ROYAL OAK – Anderson Economic Group has identified six tax policies that President-Elect Trump and a Republican-controlled House and Senate could pursue in the coming years. Several are important for the technology sector.
Alexander L. Rosaen, a Senior Consultant at Anderson Economic Group, and Director of Public Policy and Economic Analysis, outlines what changes AEG expects President-elect Trump to implement.
1. Attack on Carried Interest
A general partner in an investment fund typically shares in the fund’s profits. The final passes through some of its new capital gains to the general partner, which is typically taxed at 23.8 percent. This is sometimes described as a loophole because the funds’ partners and managers do not necessarily have their own capital at risk in the fund.
2. Affordable Care Act Repeal – But replaced by what?
Both Trump and House Speaker Paul Ryan have campaigned on full repeal. Both have promised a replacement but have not yet revealed their plans in detail. Expect all of the following to be proposed: replacing the employer health insurance deduction with an individual tax credit; more state block grants and flexibility; state-level health policy with matching stat taxes; higher tax penalties for individuals that do not purchase health insurance; and higher “investment” taxes. The latter two will certainly meet a hostile reception in Congress.
3. Net Operating Loss “Reform” (if part of broad tax reform)
This was raised to public consciousness by a partial leak of Mr. Trump’s 1995 tax return showing a claimed operating loss of over $900 million. Net operating losses are usually legitimate losses, and should be part of an “income tax” system. Only likely to be changed as part of a broader tax reform plan that cuts rates.
4. Broad Tax Reform with Lower Marginal Rates and Fewer Deductions
Ryan and Trump agree on the outlines of a major tax reform: expect a simpler tax code lower rates across the board…including lower taxes at the top of the income scale. Both promise to recoup some revenue by reducing tax expenditures…but those deals have not yet bee cut.
5. Corporate Tax Holiday—for Repatriated Profits—with a special “repatriation tax”
US corporations are holding tens of billions of dollars of retained earnings in foreign subsidiaries, part because of the U.S.’s unusually high statutory corporate income tax rate.Trump has proposed charging a lower rate on these earnings if they are brought back to the US during a “holiday” period. This “repatriation tax” could raise billions in (one time) revenue. This policy may survive a Democratic filibuster in the senate. Bill Clinton has endorsed the idea in th past, and Secretary Clinton hinted at this policy as in her platform (as part of a plan to use “corpora tax reform” to raise $250 billion for infrastructure spending).
6. Expanded Child Tax Credit (and Some Other “Good Ideas”)
Trump has proposed allowing families to deduct child care expenses for up to four children, and EITC expanded to take into account child care expenses.= The EITC and child care credits are perennial “good ideas” that occasionally break through at both state and federal levels. Some others we could see:
Reform of the notorious §280E. Simplifying tax filings for (very) small businesses.Marching towards a consumption tax base.
Anderson said the carried interest (No. 1) and Net operating loss (No. 3) are especially important to tech companies and their investors, as are lower tax rates (No. 4).
To listen, click on https://soundcloud.com/podcastdetroit/m2-techcast-58-anderson-economic-group-tax-proposals
To listen to this podcast, click on https://soundcloud.com/podcastdetroit/m2-techcast-58-anderson-economic-group-tax-proposals
