18 budget (in theory)
Jan. 3
Jan. 20
Feb. 6
Mar. 16
Apr. 15
Apr. 28
Apr. 30
Jul. 31
Sep. 4
Sep. 30
“First 100 Days”
August Recess
After the Election: An Outlook on Federal Tax Policy
After the Election: An Outlook on Federal Tax Policy

4. The deficit reprieve is over After 2018, budget deficits to stage inexorable ascent
% of GDP
$9.4 trillion deficit
Note: Assumes current law remains unchanged (e.g., remaining tax extenders expire as scheduled, sequester cuts are allowed to transpire as scheduled, etc.).
Source: Congressional Budget Office, The Budget and Economic Outlook: 2017 to 2027 (Jan. 2017); $9.4T cumulative deficit spans the current 10-year budget window ( )
Copyright © 2017 Deloitte Development LLC. All rights reserved.
After the Election: An Outlook on Federal Tax Policy

5. Budget Reconciliation

6. GOP control raises specter of “budget reconciliation” How does it work?
First, House and Senate must agree on a budget resolution that includes the reconciliation instructions (that alone could pose challenges)
Reconciliation instructions cannot be prescriptive – may only specify:
The Committee(s) charged with reporting legislation
The budget impact of legislation to be reported (spending ↑↓, revenues ↑↓, or “deficit reduction”)
May also be used to raise the statutory debt limit
Date by which Committee(s) must report conforming legislation
Limited debate – legislation moved under reconciliation cannot be filibustered in the Senate (may pass with 51 votes)
Recent uses: welfare reform, 2001 tax cuts, 2003 tax cuts, much of 2010 health reform law
After the Election: An Outlook on Federal Tax Policy
After the Election: An Outlook on Federal Tax Policy

7. Tax reform through reconciliation Is it really an option?
The “Byrd Rule” can set up 60-vote hurdles in the Senate, including with respect to:
Provisions that would increase the deficit in any year beyond the period covered by the budget resolution, unless offset by other changes in the same title (recall the expiring 2001/2003 tax cuts)
Provisions that have no budgetary effect or whose budget effect is “merely incidental” to the underlying policy
Maximum of 3 reconciliation bills can be moved in one year – one each for revenues, spending, and the debt limit
For example, revenue effects from ACA repeal could preclude a follow-on bill for tax reform unless Congress passes a second budget resolution with additional reconciliation instructions
Reconciliation has become an inherently partisan exercise – no buy-in from minority party raises risk of later repeal if balance of power shifts
After the Election: An Outlook on Federal Tax Policy

8. The American Health Care Act What its demise may mean for tax reform
The AHCA would have repealed major health coverage- and tax-related provisions of the Affordable Care Act, including those noted below. In total, the bill would have repealed tax provisions totaling nearly $1 trillion over the next decade.
Medicaid expansion
(new enrollment frozen in 2020)
Premium assistance
tax credit
(effective 2020)
Penalties for not carrying/providing adequate coverage, i.e., the “mandates”
(effective 2016)
3.8% Net Investment Income Tax
(effective 2017)
Medical Device Excise Tax
Higher AGI floor for itemized medical expense deduction
Limit on contributions to health FSAs in cafeteria plans
Annual fee on health insurance providers
Additional 0.9% Medicare payroll tax on high-income taxpayers
(effective 2017*)
“Cadillac” tax on high-cost employer-sponsored coverage
(postponed effective date to 2026)
Annual fee on manufacturers and importers of branded drugs
Codification of economic substance doctrine
(NOT REPEALED)
* Note: A late-posted change to the original manager’s amendment would have postponed repeal of the additional 0.9% Medicare tax until That change was not reflected in the most recent Congressional Budget Office analysis showing a roughly $1 trillion reduction in revenue over 10 years on account of the AHCA.
After the Election: An Outlook on Federal Tax Policy

9. A look at the House GOP “Blueprint,” Trump tax platform

10. Remembering H.R. 1, the Tax Reform Act of 2014 High-level overview and lessons learned
Lowered top rates on corporations and individuals, and transitioned to a territorial system,
while maintaining revenue- and distributional-neutrality over the 10-year budget window
Deemed to boost GDP by between 0.1% and 1.6%,
resulting in additional “dynamic” revenue of $50 - $700 billion
Included dozens of politically painful base-broadeners
(e.g., amortizing R&D and advertising expenses; repealing MACRS, LIFO, §1031 exchanges, §199 deduction; limiting the mortgage interest/charitable deductions),
plus a broad-based 10% surtax that lifted the top effective rate on individuals
Phased-in corporate rate reduction, timing shifts (e.g., repealing MACRS, expanding Roth accounts), and one-time revenues (e.g., deemed repatriation) could indicate plan would have lost revenue beyond the 10-year budget window

11. House GOP tax reform blueprint gets a second look “Destination-based cash-flow tax”
Business
Corporate Rate
20%
Pass-through Rate
25% top rate on active business income (with unspecified rules to ensure employee-owners take “reasonable compensation”)
Full Expensing
Yes (would also apply to intangible property and non-land real estate)
Interest Deduction
No current deduction for net interest expense (disallowed deductions may be carried forward indefinitely)
Alternative Minimum Tax
Repeal (both corporate and individual)
§199 Deduction
Repeal
Net Operating Losses
Eliminate NOL carryback; permit indefinite carryforward with amount “increased by an interest factor”; limit current deduction to 90% of taxable income
International
Territorial (via 100% dividend exemption)
One-time deemed repatriation with differential rates for cash (8.75%) and noncash assets (3.5%), payable over 8 years at the taxpayer’s election
Eliminate most subpart F rules; retain foreign personal holding company rules
Border Adjusted Tax Base
Tax imposed on imports, but not exports (similar in concept to border adjustment of other countries’ credit-invoice VATs); applicable to products, services, and intangibles
Individual
Top Individual Rate
33%
Capital Gains and Dividends
Tax at ordinary rates with 50% exclusion (i.e., effective top rate of 16.5%); repeal 3.8% net investment income tax*
Itemized Deductions
Repeal state and local tax deduction; review mortgage interest and charitable deductions to make more “effective and efficient”
Standard Deduction
Consolidate standard deduction & personal exemption into a larger standard deduction of $12,000 (single) / $24,000 (joint)
Health Care
Cap exclusion for employer provided health benefits at an unspecified threshold; new refundable credit for individuals without access to workplace plans; repeal all other ACA taxes* (e.g., med device tax, “Cadillac” tax, additional 0.9% Medicare tax)
Estate Tax
10-Year Revenue Effect
Loses $3.1 trillion (per Tax Policy Center under conventional scoring);
Goal of revenue neutrality against a “current policy” baseline and after including “dynamic” revenue effects
After the Election: An Outlook on Federal Tax Policy
* Items marked with an asterisk were included in the House GOP health care reform blueprint, which was released separately from the tax reform blueprint.

12. House GOP ‘Blueprint’ and border-adjustments Can’t have one without the other?
Revenue Estimate (Tax Policy Center)
$ billions
Consolidate/reduce individual tax rates, repeal individual AMT, increase standard deduction, other individual tax cuts
- $3,657
Reduce corporate rate to 20%, repeal corporate AMT, reduce top passthrough business rate to 25%, transition to territorial system
- $2,345
Expensing, net of interest deduction limit
- $1,085
Repeal ACA taxes, estate tax
- $990
Reduce effective rate on capital income
- $498
Repeal itemized deductions, other than mortgage and charitable
+ $1,908
Repeal personal/dependent exemptions
+ $1,654
Border adjusted tax base
+ $1,180
All other revenue raisers
+ $734
Net revenue effect
(under conventional scoring)
- $3,101
Impact on net importers (e.g., retail, oil refining) – will exceptions be made?
Impact on net exporters / tax-driven M&A?
Will the dollar adjust? How much?
Impact on American investments abroad /
dollar-denominated debts in EMs?
How would the WTO view this regime?
Our trading partners?
If no border adjustments, what base erosion protections would accompany the proposed territorial system?
After the Election: An Outlook on Federal Tax Policy
Source: Tax Policy Center, An Analysis of the House GOP Tax Plan, Table 2

13. President Trump – key elements of tax platform Business provisions
Donald Trump
Corporate Rate
15%
Pass-through Rate
May elect to be taxed as a C corp to benefit from 15% rate; however, all but “small” pass-throughs (undefined) would face second-layer tax on distributions to owners
Full Expensing?
Yes, electable for US manufacturers
Interest Deduction
Eliminated for firms that elect full expensing
Carried Interest
Tax as ordinary income
Energy
No changes specified, but see “Other” below
Financial Products and Institutions
Phase-out deferral of inside build-up on life insurance contracts for “high-income earners”
(per original plan released in September 2015)
International
Repeal deferral
Deemed Repatriation
Yes (10% rate, payable over 10 years)
Business Tax Reform Related to Enhanced Infrastructure Spending?
Trump discusses increasing such spending by as much as $1 trillion, but to date has not tied the policy to business tax reform (e.g., deemed repatriation)
Other
Reduce or repeal “special interest“ provisions and deductions made “unnecessary or redundant” by the 15% rate
(but specifically mentions R&D credit would be retained)
Source: Unless otherwise noted, parameters taken from campaign websites and Tax Policy Center.
After the Election: An Outlook on Federal Tax Policy

14. President Trump – key elements of tax platform Individual provisions
Donald Trump
Top Individual Rate
33% (begins at $225k for joint filers)
Capital Gains and Dividends
20% top rate (repeal 3.8% net investment income tax)
Alternative Minimum Tax
Repeal (both individual and corporate)
Itemized Deductions
Dollar cap on total itemized deductions
($200k for joint filers, $100k for single filers)
Standard Deduction
$15,000 (single) / $30,000 (joint), indexed
Personal Exemptions / Filing Status
Repeal personal and dependent exemptions; eliminate Head of Household filing status
Estate and Gift Tax
Repeal, but tax capital gains at death in excess of $10 million
Personal Exemptions
Repeal
New Tax Benefits
New above-the-line deduction for child care costs + new Dependent Care Savings Accounts
10-Year Revenue Effect
Loses $6.2 trillion (per Tax Policy Center under conventional scoring)
Source: Unless otherwise noted, parameters and revenue impact taken from campaign websites and Tax Policy Center.
After the Election: An Outlook on Federal Tax Policy

15. Questions?
Alex Brosseau

16. About this presentation
This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services.  This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business.  Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.  Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

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